For those who think we'll have 2% real GDP growth in 2013 here in the U.S., there is a rather disturbing trend that accelerated in January. That trend is the trend in growth of aggregate hours worked. You might want to watch this trend and look to start making adjustments to the downside of your GDP growth estimates.
In January of 2012, the average private sector employee worked 34.5 hours per week. (Non seasonally adjusted)
In January of 2013, the average private sector employee only worked 34.0 hours per week. (Non seasonally adjusted)
The year over year percent change in average weekly hours worked for private employees, seasonally adjusted, looks like this:
There is no longer growth in average weekly hours worked on a year over year basis.
When we look at a historical chart showing the year over year percent change in total employees in the U.S., we can appreciate the cyclical nature of our economy and our employment trends.
A more closer look at just the past 12 months show a clear decline in the growth of total job creation:
There is a clear deceleration of job growth and we have kicked off the new year with the lowest year over year change in the past 12 months.
To get a more accurate picture of the state of the employment situation, I like to look at total aggregate hours worked. I multiply the average weekly hours worked by the total number of employees and from that figure, get the percent change from a year ago.
Note: Using private sector average weekly hours worked
The chart looks like this:
The rate of growth in aggregate hours worked had fallen from 2.7% in January of 2012 over January of 2011 to just 1.22% in January of 2013 from January of 2012.
The decline in average weekly hours worked accelerates the decline in aggregate hours worked in the economy. This is why it's very important to not just look at jobs numbers, but hours worked too!
At the moment, this trend does not look to be stopping. With taxes rising and the Federal Government cutting spending this year, it's doubtful we see a reversal in trend.
We may even see aggregate hours worked go negative year over year by the end of this year.
The Conference Board, a global research institute, estimates U.S. labor productivity to only increase 0.6% in 2013. In order to see real GDP rise 2.0% in 2013, we'll have to see aggregate hours of labor rise on average 1.4% to see 2% real GDP growth.
At 1.22%, we're already falling short of that goal and the trend is down!
Watch GDP estimates drop throughout the year if this trend continues and labor productivity doesn't make up for slack labor growth.
Why this is important to watch to stock investors is because the S&P 500 (SPY) does not tend to do well whenever we see aggregate hours worked go negative year over year.
This chart below shows year over year percent change in the S&P 500 (red) and aggregate hours worked (blue) with recessions highlighted in grey.
Given the current state of the markets now, investors should be more careful about getting too bullish on their U.S. based stocks this year.