Should we panic about jobs?

Analysts and stock markets around the world are clearly panicked about the disappointing May jobs numbers. Paul Krugman is warning once again about a "lost decade" scenario as a result of the G-20's apparent determination to begin a fiscal retrenchment before the recovery has found its legs. Commentators on CNBC Friday took the jobs report as evidence of a jobless recovery.

One element of the report that has not received as much attention as it should, however, is the increase in hours worked. The BLS's measure of aggregate hours worked increased by 0.3 (in May, below the increase of 0.4 in March and April but still not bad. For the first five months of 2010 hours worked has increased at an annual rate of 3.4 percent. This is hardly a blistering pace, but it is significantly better than what the US experienced after the 1990-91 and 2001 recessions. Following the 2001 recession, for example, the US did not achieve a sustained pace of hours increases at this level until early 2006. We are certainly not experiencing the kind of rebound we did in 1983-84 when hours worked in some quarters rose at 8 or 9 percent, but 3.4 percent is still consistent with a sustained recovery. Add a guess of 1.5% for productivity growth, and we're looking at GDP growth of 5 percent - in the same range as what the ISM numbers indicate as noted in an earlier post.

One thing that appears to be happening is that the increase in hours worked is affecting the average work week more than employment; as the work week hits normal this summer we should see a pickup in job creation. The big decline in workers working part time as reported in the household survey suggests a shift from temporary work to full-time work. This is obviously good news for the economy, but it does not show up in the headline employment numbers.

That said, however, there are real concerns as to whether the recovery is sustainable at this point given what's happening in Europe. And the economy is in such a deep hole that we really shouldn't be satisfied with GDP growth in the 4-5 percent range, if that's what we're looking at now.