Employment Report

By Spencer

Not only was the employment report disappointing, but previously reported encouraging leading indicators of employment were revised away.

Most importantly, hours worked fell 0.5% from 99.0 to 98.5. We are now looking at a 3.0% drop in hours worked in the third quarter as compared to 7.8%,8.9% and 7.4% in the prior three quarters, respectively. If the consensus expectation of around 3% real GDP growth in the third quarter materialize this means that third quarter productivity growth will be very, very strong.

Previously it had appeared that hours worked were bottoming in the third quarter. Now we are ending the quarter on a weak note that establishes a poor base for fourth quarter growth.

In addition, employment growth in the household survey no longer appears to be bottoming. Usually the household survey leads the payroll survey at bottoms and the latest data does not look encouraging. Even the apparent bottoming in the decline in payroll employment stems more from the point that the employment drop was more severe a years ago, not that the current data is improving.

Finally, average hourly earnings were virtually unchanged as they rose from $18.66 to $18.67.
With the drop in the hours worked this means that nominal weekly wages actually fell and the year over year gain fell to 0.7%. Consequently, the growth in nominal personal income is likely to remain negative. Something that has not happened since the depression.