By Steven R. Drexel, President, and CEO of Cornerstone Staffing Solutions, Inc.
On Friday, October 6th, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering September of 2017. This was deemed to be a “throw-away” report since September was heavily influenced by Gulf Coast hurricanes Harvey and Irma that impacted the survey periods. The consensus expectation called for significantly diminished growth of around 90,000 new positions (down from 169,000 new positions during August). The official report revealed that September’s job growth fell much further as the actual count indicated a net loss of 33,000 net jobs. This was the first employment contraction in seven years. The unemployment rate declined two tenths to 4.2 percent.
All signals suggest that the declines in employment and the unemployment rate were overstated or temporary related to the natural disasters. One obvious indication of this is the observation that the biggest dent in the employment picture was evident in the Leisure/hospitality sector which was uncharacteristically off by 111,000 jobs during September. The absence of relatively low wage Leisure/hospitality positions during September also caused average hourly earnings to accelerate to 2.9 percent during September, a step too far above the 2.5 percent ceiling established during the last year or so. Puerto Rico’s employment is included in our national reporting so distortions are likely to persist for another month or two.
Setting aside the BLS Employment Situation report, there are plenty of reasons to believe that the labor market remains healthy. Listed below are some of the economic indicators (government and private), that support this assertion:
- The Beige Book, a collection of anecdotal reports from the twelve Federal Reserve Districts, covering activity through mid-August reported that job gains persist at a slight to moderate rate across all units;
- The Manpower Employment Outlook Survey predicted continued positive hiring plans for the fourth quarter of 2017, consistent with the last four quarters;
- The Institute for Supply Management’s Manufacturing Index employment component reported a very solid improvement during September;
- The Institute for Supply Management’s Nonmanufacturing Index employment component reported moderate improvement during September;
- The Conference Board’s Consumer Confidence Index remained firm during September and the differential between “jobs plentiful” and “jobs hard to get” was an encouraging net 14.5;
- The Texas, Kansas City, Richmond, and NY State Manufacturing Surveys employment sub-indices all improved during September;
- The National Association of Business Economists released the results of its September Outlook Survey which indicated that there was no change in their collective forecast for GDP when compared to the June Survey;
- The Wall Street Journal’s September Survey of more than 60 economists indicated stable to slightly improving prospects for GDP and employment growth during the coming months and quarters;
- The Challenger, Gray and Christmas accumulation of job elimination announcements were down during September by 4.4 percent compared to August and 27% from a year ago;
- The ADP National Employment Report indicated that private sector employment improved by 135,000 positions during September. This was the slowest growth since October of 2016, reflecting a hurricane effect, but growth closer to the consensus expectation of around 90,000 jobs, rather than contraction;
- The American Staffing Association’s Staffing Index was up half a percentage point during September; and
- Other private surveys that I participate in were positive as well.
In summary, the BLS’s Employment Situation Report for September was discouraging on its face but easily discounted because of the obvious impact of the hurricanes during late August and September. Thankfully, the secondary and tertiary indications from other surveys and sources suggest that the underlying economy and the labor market remain healthy. With respect to the broader economy, there are even signs of a mild acceleration. Employment growth remains a function of both the broader economy and even more so, the availability of talent, which is challenged this deep into a sustained expansion.
The broader economy is currently characterized by an unusual convergence of favorable factors including an accelerating global expansion, a record-setting stock market, a high level of confidence and low inflation.
Measures of unemployment have settled to remarkably low levels suggesting that the employment market may be at or approaching its full capacity, yet still, slow wage growth, relatively low labor force participation, and still elevated unemployment duration metrics indicate that unemployment rates could drift below 4.0 percent before the market is fully tapped out. This expansion, persisting to eight years in length, is quite extended (compared to an average expansion of five or six years). This is likely the reward we are benefiting from for enduring a very historically severe, financial crisis-induced recession immediately prior to this expansion cycle. The disappointingly slow but persistent growth looks to continue for a few more years, given the absence of any obvious economic imbalances and continued low inflation and interest rates.
Word on the street
In the real world of staffing and employment services, there is less concern about orders but more concern about recruiting given the scarcity of available talent. Year-over-year sales growth remains in the low single-digit range. Wage rates, particularly at the low-end, have improved at better than the published metrics. Direct hire placements have been unusually strong for two years or so. Improving employment opportunities fuels worker optimism and inspires courage in more candidates to try a new position.
The latest economic releases suggest that GDP will continue to expand during 2017 and through 2019 at a better than 2.0 percent rate and with a little help from Congress perhaps as fast as a 3.0 percent annual rate. This would be slightly better than recent years. Economic growth will be supported by global expansion, an improving manufacturing sector, consumer/business confidence, housing, and corporate profits. Employment growth will continue consistent with a very mature expansion and a tightening labor market, averaging around 160,000 positions during the remaining months of 2017. This judicious job growth will be sufficient to absorb a growing labor force, maintain a low unemployment rate and, over time, better average hourly earnings growth.
Please feel free to contact me if you have any questions or comments.