By Steven R. Drexel, President and CEO of Cornerstone Staffing Solutions, Inc.
On Friday February 3rd, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering January 2017. The consensus expectation called for job growth to improve moderately compared to recent months which had averaged 148,000 net new jobs. The official report indicated that January’s job growth came in remarkably better than both recent history and expectations at 227,000 net new positions. This is an impressive start to 2017, and while too soon to be affected by the new administration’s policies, there is evidence that business optimism has improved as we emerge from the election season. Another encouraging data point was the observation that the labor force participation rate improved to 62.9 percent indicating that there were fewer discouraged individuals that had given up the search for employment during January. While the long-term trend for the labor force participation rate is in decline, at least recently, this indicator has stabilized. Because the labor force participation rate improved, the unemployment rate increased by one tenth to 4.8 percent. Further, the broadest measure of unemployment that includes those marginally attached and working part time for economic reasons increased by two tenths to 9.4 percent. In contrast to the outsized job growth, the other surprise in this month’s report was the realization that the growth in average hourly earnings, which in December had accelerated, returned to earth during January indicating year over year improvement of just 2.5 percent. Also, the average workweek was unchanged sequentially at 34.4 hours. The business sector metrics indicated that a weaker majority of the industries grew during December as 58.8 percent expanded or were unchanged during January compared to 61.5 percent during December. Notable increases in employment included the always robust health care and social services sector (+32k), leisure and hospitality (+34k), professional and business services (+39k) and construction (+36k). Noteworthy declining industry sectors included transportation and warehousing (-4k) along with government (-10k).
In summary, the Employment Report for January was solid and surprising. Job growth much better than trend and expectations. Improved labor force participation suggested better opportunities were available during January. The receding growth in average hourly earnings, flat average weekly hours and increasing measures of unemployment and underemployment confirms that there remains some unused capacity in the labor market despite the long albeit slow expansion. Overall, the metrics indicate that the labor market is still healthy and improving.
Word on the street
In the real world of staffing and employment services, we dislike this time of year because the holidays cut into sales and seasonally, this is the softest time of the year particular compared to the more robust Fall an early Winter. That said, comparisons to the same period last year have improved, wage rates continue to improve (particularly given that 19 states increased minimum wage rates recently) and direct hire placements remain strong. Orders remain hard to fill because the labor market continues to tighten, particularly for higher skilled workers.
The recent economic data suggests that 2017 will be another year of expansion and at the broadest measure, Gross Domestic Product (GDP) will grow at a faster rate than either 2015 or 2016. Going forward, retail sales, consumer confidence and housing are all strong and leading the economy. Manufacturing, as measured by the ISM survey, and industrial production is improving. Corporate profits are improving following a five quarter slump. 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. 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 over time 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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