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

On Friday July 8th, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering June 2016. The consensus expectation called for job growth to improve from May’s alarmingly weak progression originally estimated by the BLS at 38,000 jobs. The expectation for June’s job growth was in the neighborhood of 180,000 positions. The official report indicated that June’s growth was dramatically stronger with a pickup of 287,000 net new jobs. If the estimate is going to be off the mark, as it was for May and June, it is infinitely better to be surprised on the upside (think June) rather than alarmed by unexpected weakness (as was the case during May). The unemployment rate increased from 4.7 percent during May to 4.9 percent during June as more discouraged workers re-entered the workforce (a good thing). A more inclusive measure of unemployment, known as “U-6”, that takes-in underemployment, improved by one tenth to 9.6 percent during June. Average hourly earnings improved to reflect a 2.6 percent improvement over the prior year – a modest but accelerating trend. Finally, the average workweek held steady at 34.4 hours. The improvement was reassuringly broad based as 62.7 percent of the industries recorded growth during June, another encouraging sign.

What does the volatility in the reporting say about the health of the labor market?
Volatility can be seen as risky because it unsettles the financial markets and creates doubt about the sustainability of the broader expansion. Monthly volatility is a reminder that it is often best to smooth out the short-term swings by looking at the three-month moving average. Finally, during periods of volatility it is best to look at multiple data sources to see if the various signals are consistent or discordant. This year, the moving average job growth is much more consistent with the other labor market metrics that are available. The moving average job growth for the three-months ending in December of 2015 was 282,000 positions. The three-months ending in March saw job growth average 196,000 and the most recent reading for the three-months ending in June was 147,000. This pattern is more stable and indicates that job growth is slowing — but still growing at a level sufficient to sustain the expansion. The other labor metrics, i.e. Initial Jobless Claims, Announced Layoffs, Hiring Plans, Jobs Openings and Labor Turnover, The Consumer Confidence employment sub-index and employment sub-indexes within the Institute for Supply Management Reports paint a picture suggesting that job growth is more stable than what the BLS Jobs Report indicates, even on a moving average basis.

The Take-Away
June’s job growth report was a welcome surprise on the upside, but just as May’s report understated the weakness, June’s report overstated the strength. On balance, job growth was successively slower during the first two quarters of 2016. Evidence indicates that on the demand side of the equation, slower Gross Domestic Product growth, weaker foreign growth and suppressed domestic corporate profits all served to regulate hiring to a degree during the first half of 2016. On the supply side, with 69 consecutive months of employment growth and an unemployment rate at or below 5.0 percent since January 2016, hiring has slowed because there are fewer candidates available for open positons. The narrative is credible and supported by the data. All things considered, what we see is slower but steady continuing growth.

The Outlook
I expect growth to continue consistent with an aging expansion and tightening labor market. The domestic economy has weathered a series of challenging events including: dramatically falling energy prices, turbulent financial markets, a too-strong U.S. currency value and turmoil in China. The expansion was strong enough to persist through these challenges many of which are subsiding. The latest challenge, Brexit, is a threat to the UK and Europe but the U.S. is not an export dependent economy so while Brexit increases the tension and creates uncertainty, it is not expected to undermine the U.S. expansion. So while I don’t expect jobs to grow as fast as they did during 2015, job growth should return to around 150,000 per month, or enough to absorb new entrants into the labor force and maintain a low unemployment rate coupled with increasing average hourly earnings. The expansion will continue albeit at a slower but steady rate.

Please feel free to contact me if you have any questions or comments.


More about Cornerstone Staffing Solutions

Cornerstone Staffing Solutions is among the top 134 largest staffing firms in America, as ranked by Staffing Industry Analysts. Since 2003, Cornerstone has grown from a neighborhood staffing provider to a $100 million national firm that employs thousands of people at hundreds of companies from California to Connecticut. Providing candidate searching and job placement for administrative, industrial, technical, sales and transportation positions, Cornerstone truly is where talent and jobs meet. Visit us at: www.cornerstone-staffing.com.

Steven R. Drexel

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