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 August’s statistics will be out on Friday, September 2^nd (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 August 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:

• July’s results were impressive.
• Will the BLS report covering August’s activity continue the recent strength or “revert to the mean”?
• What are the broader non-employment indicators telling us about economic prospects?
• What to expect for the balance of 2016?

July’s impressive report. Roughly, three weeks ago 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. 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 strong 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 confirmed rebounds for June and July following softer reports during April and May!

August’s report is likely to be closer to the trend rate of growth.  I expect Friday’s Employment Situation Report covering August’s activity to indicate that the labor market expanded by 180,000 jobs and the unemployment rate will decline by a click to 4.8 percent.  In broad terms, I’m calling for August’s report to confirm that the labor market is healthy, but not as robust as suggested by the job growth during June and July.    My prediction is that we will get confirmation that the labor market remains healthy with a moderate path of growth. 

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

• The Conference Board’s survey differential between “jobs plentiful” versus “jobs hard to get” improved to a net +2.6 during August as more respondents found “jobs plentiful”. This was the highest positive differential since the recovery began.
• Initial Jobless Claims remained at low levels during August although they drifted up a bit when compared to July. This is notably true during the reference weeks from which the BLS draws its survey.  This data series addresses layoffs, which have remained at low levels.  The pace of hiring is better illuminated by the Jobs Opening and Labor Turnover survey which provides more insight but is reported with a one month lag.
• The American Staffing Association’s Monthly Employment Index improved slightly by just a little more than 2 points in August compared to July during the BLS survey reference weeks, suggesting that job growth will remain strong or improve.
• The private employment surveys that I participate in continued to suggest growth during August at a faster pace than May or June, there is broad agreement around the difficulty in finding qualified applicants and accelerating growth in pay rates.

Negative or neutral employment-related economic indicators during August included the following:

• The Wall Street Journal’s August Economic Survey of 72 leading economists indicated that respondents’ expectations for employment growth for the balance of 2016 was basically unchanged during August.
• Regional Federal Reserve surveys of activity in their districts were mixed or down during August. The results were varied and a bit more positive with respect to the service sector, but on balance these indicators did not suggest that August was stronger.

What do the non-employment specific indicators suggest?  The Gross Domestic Product (“GDP”) report was disappointing for both the first and second quarters indicating a scant 1 percent growth during the first half of 2016.  The third quarter looks stronger in the 2.5 to 3.5 percent range.  Consumers are more optimistic and are driving growth.  Foreign trade, inventories and business investment are improving during the third quarter as well. The Conference Board Consumer Confidence Index during August was particularly strong. Personal Income and Personal Spending are two important metrics that were improving during the summer. The Index of Leading Indicators was encouraging during the last two consecutive monthly reports.   Industrial Production improved during the two most recent months and was stronger than expected but the manufacturing sector continues to face challenges.     On balance, the broader non-employment indicators point to better growth during the second half of 2016, a welcome improvement from the surprisingly soft first half.

Expectations for August, the balance of 2016 and beyond. “Steady and gradually improving” continues to be the best description of the outlook although the operative word is gradual or moderate.   Employment growth spiked up during June and July but is expected to “regress to the mean” during the second half of 2016 given that monthly increases above 200,000 jobs are just not sustainable given the low level of unemployment and moderate overall growth.   Expect jobs growth during the remainder of 2016 to average about 170,000 net new jobs per month while the unemployment rate trends sideways or slightly down for the remainder of the year.  The risk of recession remains low and declining.

In conclusion, I expect that August produced 180,000 net new jobs and a slight improvement in the unemployment rate to 4.8 percent.  Employment growth as measured by the BLS slowed notably during the first half of 2016, as did GDP.  Employment growth was remarkably strong during June and July.  August will carry some of that momentum but future months will moderate further.  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.