Steven R. Drexel


On Friday August 5th, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering July 2016. The consensus expectation called for job growth to moderate from June’s surprisingly strong increase originally reported as 287,000 new jobs. The consensus expectation for July’s job growth was in the neighborhood of 180,000 positions. The official report indicated that July’s growth was much stronger, with a pickup of 255,000 net new jobs. The unemployment rate held constant at 4.9 percent. A more inclusive measure of unemployment, known as “U-6”, that takes-in underemployment, deteriorated by one tenth to 9.7 percent during July. Average hourly earnings improved to indicate a 2.6 percent improvement over the prior year – modest growth but improving and about 1.5 percent greater than inflation. Further, the average workweek increased by a tenth to 34.5 hours. The breadth of the improvement was increasingly wide as 63.7 percent of the industries recorded growth during July, another encouraging sign and an improvement over recent months. Overall, the report was impressive in the headline increase but also noteworthy in that almost every metric or sub-component was sequentially improved. This was a very good report that soothed a lot of frayed nerves!


Stepping Back

This jobs report carried extra weight this month because both the broader economic indicators and the recent job growth reports have been confoundingly inconsistent. The Gross Domestic Product (“GDP”) report released just last week indicated that the U.S. economy grew at a disconcertingly slow 1.0 percent during the first half of 2016.  Employment growth during May was alarmingly weak while June’s growth was astoundingly strong. Observers were very keen to see the July jobs report to determine if June’s strength or alternatively, May’s weakness was the anomaly, particularly since the GDP report suggested that May’s weakness was more indicative of the true performance.   Friday’s job report postulates that June’s strength was confirmed and therefore May’s weakness was the outlier.

Stepping back, in the real world of staffing and employment services, the narrative that rings true is that job growth has gradually decelerated but remains positive. The change has been very gradual rather than as volatile as what the GDP or Jobs Report suggests. Customers are still placing orders and raising pay rates – however, candidates are tougher to find and to a degree, customers are more selective in their screening and selection processes. There is no evidence of an increase in layoffs and it does not look like a contraction that might be associated with a recession. Indeed, there is no sequential decline, rather a slowing in the rate of growth. Wall Street quarterly earnings reports indicate that there is slow sales growth and an earnings recession that has persisted for four quarters. Companies remain profitable, just less so. Indeed, there have been headwinds that have presented challenges to the economy and corporate profits including declining oil and commodity prices, China’s turmoil, a spike in the value of the dollar, uncertainty associated with Brexit and a divisive and volatile political environment. Still, employment has grown for 70 consecutive months and the unemployment rate has been at 5.0 percent or lower for ten sequential months. All things considered, what we see is slower but persistent growth.


The Outlook

Employment growth as well as broader economic growth will continue consistent with an aging expansion and tightening labor market. The domestic economy will accelerate during the second half of 2016 as some of the headwinds subside. Employment growth on the other hand will average less than 200,000 positions for the balance of 2016 since the labor market will continue to tighten. Don’t expect jobs to grow as fast as they did during 2015.  However, job growth will be sufficient, 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.





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