The labor market is tight and workers aren’t answering help-wanted ads for factory jobs. What’s an employer to do?
Push the existing workforce harder.
That’s one signal from the April jobs report, which showed that the average workweek for manufacturing employees rose to the highest since World War II.
Neil Dutta, head of economics for Renaissance Macro Research, offered another way to think about what more workers putting in longer hours means for the overall economy: “Aggregate hours worked in the manufacturing sector surged 0.7%,” Dutta said on Friday.
But it’s not just workers who are clocking more time.
Companies are adding more jobs: 24,000 workers in April, taking the 12-month total to 245,000.
Their pay has been expanding as well. In the 12 months ending April, average hourly earnings for manufacturing production and nonsupervisory workers grew 3%, which is faster than the growth rate for the typical worker and well above a cycle low of just 0.5%.
Employers are wringing more out of their machinery as well. Capacity utilization, which measures how much output comes from existing equipment, has been crawling slowly – but steadily – higher, and finally touched a 3-year high last month.
In April, capacity utilization touched 78%, just below 80%, a point at which economists believe that firms are running so hot with their existing capital equipment that they finally need to invest in more.
That 80% threshold has been a long time coming. During the downturn, many factories were idle or not running at their full capacity. In 2014, just as recovery seemed in sight, the slump in oil prices hit manufacturers hard. Now, with the tailwind of the 2017 tax cuts, economists are once again hoping for a capital spending revival.
“Capital spending” sounds dry but it’s an important booster of growth. It goes without saying that when companies invest in equipment, it helps the virtuous cycle of employment and spending.
But there’s a longer-term benefit as well. As MarketWatch’s Rex Nutting put it in a recent column, “If we want more jobs, higher wages and a more productive economy later, we need to invest now in offices, factories, computers, machinery, trucks, software, research and development, and a thousand other essentials that make businesses run.”