Gavekal Capital: An Historical Perspective On Today's Employment Report

Friday, March 7, 2014

An Historical Perspective On Today's Employment Report

Every month, in the talking contest following the employment report, there is one piece of crucial data that is routinely left of the conversation.  Ironically, we find it to be the most important piece of data. Labor input into the economy has TWO parts: 1) the number of people working and 2) the amount of time each person is working.  Multiplied together these two pieces yield the quantity of aggregate hours worked in the economy.  Aggregate hours worked are the best measurement of labor input into the US economic machine.  

In today's report, we see that aggregate hours worked continued its decline that began with the November report.  Since this trend began in November, it is much harder to blame weather for three sequential downticks.  Aggregate hours peaked in November 2013 at an annualized rate of 3,214,879 and have since fallen to 3,188,708.  This is a 26,171 drop in the annualized aggregate hours worked, or roughly 1%.  During this time the S&P 500 has risen from 1,805 to 1,870, or roughly 4%.

Some historical perspective might be helpful.  Let's go back and look the period of December 2007 to May 2008.  In this five month period aggregate hours worked declined by 25,980, or roughly 1%.  In that five month period the S&P 500 fell from 1,468 on 12/31/07 to 1,400 on 5/30/08, or roughly 5%. 

Aggregate hours worked similarly peaked in October 2000 at 3,115,641 and fell over the subsequent 4 months to 3,091,382, a decline of 24,259 hours, or roughly 1%.  In that phase, the S&P 500 fell from 1,429 to 1,239, for a 13% drop.  By March--one month later--the S&P 500 had fallen another 80 points to 1,160...and kept falling another 17 months into the October 2002 low.