By Steven R. Drexel, President and CEO of Cornerstone Staffing Solutions, Inc.
On Friday December 2nd, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering November 2016. The consensus expectation called for job growth to improve moderately from October’s somewhat disappointing increase which was originally reported as 161,000 net new jobs. The consensus expectation for September’s job growth was 180,000 positions. The official report indicated that November’s growth, at 178,000 positions, was remarkably close to the expectation. More surprising was the fact that the unemployment rate decreased by three tenths to 4.6 percent. The broadest measure of unemployment that includes those marginally attached and working part time for economic reasons also declined by two tenths to 9.3 percent. Sadly, the improvement in the unemployment rate occurred for the wrong reason given that discouraged workers left the labor force in large numbers. This was evident as the labor force participation rate declined to 62.7 percent as an additional 446,000 civilians left the labor force during November. Another disappointing detail in the report was the observation that average hourly earnings slipped from a 2.8 percent annual increase down to 2.5 percent during November. Moreover, the average workweek was unchanged sequentially at 34.4 hours. The business sector metrics indicated that a notably smaller majority of the industries grew during November as 55.5 percent were up or flat compared to 59.2 percent October. Conspicuously, construction (+19k) and mining and logging (+2k) improved as did the usual suspects, professional and business services (+63k) and education and health services (+44k). Additionally, leisure and hospitality (+29k) and government (22k) grew. Declining industries included manufacturing (-4k), unexpectedly, along with retail trade (-9.3k), utilities (-0.3k) and information (-10k).
In summary, the Employment Report for November was on one hand solid – with respect to job growth, and on the other hand, soft – with respect to wage growth and labor force participation. On balance, the economy is still adding jobs, a remarkable seven years into the expansion. And yet, because it has been a slow-growth economy and inflation remains low, wage growth remains stubbornly subdued. These factors as well as a mismatch between jobs available and jobs desired leaves an unusual amount of slack for this point in the business cycle. There were mixed indications in this report, but the most important metric, job growth, points to a healthy and still expanding job market that remains consistent with a long but slow and steady economic expansion.
Word on the street
In the real world of staffing and employment services, there is a sense that November was stronger than recent months. Wage rates have been improving and direct hire placements remain strong. There are no signs of an increase in layoffs, this year. However, orders remain harder to fill in part because the labor market continues to tighten, particularly for higher skilled workers. November was sequentially stronger and encouraging.
The recent economic data has been generally better than expected. Gross Domestic Product (GDP) during the third quarter rebounded, following three weak quarters, to reach a better than anticipated 3.2 percent. Both retail sales and consumer confidence grew and exceeded expectations. Manufacturing, as measured by the ISM survey, industrial production and durable goods orders, is improving and finally, authorized building permits improved as well. Employment growth as well as broader economic growth will continue consistent with an aging expansion and a tightening labor market. The domestic economy, as measured by GDP, is certainly stronger during the second half of 2016, as some of the headwinds subside and corporate profits recover after about five soft quarters. Employment growth will average less than 200,000 positions during 2017 even as GDP growth improves. Moderate job growth will be sufficient, to support a growing labor force, a low unemployment rate, and increasing average hourly earnings. The expansion will continue during 2017 through 2018 growing at better than 2.0 percent but less than 3.0 percent.
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