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Cornerstone_Employment-Commentary

 

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

 

On Friday January 6th, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering December 2016. The consensus expectation called for job growth to match November’s increase which was originally reported as 176,000 net new jobs. The official report indicated that December’s job growth came in slightly below expectations at 156,000 positions. While below the expectations, the gap was not large enough to be concerning. The unemployment rate increased by one tenth of a point to 4.7 percent. Thankfully, the deterioration in the unemployment rate occurred for a positive reason given that a good number of previously discouraged workers returned to the labor force during December. This was evident as the labor force participation rate improved to 62.7 percent during December. More optimistically the broadest measure of unemployment that includes those marginally attached and working part time for economic reasons, improved by one tenth to 9.2 percent. The most encouraging detail in the report was the observation that average hourly earnings improved t0 reflect a 2.9 percent annual increase up from 2.5 percent during November. The average workweek was unchanged sequentially at 34.3 hours. The business sector metrics indicated that a stronger majority of the industries grew during December as 57.1 percent expanded or were unchanged during December compared to 55.8 percent during November. Notable increases included the always reliable education and health services (+70k). Leisure and hospitality grew by a respectable number of positions (+24k). Also, during December, manufacturing (+17k) and transportation and warehousing (+15k) improved. Professional and business services grew during December, but at a much slower rate (+15k). Declining industries included construction (-3k), along with mining and logging (-2k) and information (-6k).

 
In summary, the Employment Report for December was solid but unspectacular. Job growth was below trend but improved labor force participation and average hourly earnings indicate that the labor market is still healthy and improving. On balance, the economy is still adding jobs – this month achieving a remarkably impressive 75 consecutive months of growth. And yet, because it has been a long-running, low-growth expansion, indications are job growth is slowing while inflation remains low.

Word on the street

In the real world of staffing and employment services, there is a sense that December was stronger than expected and the holiday build-up lasted longer into December than during previous years. Wage rates continue to improve and direct hire placements remain strong. Sequentially, December finished strong. Orders remain harder to fill because the labor market continues to tighten, particularly for higher skilled workers.

The Outlook

The recent economic data suggests that 2017 will be another year of expansion. Gross Domestic Product (GDP) during the third quarter rebounded, following three weak quarters, to reach 3.2 percent. The fourth quarter of 2016 will be weaker than the third quarter but still stronger than the first half of 2016. Going forward, retail sales, consumer confidence and housing are all strong and leading the economy. Manufacturing, as measured by the ISM survey is improving. Employment growth as well as broader economic growth will continue consistent with an aging expansion and a tightening labor market. There is optimism regarding the domestic economy as some of the headwinds subside and corporate profits recover following 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.

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

 

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