US work hours fall, signaling a return to normal for the labor market

After enduring the longest work weeks in recent history in early 2021, Americans are now seeing their work hours dip to pre-pandemic levels, indicating that the domestic labor market is returning to balance.

US employees worked 34.4 hours per week in June, down from 35 hours per week in January 2021, which was an all-time high, according to the latest data from the US Bureau of Labor Statistics. The 1.7% drop represents over 100 million fewer hours American workers spent on the job.

Work hours have averaged 34.4 per week through the first six months of 2023, the same as in the first half of 2019. The work week averaged 34.9 hours in the first six months of 2021 and 34.6 hours in the first half of 2022.

The fall stems from both a recovery in the service economy, where a significant portion of workers are part-time, and the return of many workers who left the labor market during the pandemic, said Joel Prakken, chief US economist at S&P Global Market Intelligence.

"With the economic recovery, there has been a substitution of new workers for shorter workweeks of current workers who may have been 'hoarded' or pushed beyond a sustainable level of effort during the pandemic," Prakken said.

Recession signal?

The fall in the level of hours worked is not a retrenchment of labor conditions, but more of a return to normal after demand for labor spiked during the pandemic, said Gregory Daco, chief economist at EY-Parthenon.

"Still, I will continue to pay close attention to this metric as a further softening would point to a more pronounced labor market slowdown," Daco said.

Average weekly hours worked tend to slow in economic contractions, and while the hours worked have fallen from their highs in late 2020 and early 2021, the hours Americans are working now seem to be in line with pre-pandemic levels.

"I think the moderation in hours reflects a normalization in activity," said Shannon Seery, an economist with Wells Fargo. "Specifically, the demand for and supply of labor coming back into balance and a labor-hoarding effect that has been evident in past recessions."

The US unemployment rate was at 3.6% in June, flat from a year earlier, despite the Federal Reserve's efforts to cool the economy with one of the most aggressive rate hiking cycles in the central bank's history.

The labor force participation rate, the number of workers in the population in the job market, remained at 62.6%, where it has been since March. The participation rate of prime-age workers, aged 25 through 54, climbed to 83.5%, the highest rate since May 2002.

Openings remain

In the minutes of the Fed's June meeting, which were released July 5, Fed officials noted that the increase in this participation rate among prime-age workers, along with the fall in the rates of job openings and quits and the decline in the average weekly hours, was evidence of a jobs market coming into better balance.

Still, businesses continue to see labor shortages. There were more than 9.8 million job openings in May, according to the latest government data.

The perceived shortage of workers could be adding to the decline in hours worked as employers move to cut workers' hours rather than letting them go, said Seery.

"By merely cutting hours rather than laying off workers in a recession, employers and workers stay connected, making it quicker for production to step back up when demand firms," Seery said. "Compared to layoffs, the employer benefits by saving on the costs associated with severance and eventually re-staffing and training; workers benefit from retaining at least some pay rather than losing a paycheck altogether."