By Steven R. Drexel, President and CEO of the Cornerstone Staffing Solutions, Inc. family of companies
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 release describing The Employment Situation. The next release revealing April’s statistics will be out on Friday, May 4Th, (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 April will perform compared to the recent past. Our stakeholders and other interested parties may find the following remarks helpful in assisting with business strategies and objectives for the near term.
April’s Expected Employment Highlights
This month’s report will be notable because growth during the prior two months was inconsistent. March’s growth was an undersized downbeat with 103,000 net new positions which followed February’s oversized upbeat at 326,000 net new positions. Observers will look intently to see if April’s result can confirm that one or both of these previous results were aberrations. The answer to this question will speak to the strength of the labor market and more broadly the overall economy.
Another question of almost equal importance is – will wage growth accelerate to a level that causes concern? This is a key question given the low unemployment rate and the cumulative growth in employment following nine years of uninterrupted improvement. Recently there have been indications that both wage rates and general inflation are rising, but at a still gently pace. Sharply rising wages and the subsequent general inflation, would add weight to the fear that the Federal Reserve Board will more assertively tap the economic brakes. This Fed action often foreshadows a recession.
Recently, the labor force has grown at an unusually strong rate sufficient to hold the unemployment rate steady at 4.1 percent for a notable, six consecutive months, despite better than expected jobs growth. Therefore, the rate of growth in the labor force is another metric of interest since it speaks to the availability of workers and employment’s ability to continue to grow with a moderate, or healthy, amount of wage growth.
The simulative effect of tax reform and the expansive budget recently passed in Washington are at cross currents with a newly volatile stock market, and fears regarding emerging international trade conflicts. Consequently, the Employment Situation Report takes on a higher degree of interest as an indication of how the economy navigates these complex emerging forces.
I expect March’s Employment Situation press release to indicate that 200,000 net new jobs were created. The average net increase for the first quarter was 202,000 new positions. My prediction “regresses to the mean” while predicting that the continuing momentum will create another 200,000 net new jobs month. I predict that the unemployment rate will decline slightly, by a tenth of a point, to 4.0 percent. This small decline will be in response to above-trend employment growth during the past six months which should resume the long journey down to a mid-three percent unemployment rate by the end of 2018. I expect that wage growth will speed up slightly during April to a 2.8 percent annual rate in response to the intensifying war for talent. The average workweek will remain constant at 34.5 hours.
Employment related economic indicators that suggest April’s report will remain strong or improve include:
- Initial unemployment claims were very slightly elevated during April compared to March but remained at or near historically low rates. Further, continuing unemployment claims improved during April as compared to March signaling that more of the unemployed found jobs during April;
- The California Manufacturing Survey indicates increasing strength during the second quarter and in particular the employment sub-index improved to 60.3, up from 57.9 during the first quarter;
- The Wall Street Journal Forecasting Survey for April predicted a rate of employment growth stronger than what was reported during March and stronger than the average of the previous 12 months;
- The National Federation of Independent Business’ Small Business Survey indicated that a net 20 percent of their members have plans to increase employment up from 18 percent during the previous month;
- Federal Reserve Bank Manufacturing Surveys published by the Texas, Philadelphia, Richmond, and Kansas City districts all reported improving employment conditions during April. Moreover, the Beige Book published by the Fed districts collectively reported continued broad growth in manufacturing and non-manufacturing employment during the recent survey period; and
- The American Staffing Association’s Staffing Index improved relatively emphatically during April compared to March.
Additionally, the private surveys that I participate in report continuing strength in the labor market with stronger demand and higher wages.
Employment related economic indicators that suggest April’s report will be softer include:
- The Institute for Supply Management’s Manufacturing Employment Diffusion Index remained positive but contracted during both April and March suggesting slower growth in employment during April;
- The Conference Board’s Consumer Confidence Index improved during April, but the differential between “jobs plentiful” versus “jobs hard to get” was a strong 22.9 percent during April but progressively less than the previous two months; and
- Federal Reserve Bank’s NY Empire State Manufacturing Survey reported softer employment conditions during April.
Expectations for the remainder of 2018
Some headwinds have picked up since last month as the stock market has proven more volatile, trade tensions have raised concerns about prices and supply and the gap between short-term and long-term interest rates has narrowed. In addition, about a quarter of the recent economic releases have fallen short of expectations. Nevertheless, buoyant consumer and business confidence and fiscal stimulus fueled by tax cuts and increasing government spending point to faster domestic growth during 2018 and continuing strong growth through 2019. Consumers enjoy an improving labor market, accelerating hourly wage rates, lower tax rates and better home prices. Businesses ride the wave of lower marginal tax rates, a business-friendly regulatory climate, and improving earnings. On balance, through the rest of the decade, the positive factors and sheer momentum win out. Over the longer-term, ballooning fiscal deficits and the distorted income distribution pose some potentially serious political and policy challenges.
The labor markets remain healthy as confirmed by the preponderance of the available metrics. Employment growth has demonstrated remarkable endurance, and even building momentum, through the first quarter of 2018 while the market remains tight but has not grown notably tighter. The unemployment rate is indeed very low but labor force participation and the employment to population ratios are accommodating, even among prime age workers. This suggests better wages could keep boomers in the market while drawing more reluctant workers into the labor force providing the needed energy for continued employment growth.
Expect job growth during 2018 to outpace 2017 while the unemployment rate drifts down closer to 3.5 percent by year-end. The near-term risk of recession remains low given the absence of any signs of critical imbalances or a looming financial bubble; therefore, the general expansion should continue through the end of the decade.
I invite you to share this commentary with your colleagues and professional network. Please call me to discuss further or ask any questions.