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

As an Economist and seasoned staffing industry professional, I’m regularly asked to participate in a number of monthly surveys and discussions that predict key elements of the next Bureau of Labor Statistics’ (“BLS”) press release describing The Employment Situation. The next release revealing July’s statistics will be out on Friday, August 5th (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 July 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.

What you’ll find in this Commentary:
• June’s results were outstanding.
• Will the BLS report covering July activity confirm the strength indicated during June?
• What are the broader non-employment indicators telling us about economic prospects?
• What to expect for the balance of 2016?

June’s outstanding report. On Friday July 8th, the BLS released its monthly summary of labor market activity covering June 2016. The report indicated that June’s growth was emphatically stronger with a pickup of 287,000 new jobs. The consensus expectation called for job growth of 180,000; which would have been a welcome improvement compared to May’s alarmingly weak 11,000 jobs number. 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 gain 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.

June’s job growth report was an awesome upside surprise, 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 demand 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. All things considered, what we see is slower but steady continuing growth.

July’s report is likely to be close to the trend rate of growth. I expect Friday’s Employment Situation Report covering July’s activity to indicate that the labor market expanded by 160,000 jobs and the unemployment rate will decline by a click to 4.8 percent. Generally, I’m calling for July’s report to smooth the extreme results reported during May and June. I should note that some will view this report as a critical tiebreaker that will confirm either June’s strength or May’s weakness. My prediction is that we will get confirmation that the labor market remains on a slow but steady growth trajectory.

Positive employment-related economic indicators during July included the following:

• Initial Jobless Claims as well as Continuing Jobless Claims remained at low levels and decreased further during July. This is notably true during the reference weeks from which the BLS draws its survey. This metric addresses layoffs, which have not increased. The pace of hiring is not illuminated by jobless claims so we will have to look to other metrics in order to tease out this important component of the employment equation.
• The Conference Board’s survey differential between “jobs plentiful” versus “jobs hard to get” improved to a net +0.7 during July as fewer respondents found jobs “hard to get”.
• The private employment surveys that I participate in continued to suggest growth during July, albeit at a slow pace based in part on softer order flow, but also, difficulty in finding qualified applicants.

Negative employment-related economic indicators during July included the following:

• The Wall Street Journal’s July Economic Survey of 72 leading economists indicated that respondents’ expectations for employment growth for the balance of 2016 was 1 percent lower than the June’s forecast reflecting slightly lower expectations.
• The American Staffing Association’s Monthly Employment Index was down 0.65 percent during July compared to June, during the BLS survey reference weeks, suggesting that job growth will be off slightly during July.
• The employment component of the Institute for Supply Management’s Manufacturing diffusion index declined to 49.4 percent during July. A reading below 50 percent indicates that manufacturing employment likely declined slightly during July.
• Regional Federal Reserve surveys of activity in their districts were mixed or down during July. The results were varied and perhaps indicated some moderation, but on balance these indicators did not suggest that July was stronger.

What do the non-employment specific indicators suggest? The headline GDP report for the second quarter, released late last week, was disappointing because analysts expected more of a rebound from a weak first quarter. Two sequential soft quarters indicates that the economy is slower than expected. Retail Sales are not the problem, data evident in the monthly series as well as the GDP report suggest that consumers are an important support for growth. Moreover, Consumer Confidence during June and July was elevated compared to the February through May period. The Index of Leading Indicators was encouraging during July. The Beige Book Report from the Federal Reserve Banks was on balance stronger during July which has been the case for three consecutive months. Industrial Production improved in July and was stronger than expected but, continues to face challenges. The ISM Manufacturing Index, currently at 52.6, is more optimistic having bottomed in December of 2015 and grown steadily through July. The service sector remains healthy given that the ISM’s Nonmanufacturing Index is at 56.5 during July. On balance, the indicators point to better, albeit still modest, growth during the second half of 2016.

Expectations for August, the balance of 2016 and beyond. Slow and steady continues to be the best description of the outlook although slow has become “slower” particularly during the near term. Employment growth spiked up during June but is expected to “regress to the mean” during the second half of 2016. However, employment growth will be slower than what we enjoyed during 2014 and 2015. Expect jobs growth during the remainder of 2016 to average about 160,000 net new jobs per month while the unemployment rate trends sideways or slightly down for the remainder of the year.

In conclusion, I expect that July produced 160,000 net new jobs and a 4.8 percent unemployment rate. Employment growth as measured by the BLS slowed notably during the first half of 2016 months, as did GDP. The wide swings in job growth during May and June amplifies the importance of Friday’s BLS report particularly given the weak GDP report issued late last week. The realization of slower GDP and Employment growth has not markedly increased the risk of recession which remains at about 20 percent. In as much as the unemployment rate remains low while wage pressure is building, we should expect continued labor shortages. I invite you to call me if you have any questions and share this commentary with your colleagues and professional network.

More about Cornerstone Staffing Solutions
Cornerstone Staffing Solutions is among the top 134 largest staffing firms in America, as ranked by Staffing Industry Analysts and received Inavero’s 2016 Best of Staffing® Client Award. 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 coast to coast. Providing candidate searching and job placement for administrative, industrial, technical, sales and transportation positions, Cornerstone truly is where talent and jobs meet. Visit Cornerstone at: http://www.cornerstone-staffing.com.