On the surface, the employment report for April looked good. Payroll growth exceeded expectations, increasing by 165,000. That was 10,000 more than the 155,000 expected by the Briefing.com consensus. Revisions in March, to 138,000 from 88,000, and February, to 332,000 from 268,000, were strongly positive.
Yet, the underlying details point toward weaker consumption levels. The average workweek dropped to 34.4 hours in April from 34.6 and average hourly earnings increased 0.2%. The decline in workweek more than offset the increase in payrolls and earnings. Altogether, aggregate wages declined 0.3% in April. That would be the first decline in wages since January.
We are working under the assumption that consumers will gradually raise their savings rate back toward the 3.5% that it averaged during most of 2012. If households increase their savings amid declining wages, there is no chance that consumption levels can remain positive.
It would not be surprising, given these figures, if retail sales decline for a second consecutive month in April.
The question now is why did the average workweek decline by such a large margin. While the household survey cannot be used to specifically explain changes in the establishment survey, it does give a good guide on what is going on in the minds of management. And in this case, it may be pointing toward managers cutting hours to meet the conditions imposed by the Affordable Care Act.
The unemployment rate ticked down to 7.5% in April from 7.6% in March. Unlike in past months, the drop in the unemployment rate was due to more workers finding jobs. The number of employed rose by 293,000.
Unfortunately, most of those new jobs were found in part time employment. The number of employed persons working part time for economic reasons increased by 278,000. An additional 163,000 more employed workers are working part time for non-economic reasons.
Now, the total increase in part time workers was larger than the total number of newly employed. That means workers that were working full time in the past are now working part time.
Many firms, such as restaurateurs like Darden (DRI) and leisure companies like Regal Entertainment Group (RGC), have announced that they are cutting their staff's work hours. This will allow firms to remain below the minimum threshold that requires them to provide heath care coverage under the Affordable Care Act.
Furthermore, on Wednesday, Mark Zandi explained a portion of the weakness in his firm's ADP Employment Report was due to a substantial deceleration in hiring by small and medium sized firms that now fall under the Affordable Care Act. It would seem likely that the sudden drop in hours reflects management decreasing their staff to get under the Affordable Care guidelines. If this is the case, and the data seem to point that way, then the Affordable Care Act may be responsible for the decline in wages and the potential drop in overall consumption in April.