Wednesday, 15 of August of 2018

Economics. Explained.  

Nonfarm Workweek

August 3, 2018

Payroll employment for July rose 157 thousand in July after having risen 248 thousand in June and 268 thousand in May.  Thus, the outlook for employment has not changed much in the wake of this report.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  The nonfarm workweek declined 0.1 hour in July to 34.5 hours after having increased 0.1 hour in June.  That is about as long as it gets.  The  elevated level of the workweek  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 fell 0.2% in July after having risen 0.6% in June and 0.2% in May.  For the second quarter as a whole this index rose 2.8%.  Given that second quarter GDP came in at 4.1%, it implies that productivity growth in that quarter was about 1.3%.  That is up from about 0.8% in the previous three years.  Thus, this series continues to chug along which suggests that the economy is expanding at a steady pace.

The factory workweek was unchanged in June at 40.9 hours.  That is the third consecutive month at that level.  This series is also about as high as it gets and will lead to additional factory hiring in the months ahead.  With individual and corporate tax cuts taking effect this year and U.S. firms able to repatriate overseas earnings to the U.S. at a favorable tax rate, the factory sector is gathering  momentum.

Overtime hours were unchanged in July at 3.5 hours after having risen 0.1 hour in June .  This series, too, is quite long.  The manufacturing sector is trying hard to find the workers it needs — hiring as best it can given the shortage of qualified workers, working existing employees longer hours, and asking people on the line to work more overtime hours.

The economy continues to expand at a respectable pace.  We currently expect GDP to quicken from a 2.5% pace in 2017 to 3.1% in 2018 given the prospect of both 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 housing and now manufacturing is coming on strong.

Stephen Slifer

NumberNomics

Charleston, SC


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