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 release describing The Employment Situation. The next release revealing March’s statistics will be out on Friday, April 6Th, (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 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.
March’s Expected Employment Highlights
Observers will scour March’s BLS report to see if wage growth emerges as a serious factor following the vigorous employment growth reported during February. Behind the simulative effect of tax reform and the expansive budget recently passed in Washington, most analysts expect faster Gross Domestic Product growth and stronger corporate earnings. Therefore, employment should continue to grow, conceivably at an accelerating rate. Of late, the labor force has grown at a rate sufficient to hold the unemployment rate steady at 4.1 percent for five consecutive months. Moreover, wage growth has been muted suggesting that there is capacity for continued employment growth before triggering wage inflation. Rising inflation would raise the fear that the Federal Reserve Board will more assertively apply the brakes to the economy. This braking action is often a precursor for the end of the expansion.
Job growth was extraordinarily robust last month, and this capped a five-month series of less outsized, but still strong, results. Expectations going forward are high, and for good reasons. But the potential for disappointment looms large when the consensus is so optimistic. Given that the BLS reports are based on point-in-time surveys, are subject to distortions created by weather as well as seasonal adjustment, and further, scheduled revisions, it is best not to over-react to a single month’s surprise or disappointment.
I expect March’s Employment Situation press release to indicate that 210,000 net new jobs were created. February’s growth was oversized at 313,000 net new positions and broad-based with nearly 70 percent of the industries improving. Therefore, I expect continuing momentum to create another plus 200,000 count. Offsetting the momentum effect is the likelihood that the unusually strong growth, in retail and construction jobs recorded during February will probably not reoccur during March. These two industry sectors added just over 100,000 jobs during February and could easily pause during March accounting for most of the change in the forecast. Furthermore, there were snowstorms evident during the weeks surrounding the payroll survey reference week during March that could depress the count. I predict that the unemployment rate will decline slightly, by a tenth of a point, to 4.0 percent. This small decline will be in response to five out of the last seven months of above-trend employment growth which cumulatively should restart the long trek down to a sub-four percent rate by the end of 2018. I expect that wage growth will speed up slightly during March to a 2.7 percent annual rate reflecting, ever so gradually, the increasing competition for talent. The average workweek will hold February’s gain at 34.5 hours.
Employment related economic indicators that suggest March’s report will remain strong or improve include:
- Initial unemployment claims on a moving average basis were flat to slightly improved during March and in particular, continuing unemployment claims improved during March as compared to February;
- The Conference Board’s Consumer Confidence Index contracted during March but the differential between “jobs plentiful” versus “jobs hard to get” was an increasingly strong 25.0 during March. This is an improvement over already remarkably good results;
- The New York City, Institute for Supply Management’s Employment Diffusion Index improved during March moving into the expansionary range with a reading of 53.5, suggesting growth in employment;
- The Wall Street Journal Forecasting Survey’s March results predicted a strong rate of employment growth but still slower than what the BLS reported during February;
- Federal Reserve Bank Manufacturing Surveys published by the Kansas City and Philadelphia districts both reported improving employment conditions during March; and
- The American Staffing Association’s Staffing Index was improved during March compared to February.
Additionally, the private surveys that I participate in report continuing strength in the labor market with stronger demand and higher wages.
Employment related economic indicators that suggest March’s report will be softer include:
- The Institute for Supply Management’s Manufacturing Employment Diffusion Index remained positive but contracted during March suggesting slower growth in employment;
- Federal Reserve Bank Manufacturing Surveys published by the Texas, Richmond and New York districts all reported softer employment conditions during March; and
- The National Federation of Independent Business’ Small Business Survey indicated that a net 18 percent of their members have plans to increase employment down from 20 percent last month.
Expectations for the remainder of 2018
Accelerating global growth, resilient business and consumer confidence, pending fiscal stimulus provided by tax cuts and increasing 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 business friendly regulatory climate, and improving earnings. Recently, stock market volatility protectionist trade practices and price pressure have appeared. These issues are not unexpected and not yet critical in mass. However, they do deserve attention as potential economic obstacles. Over the longer term, government deficits and a distorted income distribution pose a threat as potentially serious policy challenges.
The labor markets are even healthier than expected, as validated by all relevant metrics. Employment growth has demonstrated remarkable building momentum following February’s robust growth and stands to advance further from the still building fiscal stimulus. The unemployment rate is indeed very low but labor force participation and the employment to population ratios are accommodating, 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 outpace 2017 while the unemployment rate drifts down closer to 3.5 percent by year-end. 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.