A colleague of mine named Eric Loken has a company called Criteria Corp. that does employment testing. Eric is a psychometrician, and as a byproduct of their testing data, he and his colleague Josh Millet constructed something called the Hiring Activity Index, which is, in Millet’s words, “a measure of how actively our [Criteria Corp’s] customers (made up mostly of SMBs of between 10 and 500 employees) are administering pre-employment tests through our system (and presumably, therefore, hiring) . . . the HAI is the percentage of our customers who are actively hiring (administering tests) in a given month.”
A few months ago I posted a report showing the Hiring Activity Index bouncing back in early 2009, a finding that Millet interpreted as a sign that the economic climate for small business was improving.
Recently Loken posted this update:
We’ve plotted the initial unemployment claims data (weekly numbers, smoothed over a month) with the monthly Criteria Corp Hiring Activity Index. The trends look similar, and indeed they correlate very well. The correlation is -.79, showing excellent correspondence between the rise and fall of the jobs data and the HIA. Furthermore, when predicting the jobless claims on the basis of the concurrent HAI and the HAI from the two previous months – using a lagged regression model – the multiple R is .93 (Adjusted R2 = .85).
The point is that real time utilization data for an employee assessment service with a modest client base of small and medium sized businesses can provide very good prediction of national trends. We see this as similar to reports earlier this year that Google searches for flu related topics mapped on closely to CDC data for the spread of influenza. That was also an example where a real-time indirect indicator predicted definitive data that would be available later.
P.S. After I posted on this earlier, Millet responded to some potential criticisms of his measure:
There were some interesting comments and questions about the HAI and its potential utility as a leading economic indicator. We [Criteria Corp.] do sell our software on a subscription basis, and someone pointed out that if non-active subscribers didn’t renew because of the downturn, this could artifically inflate the HAI because it is based on the percentage of our customer base that is actively doing pre-employment testing in a given month. This is a legitimate point, but I [Millet] will say that while low levels of use are a reason that customers sometimes do not renew, we haven’t see non-renewal rates climb much since November, when the HAI dropped by 10 points. It was also suggested that higher numbers of job-seekers may result in applicants for positions that may not have been desirable previously–this is theoretically possible, but I don’t see much evidence for it. What is most certainly true is that companies are getting far more applicants per open positon, as I previously blogged about here. However, since the HAI is based on the percentage of companies testing in a month, not the overall volume of tests, this shouldn’t influence the HAI unduly, and wouldn’t in any case explain the plunge in November and (partial) rebound in February.