Green Shoots Continue to Embolden the Bulls

In economics you can’t extrapolate anything from one month’s data and when data is first released it’s preliminary and subject to revision. But it’s the kind of number that jumps out at us when we read this morning’s employment statistics.

Average Weekly Hours increased to 33.1 in July. Last August that number stood at 33.7 and every month since it’s either held steady or ticked down. This is literally the first increase in nearly a year.

Why does this intrigue us? Because AWH is THE indicator to watch as an early read for an improvement in unemployment.

During a recession businesses cut costs to survive and one of their biggest costs is often labor. As economic conditions improve employers are loathe to expand their work force. They have likely been stung badly by the downturn and are uncertain about a recovery. So they rely on their existing workforce to do more. They will only start rehiring after this “slack” in the labor they currently employ is put to work.

There will be a revision to this number that can change the whole equation. And next month’s reading might tick back down again. We’ll need to see a good three months worth of higher numbers before we can draw any firm conclusions.

But the conclusion for the market is clear. The rally off the March lows has become a play on economic resurgence. With even a hint that employment numbers, the laggingest of lagging indicators, might be starting to turn that thesis remains intact. And so, likely, will the market’s bullish bias.