September 6, 2019
In any given month employers can boost output by either additional hiring or by lengthening the number of hours that their employees work. Payroll employment for August rose 130 thousand after having risen 159 thousand in July and 178 thousand in June. These numbers tend to bounce around on a month-to-month basis, especially at this time of the year, as the seasonal workers are hired and then let go. Our sense is that jobs are climbing by about 150 thousand per month which is considerably slower than the 200+ thousand workers hired monthly last year. But that is also what one would expect when the economy is at full employment. Qualified workers become very difficult to find.
The nonfarm workweek rose 0.1 hour in August to 34.4 hours after having declined 0.1 hour in July This series has been bouncing around between 34.3 and 34.5 hours for the past year. The current elevated level of the workweek in most industries implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.
The increases in employment and hours worked are reflected in the aggregate hours index which jumped 0.4% in August to 111.3 after having declined 0.2% in July. This index rose 1.8% in the first quarter, 0.5% in the second quarter, and seems on track to increase 0.6% in the third quarter. With a projected increase in productivity of 2.0%, it seems likely that GDP growth in the third quarter will come in close to the 2.4% pace we are projecting.
The factory workweek rose 0.2 hour in August to 40.6 hours after having fallen 0.3 hour in July. The factory workweek is lower than it has been which reflects the toll the recently imposed tariffs are taking on the manufacturing sector.. We expect the factory sector to be essentially unchanged for the balance of this year.
Overtime hours also declined 0.1 hour in August to 3.2 hours after having declined 0.1 in July which, like the factory workweek, reflects the impact of the tariffs.
The economy continues to expand at a respectable pace. We currently expect GDP to increase 2.5% this year after having risen 2.5% in 2018 given the continuing impact of individual and corporate income tax cuts and repatriation of corporate earnings currently locked overseas. The economy is currently being supported by robust growth in consumer spending and moderate growth in investment, but is losing momentum in the manufacturing sector.