By Steven R. Drexel, President, and CEO of Cornerstone Staffing Solutions, Inc.
On Friday, July 7th, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering June of 2017. The consensus expectation called for moderate growth of around 174,000 new positions. The official report indicated that June’s job growth exceeded the expectations posting a robust 222,000 net new jobs. This strength along with upward revisions to April and May brought the encouraging three-month average rate up to 194,000 net new jobs – what a pleasant difference a month makes. Remarkably, job growth has been north of 200,000 during four of the first six months of 2017. This level of growth is impressive given that employment has been improving now for 81 consecutive months. June 2017 was a solid-plus month, reassuring in that many of the metrics improved indicating that the labor market remains healthy. At the same time, there is enough restraint in the metrics to suggest that the expansion still has room to run albeit at a decelerating rate.
The labor force expanded by an encouraging 361,000 people during June causing the labor force participation rate to grow by one tenth to 62.8 percent. Therefore, as the result of improved perceptions regarding the opportunities available (manifest in a growing labor force), the official unemployment rate grew by one tenth of a point to 4.4 percent. Counterintuitively, an uptick in joblessness is positive in this environment, when caused by an increase in the available workforce. Moreover, the broadest measure of unemployment, that includes those marginally attached and working part time for economic reasons, ticked up by two-tenths of a point to 8.6 percent. The lowest rate for this metric during the last expansion was 7.9 percent during December of 2016.
Seventy-eight point five percent of prime-age workers (25-54 years old) were employed during June, up from May yet still below the 80.3 percent peak during the previous expansion in January 2007. Furthermore, the labor force participation rate for prime-age workers also improved by one-tenth of a point to 81.6 percent, still down from the high of 83.3 percent toward the end of the last expansion during November of 2006. Focusing on prime-age workers corrects for the outsized influence of the aging baby boomers that are causing the overall workforce to be older on average which likely suppresses the overall rates of employment and participation.
The median duration of unemployment was down by a sizable eight-tenths to 9.6 weeks. This is a cyclical low but still elevated compared to the 7.5-week duration that was the low point of the last expansion during June of 2006.
The year-over-year growth in average hourly earnings remained unimpressive during June at 2.5 percent. This is perhaps the most conspicuous indication of slack in the employment market, particularly in the face of very low unemployment. Typically, with an unemployment rate of 4.4 percent, one would expect to see average hourly earnings growing at close to a 4.0 percent rate. Average hourly earnings remain weak for a variety of reasons that likely include obstinately low productivity growth, an aging workforce (wages grow faster for workers during the early phases of their careers), persistently low inflation, the absence of negotiating clout as some work may be automated or shifted to lower wage locations.
The industry sector metrics indicated that a stronger share of the industries grew during June as 59.6 percent expanded or were unchanged compared to 55.2 percent during May. Prominent increases in employment by industry segment included the following:
• Health care and social services sector (+59.1k) – always robust;
• Leisure and hospitality (+36k) – consistently strong;
• Government (+35k) – despite the federal hiring freeze;
• Professional and business services (+35k) – including temporary help;
• Financial activities (+17k);
• Construction (+16k) – stronger recently;
• Wholesale trade (+10.0k);
• Durable goods (+9k);
• Retail trade (+8.1k) – despite online migration;
• Mining and logging (+8k) – long suffering but recently recovering;
• Transportation and warehousing (+2.4k);
• Utilities (+1.8k); and
• Manufacturing (+1k) – encouraging when positive given long-term trends.
The noteworthy declining industry sectors included the following:
• Nondurable goods (-8k);
• Information (-4k); and
• Motor vehicles & parts (-1.3k) – recently stalled.
In summary, the Employment Report for June was quite encouraging. So far during 2017, monthly job growth has persisted at a moderately surprising, even sequentially improving rate. This is consistent with other employment indicators like initial jobless claims, job openings, confidence surveys, muted layoff announcements, hiring plans and supply manager’s employment indexes which all tend to confirm that the labor market remains remarkably healthy. Measures of unemployment have tended to remarkably low levels suggesting that the economy may be approaching full capacity, yet still, wage growth, labor force participation and unemployment duration metrics indicate that unemployment rates could go below 4.0 percent before the market is fully tapped out. This expansion, now at eight years in length is quite extended (compared to an average expansion of five or six years). This is likely a consequence of having endured a very historically severe, financial crisis-induced recession prior to this expansion. Thankfully the slow but persistent growth looks to continue for a few more years, albeit at a very measured pace.
Word on the street
In the real world of staffing and employment services, recruiting continues to be the biggest challenge given the shortage of qualified workers across the skill spectrum. Comparisons to the same period last year are in the single digit ranges but have tipped up slightly during recent weeks and months. Wage rates and direct hire placements continue to improve. There is no shortage of job orders but fill ratios are lower. Thankfully, improved worker optimism gives more candidates the courage to consider new opportunities.
The recent economic data indicates that GDP will continue to expand during 2017 and through 2019 at a better than 2.0 percent but less than 3.0 percent annual rate. While modest, this will be better compared to recent years. Economic growth will be supported by international expansion, an improving manufacturing sector, consumer/business confidence, housing growth/starts, and corporate profits. Employment growth will continue consistent with an aging expansion and a tightening labor market, averaging around 180,000 positions during 2017. This moderate job growth will be sufficient to support a growing labor force, a low unemployment rate and, over time, increasing average hourly earnings.
Please feel free to contact me if you have any questions or comments.