Sailors observed going about in the morning (6)
I believe the answer is:
seamen
'sailors' is the definition.
(I know this)
'observed going about in the morning' is the wordplay.
'observed' becomes 'seen' (synonyms).
'going about' means one lot of letters goes inside another.
'in the morning' becomes 'am' (AM on a clock).
'seen' going around 'am' is 'SEAMEN'.
(Other definitions for seamen that I've seen before include "Sailors" , "mates, maybe" .)