Previously, checking the health of the economy meant taking a quick look at a handful of indicators: unemployment and inflation rates, a few quarters of gross domestic product growth, sales in the real estate market, maybe – be the recent performance of the stock market. This approach is not as useful here in mid-2022.

For reasons such as the unraveling of pandemic behaviors, changes in monetary policy, and the energy supply shock of Russia’s war against Ukraine, the data is currently a mess.

It is therefore understandable that many Americans believe that the US economy is already in recession. The Federal Reserve Bank of Atlanta’s tracking model predicts that real GDP growth in the second quarter will be negative. If so, after a 1.6% decline in the first quarter, it would trigger the oft-repeated rule of thumb that calls for a recession after two straight quarters of negative real GDP growth.

But not so fast. Ultimately, it’s up to the National Bureau of Economic Research to officially declare a recession. And until then, it is the job market that gives the most accurate picture of the health of our economy. For investors and business operators, the best metric to focus on is total hours worked. In general, the more hours people work, the higher their economic output, and for now, this measure still points to robust growth rather than a recession.

The main “hard data” indicator compatible with the recession is growth in consumption of goods which, adjusted for inflation, is currently negative. That’s a 2.7% year-over-year decline, similar to what we saw in the summer of 2008 when the US economy was in recession. In a 70% consumer economy, if Americans are buying fewer products than they did a year ago, that’s a pretty good signal that the economy as a whole is struggling.

But the pandemic has changed the historical relationship between Americans’ consumption of goods and services, and it only began to slip back around March. Consumption of goods is falling and spending on services is rising again. Retailers have a glut of inventory as airports and airlines grapple with high demand and staff shortages, leading to waves of flight cancellations and delays. Until we see some stability in the relationship between spending on goods and services, it is difficult to rely on the consumption of goods as much as an economic signal as in normal times.

At a time when so many shocks are going through the economy, the labor market is the best indicator we have to determine whether we are in growth or contraction mode. But there have been pandemic- and policy-related changes there as well over the past year, so I would be looking at total hours worked rather than unemployment measures.

It feels like a long time ago, but it wasn’t until last May that the economy started to experience staff shortages when the Covid-19 vaccine was rolled out and people started to return to more activities. normal. There has been debate over whether stimulus benefits, including an increase in unemployment benefits, are keeping people out of work. In May 2021, the annualized run rate for unemployment benefits was nearly $500 billion, up from $19 billion in the recently released May 2022 report.

The labor market has come a long way over the past year. The total number of hours worked, which includes both the number of workers and the length of the working week, has now increased by 4.6% year-on-year. People who were unemployed a year ago have found jobs. People who weren’t even in the labor market a year ago, perhaps because they feared Covid-19 or because of weak economic conditions, have reentered the labor market and obtained jobs. In May, the total number of hours worked finally exceeded its pre-pandemic peak, and it is likely that we will see another new record in June.

The growth in hours worked indicates that employers are still confident in future demand and that workers have more income to help them cope with high inflation. In every recession dating back 50 years, we have seen hours worked decline by at least 2%. We are a long way from that at a time when Americans are still re-entering the workforce and employers are continuing to hire at a brisk pace.

All of that can change, of course, which is why it’s always important to track weekly data like the Unemployment Claims report. But until that fundamental labor market trend shifts, any signs of economic weakness are likely due to pandemic-related rebalancing, one-time shocks, or just noise in the data rather than a recession. .

More other writers at Bloomberg Opinion:

Housing Obstacles to September Fed Pivot: Jonathan Levin

A ‘Reverse Ferret’ rides the markets pants: John Authers

Believe it or not, the market has 3 silver linings: Mohamed El-Erian

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is the founder of Peachtree Creek Investments and may have an interest in the areas he writes about.

More stories like this are available at bloomberg.com/opinion