While it's great to see we're adding jobs in the U.S. economy and the unemployment rate is dropping, the one key trend I'm paying the closest attention to is the aggregate hours worked year over year percentage change. The trend remains down and it may well go negative in the coming months if aggregate hours don't start picking up steam.
Let's first look at this chart of the year over year percent change in total civilian employment for a long term perspective:
The grey bars are the periods of time when the U.S. economy was in a recession. Preceding just about every recession was a drop in the rate of the year over year percent change in employment.
Another minor but contributing factor to employment are the amount of hours the average employee is working per week. Today's jobs report indicated the average work week went up .1 hours from 34.4 to 34.5 from January to February. While that sounds great, last year, the average employee worked 34.6 hour per week in February. So the average employee is working just slightly less this year Vs. last year.
Here is a chart of average weekly hours worked for all employees in the private sector:
The year over year change in weekly hours worked looks like this:
Average weekly hours worked is now negative from a year ago two months in a row.
When I multiply the average weekly hours worked by the total civilian employment for the given month, I get an aggregate number of hours worked per week in that month. From there, I can calculate the percent change from a year ago and get a chart that looks like this:
The rate of change from one year ago was 1.7% in December, 0.9% in January and now at a rate of just 0.7% for February.
If this trend continues at this pace, we could be seeing negative year over year change in the aggregate amount of hours worked in the U.S. economy by summer. Without substantial enough gains in worker productivity, we could find ourselves in a recession very soon.
The elephant in the room here is disposable income growth. Higher taxes are here and there are a lot more coming. I calculate $924 billion more in taxes are estimated by the Congressional Budget Office (CBO) to be collected in 2015 Vs. taxes collected in 2012. This is to attempt fix the horrendous fiscal deficit.
Here is a chart of disposable personal income year over year percent change for the last 5 years out to January 2013:
That drop in January was a clear result of the expiration of the 2% payroll tax holiday. The higher the taxes, the less disposable income we all have. The less disposable income we have, the less likely we'll be spending.
I'll continue to watch these trends and hope that this declining trend reverses soon.In the meantime, very few are expecting the U.S. economy to be in a recession this year. The CBO is estimating GDP growth in calendar year 2013 to be 2.9% nominal and 1.4% real.
Dwaine Van Vuuren at RecessionAlert put this chart together a few days ago of the percent of the 41 OECD countries in expansion:
As the much of the world is now heading into recession, it should not come as a surprise America joins the party soon.