If you want to know what the economy will do in the near future, look at the leading indicators. One well-established factor is the average hours worked per employee. Before companies hire new workers, they tend to have their existing employees work more hours. Similarly, before they lay people off, they tend to reduce hours people put in
Well, buried inside the latest employment report is the average hours worked by industry. It’s an obscure but important indicator of what’s going on in the economy. By looking at changes in the composition of the jobs out there we can get an idea of what the next few months will bring.
Average hours worked is going up modestly, so many expect employment to continue to expand slowly. But most interesting is the fact that manufacturers are growing their hours quite aggressively—by 1.4 hours per week over the last year. And interestingly, health care has been reducing its average hours worked per employee, in spite of the aggressive hiring this sector has undertaken.
This implies that jobs involved in making stuff will grow, while hiring for health care, and specifically health care administration, will likely slow down. The reason this is good for the US is because those stuff-making jobs tend to pay a lot better than the service-oriented jobs in health care. So we expect that consumer incomes will improve pretty rapidly in the near future, and that has broad implications—for consumer spending, for credit quality, and even for the housing sector.
By examining changes in the structure of our economy, we get a good idea where things are going. And right now, it’s fairly encouraging.
Douglas R. Tengdin, CFA
Chief Investment Officer
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