The nation’s labor market stumbled in September to just 29,000 new jobs and the unemployment rate rose slightly to 4.2%, but according to one study, those umbrella statistics mask a manufacturing economy that might be stronger than the employment data suggests.
Measured by new job creation, “shiftwork” manufacturing employment growth is indeed modest, but the sector deserves attention because it is affected by several powerful forces at once: industrial investment, reshoring, infrastructure spending, technology buildout, and demographic-driven labor shortages, according to a report from ADP Research, the analytics arm of payroll specialist ADP.
That’s because many manufacturing facilities operate around the clock with multiple shifts, forcing employers to face multiple hiring challenges simultaneously: finding people with the right technical skills, replacing retiring workers, and recruiting people willing to work nontraditional hours.
Given these pressures, manufacturers frequently respond to changing demand by adjusting hours before they adjust headcount, which makes overtime pay an important labor market signal that is often overlooked, the report’s author, ADP Chief Economist Nela Richardson, said.
When demand strengthens, employers often increase overtime hours and shift utilization before committing to permanent hiring. And when demand weakens, overtime typically is one of the first costs to be reduced. Hence, changes in overtime earnings can provide an early indication of production activity that might not yet appear in employment totals.
The statistics bear that theory out: Average weekly hours worked in manufacturing rose to 45.6 hours in September, up 1.7% from a year ago, the strongest increase in several years. Over the same period, the sector’s year-over-year gross pay growth accelerated to 5.5%, up from 4.9% during the same period prior. Gross pay is rising faster than base pay because workers are spending more time on the job.
By that measure, the factory floor is getting busier particularly in industries that supply the building blocks of economic growth. ADP payroll data shows that manufacturers that produce construction materials, industrial chemicals, electrical equipment, primary metals, transportation equipment, and technology hardware are experiencing some of the largest increases in hours worked.
That’s significant because these employers often are among the first to feel changes in investment demand because they make the materials, components, and equipment needed for everything from factories and power systems to semiconductor plants and data centers, ADP Research said.
