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By Steven R. Drexel, President and CEO of Cornerstone Staffing Solutions, Inc.

As an Economist and seasoned staffing industry professional, I’m regularly asked to participate in several monthly surveys and discussions that predict key elements of the Bureau of Labor Statistics’ (“BLS”) press releases describing The Employment Situation.  The next release revealing January’s statistics will be out on Friday, March 10th, (typically the first Friday of each month reporting on the previous month’s activity).

The BLS offers many statistics covering weekly, monthly, quarterly, and yearly data and comparisons.  Insofar as I dive deep into the data (national, industry and company), this commentary shares my thoughts and observations directly related to predicting how February will perform compared to the recent past. Cornerstone’s stakeholders and other interested parties may find the following remarks helpful in assisting with business strategies and objectives for the near term.

What you’ll find in this Commentary:

  • January’s results were remarkably strong.
  • Will February’s report indicate labor market growth improved?
  • What do we foresee going into mid-2017 and beyond?

January’s surprisingly strong results.  The BLS monthly summary of labor market activity covering January 2017 indicated job growth came well above expectations and recent history with 227,000 net new positions created.  This was the 76th consecutive month of employment growth.  While the unemployment rate increased by one tenth of a point to 4.8 percent, it increased for a positive reason, as a good number of previously discouraged workers returned to the labor force.  Hence, the labor force participation rate improving to 62.9 percent during January.  While job growth was outstanding during January, and this marked an impressive start to 2017, there was a hint of disappointment with one element of the report in that wage growth unexpectedly slowed.

February’s report is likely to remain strong.  I expect Friday’s Employment Situation Report covering February’s activity to indicate that the labor market expanded by 200,000 jobs and the unemployment rate will drop by one tenth of a point to 4.7 percent.  This would be slower growth than what was reported in January, but still stronger growth than the three- or twelve-month moving average reflecting recent trends.  The employment market is still healthy and growing.

Positive employment-related economic indicators related to February’s activity included the following:

  • Initial Jobless Claims as well as Continuing Jobless Claims decreased during February.  This indicator is very consistent and reassuring. Currently, Initial Jobless Claims are at levels not seen since 1973.
  • The National Federation of Independent Business Survey indicated a cyclically high degree of optimism, and the plans to increase employment improved slightly as well during this January survey.
  • The Institute for Supply Management’s Nonmanufacturing Employment diffusion sub-index improved during February moving from 54.7 to 55.2.
  • Regional Federal Reserve Surveys with employment and average workweek sub-indexes that improved during February included the following:
    • Kansas City Fed Manufacturing Survey;
    • Richmond Fed Manufacturing Survey;
    • Texas Manufacturing Outlook Survey;
    • Texas Service Sector Outlook Survey;
    • NY Empire State Manufacturing Survey; and
    • Philadelphia Fed Manufacturing Business Outlook Survey.
  • The Wall Street Journal’s February Economic Survey of 72 leading economists forecast of employment growth for 2017 improved during February compared to January, reflecting an acceleration in employment growth.
  • The private employment surveys that I participate in continued to suggest growth during February at a modestly improved pace.

Employment indicators that were flat or neutral with respect to February employment included the following:

  • The Conference Board’s Consumer Confidence Index improved during February but the differential between “jobs plentiful” versus “jobs hard to get” was a net 5.9 during February, down slightly from 6.0 during January.
  • Regional Federal Reserve Surveys with employment and average workweek sub-indexes that deteriorated during February included only the Richmond Fed Services Survey.
  • The Institute for Supply Management’s Manufacturing Employment diffusion sub-index dipped during February to 54.2 from 56.1 in January.
  • The Institute for Supply Management’s New York City Employment diffusion sub-index dipped during February to 43.2 from 54.8 in January. A diffusion index with a reading below 50.0 indicates contraction.
  • The American Staffing Association’s Monthly Index was flat during February compared to January with respect to month-over-month growth.

Expectations for 2017 and beyond. The expansion is aging but consumer and business optimism remains high. Corporate profits are growing.   Industrial production, retail sales, housing and fixed investment are improving.  The equity markets are near record high levels.  Hence, professional forecasters are projecting modestly higher GDP growth.  The labor markets are fundamentally healthy. Wage growth is gradually accelerating.  The average workweek has room to improve as does the labor force participation rate suggesting that there is still capacity for further expansion despite low unemployment numbers. And yet, as the expansion ages, there is a natural limit to the rates of growth.  Expect jobs growth during 2017 to average about 185,000 positions per month while the unemployment rate trends slightly down during the next three years settling at around 4.4 percent by year-end 2019.

In conclusion, I expect that February produced 200,000 net new jobs and a slightly improved unemployment rate at 4.7 percent.  February’s indicators suggest modestly stronger growth compared to the available metrics during January, however, January’s job growth was too strong for January’s fundamentals, so during February I expect a strong but not overstated report.  The risk of recession is receding and the expansion should continue through 2019.  This expansion can be described as frustratingly slow but remarkably long-running. The cumulative impact of the long-running expansion is growing labor shortages and accelerating wage pressure.

I invite you to share this commentary with your colleagues and professional network. Please call me to discuss further or ask any questions.

 

 


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