By Steven R. Drexel, President, and CEO of Cornerstone Staffing Solutions, Inc.
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 2nd, (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.
January’s Expected Employment Highlights
Analysts will study January’s BLS report to see if the mildly soft employment growth number reported for December (only 148,000 net new jobs) persists or if optimism created by the accelerating global economy, the record-setting equity markets, and recently enacted tax cuts provide a lift for employment. If there is a lift, will it be evident in more net new jobs, a lower unemployment rate, or higher wages? Does the labor market even have room to grow given an unprecedented 87 consecutive months of uninterrupted expansion?
My prediction is that stronger job growth will return in January although at a level slightly below the average rate for all of 2017. I’m looking for 170,000 net new jobs during January in a moderate reacceleration. Employment will grow at a slower rate on average during full-year 2018 as a result of the ever tightening labor market. While employment has continued growing, the rate of growth has slowed during every year since 2014. This trend will continue during 2018 although it is worth noting that 2017 added just north of two million jobs, so there is still enough momentum to sustain respectable growth throughout 2018. The reported unemployment rate will be steady during January at 4.1 percent, but will edge down as the new year progresses, ending the year at around 3.8 percent – a notable improvement but less than the 6 tenths move evident during 2017. I expect that wage growth will accelerate in January to 2.6 percent annually but will climb to above 3 percent by year end.
Unlike employment growth and improving unemployment rate, wage growth is not constricted by the tightening labor market. Indeed a tightening labor market coupled with improving productivity supports growing wages. GDP has picked up during the three most recent quarters while employment growth has mildly decelerated, therefore – the conditions that produce productivity growth are building.
Employment-related economic indicators that suggest that January’s report will remain strong or improve include:
- Initial unemployment claims as well as continuing unemployment claims both declined or improved during January as compared to December;
- The Conference Board’s Consumer Confidence Index improved during January and the differential between “jobs plentiful” versus “jobs hard to get” was a net 21.2 during January, up from 20.3 during December. This is the best measure of labor confidence in 17 years;
- The Federal Reserve’s Beige Book released during mid-January reported that employment continued to grow at a moderate pace during the reporting period and also observed that many firms have been raising wages in order to cope with the tight labor market;
- The Wall Street Journal Forecasting Survey’s January results predicted a faster rate of employment growth than the BLS reported during December;
- The Kansas City Federal Reserve Manufacturing Survey during January indicated improving employment conditions;
- The Challenger Report indicated a low level of announced job cuts during December which suggests less drag on employment growth during January;
- The Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters predicts faster employment growth during the first quarter of 2018 compared to December’s actual reported growth;
- The National Association of Business Economist’s Business Conditions Survey for January reported that three times as many respondents expect hiring to increase rather than decrease; and
- The private surveys that I participate in report continuing strength in the labor market with stronger demand and higher wages constrained by the war for talent.
Employment-related economic indicators that suggest that January’s report will be weak, or contract include:
- The American Staffing Association’s Staffing Index was seasonally stable to slightly down during January compared to December;
- Chapman University’s California Manufacturing Survey released during January indicated that employment in this sector would continue to expand during early 2018 albeit at a slower rate; and
- Manufacturing surveys covering January and published by the Federal Reserve Banks of Philadelphia, New York, and Richmond all reported positive but declining employment sub-indexes during the current period.
Expectations for the remainder of 2018
The economy is sailing along with ample wind in its sails given improving global and domestic growth, improving retail sales by consumers, improving fixed investment by businesses, improving industrial production, and still low inflation. Consumers are enjoying higher net worth as employment expands, housing prices recover, and the stock market reaches new highs. Businesses benefit from lower marginal tax rates, a friendlier regulatory environment, and improving earnings. It’s hard to find a weakness in either the global or domestic near-term outlook. Over the longer term government deficits and income distribution loom as potentially serious policy challenges.
The labor markets remain healthy having sustained 87 consecutive months of employment growth and a declining unemployment rate. Employment grew by 2,055,000 positions during 2017. This is down from a peak of nearly 3 million during 2014 — but still flowing at two-thirds the peak rate, suggesting that the well has not run dry. The unemployment rate is indeed very low but labor force participation and the employment to population ratios are low, even among prime age workers, suggesting better wages might draw more workers off the sidelines and into the labor market thereby fueling continued growth.
As the expansion ages, there is a practical limit to the rate of growth. Expect jobs growth during 2018 to average about 175,000 positions per month while the unemployment rate trends slightly down. The risk of recession remains low given the absence of any signs of growing imbalances or a looming financial bubble; therefore, the general expansion should continue through 2020.
I invite you to share this commentary with your colleagues and professional network. Please contact me to discuss further or ask any questions.