As an Economist and seasoned staffing industry professional, I’m regularly asked to participate in several monthly surveys and discussions that predict key elements of the Bureau of Labor Statistics’ (“BLS”) press releases describing The Employment Situation. The next release revealing January’s statistics will be out on Friday, February 3rd, (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 January 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:
- December’s results were OK.
- Will January’s report indicate that the labor markets growth improved?
- What do we expect going forward into 2017 and beyond?
December’s solid but muted report. January’s BLS monthly summary of labor market activity covering December 2016 indicated that December’s job growth came in slightly below expectations at 156,000 positions although the gap was not large enough to be concerning. While the unemployment rate increased by one tenth of a point to 4.7 percent, it was for a positive reason. A good number of previously discouraged workers returned to the labor force as substantiated by the labor force participation rate improving 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 that average hourly earnings improved t0 reflect a 2.9 percent annual increase up from 2.5 percent during November. Other indicators I follow include:
- 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 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, 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).
To summarize, the Employment Report for December was solid but unspectacular. Job growth was below trend but improved labor force participation and average hourly earnings indicated that the labor market is still healthy and improving. On balance, the economy is still adding jobs while achieving a remarkably impressive 75 consecutive months of growth.
January’s report is likely to accelerate. I expect Friday’s Employment Situation Report covering December’s activity to indicate that the labor market expanded by 180,000 jobs and the unemployment rate will hold steady at 4.7 percent. The employment market is still healthy and growing – albeit at slower rates than recent years.
Positive employment-related economic indicators related to January’s activity included the following:
- Initial Jobless Claims as well as Continuing Jobless Claims decreased during January, particularly during the reference weeks from which the Bureau of Labor Statistics draws its survey. These trends are very current, consistent and reassuring although somewhat volatile during holiday periods.
- The National Federation of Independent Business Survey indicated a high degree of optimism generally, and the plans to increase employment improved as well during this December survey.
- The Conference Board’s January differential of “jobs plentiful” versus “jobs hard to get” expanded to a net 5.9 during January, up from 3.3 during December.
- The Philadelphia, Richmond Manufacturing and Texas Manufacturing Federal Reserve Survey sub-indexes for Employment and the Average Workweek all were stronger during January as compared to December. In contrast the Richmond Services, Texas Services, and Kansas City Manufacturing Federal Reserve Surveys sub-indexes for employment, while still positive during January, contracted compared to December. Finally, the NY Empire State Manufacturing Survey employment sub-index improved but remained negative during January. On balance I take these indications as a mild positive.
- The American Staffing Association’s Monthly Index was stronger during January compared to December with respect to year-over-year growth.
- The private employment surveys that I participate in continued to suggest growth during January at a modestly improved pace.
Less than positive employment indicators included the following:
- The Wall Street Journal’s November Economic Survey of 72 leading economists forecast of employment growth for 2017 was flat during January compared to December, reflecting not much change in employment growth.
- Political and trade policy uncertainty remained high during January as the new administration was still taking shape and policy positions were still evolving.
Expectations for 2017 and beyond. Political change brings a mixture of optimism and uncertainty with respect to the general economy going forward. Business optimism has improved with the prospect of a more pro-business regime featuring lower taxes, less regulation, robust infrastructure spending and a military buildup. On the other hand, increased tensions with Mexico, China, and other trading partners is a potential economic risk. Regardless, the labor markets are fundamentally healthy with employment growth providing a critical foundation supporting the continuing long, but slow growing, expansion. Wage growth is gradually accelerating which along with still growing employment is a critical support to lift retail sales – another necessary driver of continued economic growth. The average workweek has room to improve as does the labor force participation rate suggesting that there is still capacity for expansion despite low unemployment. And yet, there is somewhat less momentum going forward as the expansion is aging. Expect jobs growth during 2017 to average about 175,000 positions per month while the unemployment rate trends down slightly during the next two years settling at around 4.5 percent by year-end 2018.
In conclusion, I expect that January produced 180,000 net new jobs and an unchanged unemployment rate at 4.7 percent. Employment growth slowed during recent months, but remains positive and is expected to continue to grow albeit at slightly slower rates. January’s indicators suggest modestly stronger growth than what was evident during December. The risk of recession is receding and the expansion should continue through at least 2018. The cumulative impact of 75 months of employment growth results in more severe labor shortages and accelerating wage pressure. I invite you to share this commentary with your colleagues and professional network. Please call me to discuss further or ask any questions.