The Rebound In Manufacturing Employment Is Likely Real, If Fragile

Over at Econbrowser, Prof. Menzie Chinn asks whether the gains in manufacturing employment as measured by the monthly payrolls report might be illusory, based mainly on a sharp deceleration in the ADP employment reports during July and August. While the current Administration in Washington is doing just about everything it can to sow chaos and throw monkey wrenches into the economy, I think the manufacturing employment recovery is real, if most likely narrowly based on AI-related spending.

Let’s start with Prof. Chinn’s contrast between the monthly ADP report (dark blue) and the payrolls report for manufacturing (red, right scale), together with ADP’s weekly data (light blue):

There is certainly a stark contrast this year. Prof. Chinn also shows the QCEW comparison through March, which is also significantly weaker than the payrolls numbers, and will be used to revise them next February.

If the payrolls report were the only contrast, I would be inclined to be more concerned. But let’s take a look at some other manufacturing data from other sources.

First of all, both manufacturing production (red) and core capital goods orders (blue) for firms have been on a sustained upturn this year. And goods-producing employment as measured by the NY and Philly regional Feds (gold, right scale) has also picked up since spring:

Additionally, here is a comparison of the ADP figure with the monthly ISM manufacturing subindex for employment:

So we have four other sources - the Fed, several regional branches, the Census Bureau, and ISM - all showing an upturn in manufacturing employment this year, or preconditions for such an upturn, all independently. That suggests to me that it is the summer downdraft in the ADSP numbers that is anomalous.

For what it’s worth, the increase in manufacturing payrolls internally has followed an increase in the average weekly hours for manufacturing personnel, a long-time leading indicator, which started turning up early in 2025:

Again, I suspect this is a by-product of the $Trillions sloshing around in AI-related building, so it rests on a fragile basis. But nevertheless, it is a real underpinning for the recent employment growth.