The unemployment rate may be stuck at 9.6 percent, but some economists are seeing a glimmer of hope for future jobs growth.
Those with jobs are working more hours, and factory workers are getting more overtime, both signs that companies are busier. Though neither is at the point that signals significant hiring ahead, it's clearly moving in the right direction, according to some economists.
Average weekly hours for all private-sector employees reached 34.3 hours in October, nearly the level seen before the recession, and up from 33.7 hours a year earlier, according to data from the U.S. Labor Department, which issues a report on nonfarm payrolls each month.
Overtime for manufacturing workers—not including supervisors—has risen to an average 3.9 hours a week from 3.2 hours a year earlier, and 2.6 hours a year-and-a-half ago, according to the Labor Department.
“That’s a sign there’s more demand for product out there and companies are able to meet it with making people work a little longer,” said John Canally, economist at LPL Financial. “At some point, you exhaust the work force and you have to go out and hire new workers.”
According to Canally, overtime hours worked can be a leading indicator of future job growth. Six months after overtime hours hit a low in March 2009, the job market started to tick higher, he said. That pattern has been repeated over time—in both directions—with a rise in hours signaling future gains in jobs, he said.
“You don’t need to hire a new person until people you have are working full-time,” said Marc Pado, market strategist at Cantor Fitzgerald. “Now, we’ve effectively almost eliminated that shortfall in part-time workers. As we get there, industry to industry, we’re at the point where we would expect to see real job hires.”
There are two reasons why job growth may not be poised to surge just yet. First, there is still room for overtime hours to increase before employers need to hire. Second, the economy has shifted in the past year, and companies may be more likely to outsource work than add a new shift in the U.S, Canally said.
“You could say you are about average for overtime hours worked in post manufacturing age,” he said. “You might argue now is the time you get job pickup, but this time might be different.
Uncertainty over how the new Congress—now split between Republicans and Democrats—will address tax and regulatory policy, including health-care reform, is also making some employers wary of bringing on new employees just yet, said Jay Meschke, president of EFL Associates, an executive search company and a subsidiary of CBIZ.
"Once some of that is resolved, or at least people see a direction, then you will see a big breakout," Meschke said.
While Meschke doesn't see businesses hiring significantly until the political uncertainties are resolved, and they have more confidence growing revenues are sustainable, he has begun hiring within his own firm. Instead of adding to overtime or hiring temporary help, as a result of a 30-35 percent increase in executive searches, he is searching for fulltime employees.
"A year ago, that was not the case," Meschke said.
Employers across a broad swatch of industries have indeed increased overtime, as well as use of part-time and temporary workers, to push off the hiring decision, according to Jeff Gerkin, a vice president of metro markets for Manpower, the employment firm.
Nonetheless, Gerkin says employers are optimistic, they just want more assurance their businesses are continuing to improve through the first quarter before they add the "fixed cost" of a new, fulltime employee.
"A lot of companies that we work with are looking to see how the year ends, how Q1 ends," Gerkin said.
More Pocket Money
An outcome of an increase in average weekly hours and overtime, is employees who are working have more money to spend, and that should bode well for retailers during the critical holiday season, Pado at Cantor Fitzgerald said.
"If you’re going to take over 100 million of hourly paid workers finally up to almost fulltime, they are they going to shop," he said.
Paul Hickey at Bespoke Investments, agreed, noting too that an increase in average weekly hours for production workers is significant, because average weekly hours rarely increase. "It’s been a secular downtrend for 50 years," Hickey said.
The fact hours worked are rising not only signals future job growth, it also means consumers will have more money to spend, Hickey said. That's already has been a boon for consumer discretionary stocks, he said on CNBC.
"While job growth has been anemic so far in this recovery, people who are working are working longer hours, so they probably have more money in their pockets this year than they did last year," Hickey said.
A Gloomier View
Some economists view the increases in overtime and hours worked less optimistically. Dan Greenhaus, chief economic strategist at Miller Tabak, said companies aren't hiring because aren't seeing revenue growth yet. “When you actually ask businesses, the number one problem they are facing is demand,” Greenhaus said.
Also, indicators like average weekly hours tend to be a bit choppy, and aren’t always a good indicator of long-term job growth, said Scott Brown, chief economist at Raymond James & Associates, said
Instead, Brown looks at several reports, including weekly jobless claims, the Challenger, Gray & Christmas report on layoffs, and Monster Worldwide'sMonster Employment Index , as well as the monthly payrolls report from the government, for signs of a labor market pick-up. Most start to move in the same direction when things get better, he said.
“I would say we would still have a long way to go,” Brown said.