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Average Hours Worked Drops, Raising Concerns Of A Looming Recession

Economists eye key metric as potential recession warning.

As economists debate the possibility of an impending recession, a key metric is catching their attention as a potential warning sign.

Philly Shipyard employees wait to hear U.S. President Joe Biden make a campaign appearance and clean energy announcement at the Philly Shipyard on July 20, 2023, in Philadelphia, Pennsylvania. Beforehand, Biden attended a ribbon cutting at the shipyard for a new offshore wind vessel called the Acadia which will be employed in the building of offshore wind farms. (SPENCER PLATT/GETTY IMAGES) 

Since the 1950s, the change in the average number of hours worked by people has often preceded recessions, according to a Wall Street Journal video report. This metric has historically dropped before most recessions.

The average number of hours worked each week has now decreased from elevated levels to those seen in 2019 or even lower, leading economists to believe that the U.S. may be heading for a recession.

Hours worked is a crucial indicator as businesses are more likely to adjust hours before making hiring or layoff decisions, making it a signal of changes in overall economic activity, the Journal explained.

When consumers spend less, companies may respond by cutting hours if they have the flexibility to do so. The report cited the manufacturing industry in the 1980s, where cutting hours was a consistent leading indicator of an economic downturn.

“If people think I’m not, you’ll have more than a recession. You’re going to have a depression,” said former President Donald Trump at his rally. “But, what I would do is very simple. I’ve got to get interest rates down. We have to get rid of inflation because inflation is a country killer.”

He warned the economy will be in a recession if he isn’t elected in 2024.

President Joe Biden is currently sitting above 40% where he could face a rematch with the former president.

Despite the metric’s historical reliability, some economists are cautiously optimistic about the economy’s resilience this time around. They attribute the unusual post-pandemic factors in the private sector as a potential reason for the change.

Industries such as manufacturing, transportation, construction, retail, and hospitality have seen declines in working hours, bringing the overall average down to about 34 hours in May from a peak of 35 hours in January 2021.

While growth has slowed and some employers have reduced hours, it is hard to argue that the economy is currently struggling, according to the report.

Employers are making interesting moves, adding workers even during layoffs. In June, the number of part-time workers looking for full-time positions increased by 452,000, the largest increase in three years. Some employers are choosing to hold onto their workforce, adjusting hours to weather tough times.

“The hours worked indicator may defy history,” the report noted, adding that “the decline we’re seeing right now is maybe not as ominous as it would normally be.”

Produced in association with Benzinga

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