The labor market is a lagging economic indicator. That is because on initial signs of economic recovery firms will tend to call back laid-off workers and increase overtime before they make the commitment to increase their payrolls.
This economic axiom allowed lazy market bulls to get into the habit of tut-tutting the glaring signs so often analyzed in last year’s issues of -- because they were lagging indicators.
- In this vein, the number of hours worked was unchanged at 33.2 hours last month. Since March, hours worked has ranged in between 33.0 (the lowest low since records began in 1964) and 33.2 hours. What’s more, factory overtime was unchanged at 3.4 hours.
- Finally, over the past 12 months, average hourly earnings have increased by 2.2%, but weekly earnings have risen by only 1.9%, reflecting a decline in the average workweek.
These last two bullets are ominous. After all, they run counter to the bull’s argument. Employment might be a lagging indicator, but hours worked and overtime are coincident indicators. Initial claims for unemployment insurance are also a coincident indicator and this metric has been steadily improving since last spring. On the other hand, despite this fact, the work week has failed to improve since the spring.
Bottom line, weekly unemployment claims are falling, but industry has yet to respond. Factory overtime 3.4 hours, is off the 2.6 low we saw last March, so it is improving and that is definitely encouraging; but it is still 0.76 hours below the twelve month average prior to the start of the recession in December 2007 and 0.68 hours below the twelve month average following the official end (NBER) to the dot.com recession in November 2001.
Factory overtime, while stagnant in December, has been trending in the right direction since the spring nadir. Better still, the nation’s blast furnaces are hotting up. Over the past twelve months (as of November 2009), average hourly earnings for workers at U.S. steel mills has risen by 11.1%, but average weekly earnings has jumped by 14.6%, reflecting an increase in the average workweek from 41.7 hours to 43 hours.
Furthermore, Obama’s obligatory nod to the tree-hugging faction of the Democratic Party notwithstanding, his “green jobs” speech last Friday focused less on green and more on grey… as in steel grey vis-à-vis encouragement of investment in the nation’s infrastructure, i.e. rails, road, bridges and clean energy (think shale takeaway capacity).
That’s good for steel – the NYSE Arca Steel Index jumped 2.6% in the wake of the president’s speech – and that is a good thing. We are still skeptical, we are by no means of the woods, but here at we are growing cautiously optimistic… for 2011.
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Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.