Sunday, November 29, 2009

An Early Economic Indicator You Can Count on

The Wall Street Journal reported this week that overtime increased 6.5% from September to October and 14% from the previous quarter. This is a clear sign that the economy is on the move and is a fair substitute for employment growth. In fact, a measure, aggregate hours worked, might be a better indicator to watch then employment growth itself. Firms generally increaes overtime before they are confident enough to hire workes to meet increased demand for their products. That is why unemployment is a lagging indicator and can continue to decline or stagnant even as the economy moves forward.
That doesn't rule out the possibility of a W recession. The problem in housing is no longer sub-prime loans. The problem is after a long period of unemployment, workers have difficulty making mortgage payments while only earning unemployment benefits. With unemployment not expected to peak until next summer, these loans could create the worst wave of foreclosures yet.

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