By Steven R. Drexel, President and CEO of the Cornerstone Staffing Solutions, Inc. family of companies
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 February’s statistics will be out on Friday, March 9th, (typically the first Friday of each month reporting on the previous month’s activity, this month is a rare exception).
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 January 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.
February’s Expected Employment Highlights
Analysts will study February’s BLS report to see if it resembles the strong employment growth reported for January (200,000 net new jobs) or if a softer month emerges, more like the 160,000 net new jobs reported during December. A secondary metric of unusual importance this month is the growth in average hourly earnings which finally accelerated to 2.9 percent on a year over year basis during January. If this indication is relatively strong again in February, many will be happy to see confirmation that employees are finally benefiting from the long expansion and low unemployment rates. Conversely, observers in the financial markets may be unsettled by the possibility of rising inflation.
My prediction is that stronger job growth will be evident during February advancing to 215,000 net new jobs given the strength in the employment-related statistics reported during the last four weeks. Following a four month pause at 4.1 percent, the unemployment rate will drop by one-tenth of a point during February to 4.0 percent. This small decline will be in response to two consecutive months of above trend employment growth of 200,000 or more positions.
I expect that wage growth will moderate very slightly during February to 2.8 percent annually — but will climb to above 3 percent by year end. The average workweek will recover during February to 34.4 hours after having unexpectedly and inconsistently declined by two-tenths of an hour during January. The increase in average hourly earnings was expected while the decrease in hours worked was not. One credible theory that explains the two movements is the idea that bad weather or the severe flu season held back hourly workers during January depressing the average hours worked. If so, higher paid salary workers would play a larger role in the average wage inflating the average wage rate. Absent the seasonal impacts of weather and the flu, February’s metrics should moderate to something closer to December’s trend rates.
Employment related economic indicators that suggest that February’s report will remain strong or improve include:
- Initial unemployment claims as well as continuing unemployment claims both declined or improved during February as compared to January;
- The Institute for Supply Management’s Manufacturing Diffusion Index improved during February suggesting more growth in the labor market;
- The Conference Board’s Consumer Confidence Index improved during February and the differential between “jobs plentiful” versus “jobs hard to get” was a strong net 24.7 during February, up from 20.9 during January. This is an improvement over already remarkably good results;
- The Wall Street Journal Forecasting Survey’s February results predicted a faster rate of employment growth than the BLS reported during January;
- Federal Reserve Bank Manufacturing Surveys published by the Texas, Kansas City, Richmond, Philadelphia, and New York districts all reported improving employment conditions during February;
- The National Federation of Independent Business’ Small Business Survey indicated that a net 20% of their members have plans to increase employment and a growing percentage indicated that they have open positions that are hard to fill; and
- The American Staffing Association’s Staffing Index was slightly improved during February compared to January.
Additionally, the private surveys that I participate in report continuing strength in the labor market with stronger demand and higher wages.
The Institute for Supply Management’s Non-manufacturing Diffusion Index is the only employment related economic indicator that contracted suggesting a slower rate of growth during February.
Expectations for the remainder of 2018
Improving international growth, resilient business and consumer confidence, accelerating fiscal stimulus provided by tax cuts and increased government spending all point to faster domestic growth during 2018 and 2019. Consumers benefit from improving employment, improving wage rates, lower tax rates and better home prices. Businesses benefit from lower marginal tax rates, a kindlier regulatory climate, and improving earnings. During the most recent weeks, stock market volatility, signs of increasing prices and protectionist trade practices have surfaced. These are expected, but not severe in magnitude at this time, but they do bear watching as potential building economic headwinds. Over the longer term, government deficits and a distorted income distribution hang ominously as potentially serious policy challenges.
The labor markets remain healthy as confirmed by all relevant metrics. Employment growth maintains remarkable momentum following January’s robust growth and stands to benefit further from the previously described fiscal stimulus. The unemployment rate is indeed very low but labor force participation and the employment to population ratios are relatively soft, even among prime age workers. This suggests better wages could inspire more workers to get off the sidelines and into the labor market thereby providing the needed capacity for continued employment growth.
Expect job growth during 2018 to continue at the same rate as 2017 or a little better while the unemployment rate trends down well below 3 percent. The near-term risk of recession remains low given the absence of any signs of critical imbalances or a looming financial bubble; therefore, the general expansion should continue through the end of the decade.
I invite you to share this commentary with your colleagues and professional network. Please call me to discuss further or ask any questions!