Manufacturers added 6,000 workers on net in July, according to the Bureau of Labor Statistics, following four straight months of declines in the sector. While this is a positive development, it is important to note that manufacturers have hired just 40,000 workers over the past 12 months, or 1.8 percent of all of the 2.3 million net new nonfarm payroll jobs created during that time. In contrast, the manufacturing sector produced outsized gains of 10.4 percent of all of the net new jobs in the years of 2010 and 2011. Clearly, we need to get back to where the sector is growing strongly and added new workers at a faster pace.
Looking specifically at manufacturing sector employment in July, durable goods industries added 8,000 workers on net for the month, with nondurable goods firms shedding 2,000. The motor vehicle sector alone contributed 9,100 to this total, continuing a rebound that has added 29,900 additional workers in the past 12 months and 164,600 since the end of 2009.
Outside of autos, the largest monthly gains were in the plastics and rubber products (up 2,600), chemicals (up 1,700), machinery (up 1,700), nonmetallic mineral products (up 1,700), and wood products (up 1,600) sectors. On the negative side, sectors with declining employment in July included food manufacturing (down 5,500), computer and electronic products (down 3,200), and primary metals (down 1,400), among others.
Despite the very modest increase in manufacturing employment in July, the number of hours worked and average weekly earnings edged slightly lower for the month. The average number of hours worked in the manufacturing sector declined from 40.8 in June to 40.6 in July, with the average number of overtime hours off from 3.4 hours to 3.2 hours. These decreases were seen in both the durable and nondurable goods sectors. As a result, average weekly earnings in manufacturing dropped from $995.93 to $989.42. Overall, average weekly earnings have risen 1.5 percent year-over-year.
In the larger economy, nonfarm payrolls increased by 162,000 in July, somewhat lower than the consensus estimate of 185,000. The average number of workers added in each of the first seven months of this year was roughly 192,400.
At the same time, the unemployment rate declined from 7.6 percent in June to 7.4 percent in July, its lowest level since December 2008. The lower unemployment rate might normally be seen in a positive light, and yet, this news is tempered by a slight drop in the labor participation rate from 63.5 percent to 63.4 percent. (This was still better than the 63.3 percent recorded in March and April, which was the lowest levels seen since May 1979.) In addition, the number of workers employed part time for economic reasons has grown from 7.6 million in March to 8.2 million in July, suggesting that there is more softness in the labor market than the headline figures might suggest.
In conclusion, the fact that manufacturers have added workers in July, ending four months of net losses, is definitely a positive sign. And yet, when you look beyond gains in the motor vehicle sector, job growth continues to weak, and the average number of hours worked last month dropped slightly. While we have seen signs of improvement in the manufacturing sector for output and sales (see yesterday’s Institute for Supply Management report), this has not yet translated into anything beyond modest hiring growth. Manufacturers continue to be hesitant to add new workers, a trend that will probably continue until they perceive the economic marketplace to be on a firmer footing. Even with some optimism about the second half of 2013, for instance, many business leaders remain cautious.
Chad Moutray is the chief economist, National Association of Manufacturers.
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