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 June’s statistics will be out on Friday, July 6, (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 June 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.
June’s Expected Employment Highlights
The average hourly wage growth is the most intriguing element of June’s upcoming report because May’s rate of growth was stronger than expected. A second strong result would suggest that wage inflation may be finally gaining traction. On one hand, higher wages would be a long overdue and welcome benefit to workers. On the other hand, with the unemployment rate so low, some economists worry that a notable acceleration in hourly wages could lead to an overheating scenario that foreshadows an end to the expansion. The best case is the Goldilocks situation in which wage growth is neither too hot nor too cold. This month’s report should provide some insight in this regard. I expect that June’s increase in average hourly earnings will match May’s 2.7 percent annual rate which would be the safer side of the Goldilocks principle.
I expect the headline net job growth number during June to come in at a respectably sound 195,000 positions. This would be slower than May’s surprisingly strong 223,000 growth, but closer to recent smoothed or trend rate of increase. This pattern of job growth confirms a healthy labor market consistent with the broader accelerating and yet aging economic expansion.
Another metric that bears watching is the unemployment rate which had been rather dormant for six months holding at 4.1 percent through March –but then took a rather jarring two consecutive steps down to 3.8 percent in May. At any rate below 4.5 percent, eyebrows are raised when the rate declines since these are historically low rates. Even after allowing for demographic and structural changes that suppress the labor force, a 3.8 percent unemployment rate denotes a very tight labor market. I expect the unemployment rate declines to pause during June with the rate remaining at 3.8 percent as the labor force participation rate recovers a bit.
During March, April and May — the labor force growth rate stalled, which helped to explain the rapid decline in the unemployment rate. Therefore, the rate of growth in the labor force is another metric of interest since it determines the continuing availability of workers and employment’s ability to continue to grow with a moderate, or healthy, amount of wage growth.
The rousing effect of tax reform and the expansive budget program passed by the Federal Government are at cross currents with threatened international trade conflicts, rising interest rates and a less frothy stock market. Consequently, the monthly Employment Situation Report takes on more profound interest as an indication of how the economy traverses these complex macro factors.
Employment related economic indicators that suggest June’s report will remain strong or improve include:
- Initial unemployment claims were improved during June compared to May remaining at or near historically low rates. Further, continuing unemployment claims improved during June as compared to May signaling that more of the unemployed found jobs during June;
- The Wall Street Journal Forecasting Survey for June predicted a rate of employment growth stronger than what was reported during May and consistent with longer term trends;
- The National Federation of Independent Business’ Small Business Survey indicated that a net 18 percent of their members have plans to increase employment up from 16 percent during the previous month;
- Federal Reserve Bank Manufacturing Surveys published by the Texas, Philadelphia, Richmond, Kansas City and New York districts all reported improving or otherwise positive employment conditions during June;
- The Institute for Supply Management’s New York Report was generally positive in June and the employment sub-index was particularly strong with 63.4 percent of respondents positive about hiring; and
- The American Staffing Association’s Staffing Index improved during June compared to May continuing a five-month trend.
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 June’s report will be softer include:
- The Institute for Supply Management’s Manufacturing Employment Diffusion Index remained positive and solid but declined slightly during June, and
- The Conference Board’s Consumer Confidence Index dipped somewhat during June while the differential between “jobs plentiful” versus “jobs hard to get” also contracted slightly to a still impressive 25.1 percent during June.
Expectations for the remainder of 2018
The very recently concluded second quarter grew at one of the fastest rates of this decade. The broader economy as well as the labor market remain strong and self-sustaining carrying momentum from the slow but steady and long running expansion as well as the benefits of tax reform and increased government spending. Emerging or intensifying headwinds include rising interest rates, looming labor shortages and international trade uncertainties. Moreover, about 20 percent of the recent economic releases have fallen short of expectations.
Consumers enjoy an improving labor market, accelerating hourly wage rates, lower tax rates and better home prices. Businesses remain the beneficiaries 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 shear momentum prevail. Over the longer-term, ballooning fiscal deficits, foreign trade tension and the distorted income distribution pose some potentially serious political and policy challenges.
The labor markets remain healthy. Employment growth has proven to show remarkable endurance. The unemployment rate is historically low but partially mitigated by labor force participation and the employment to population ratios that are not as stressed as they have been during similar phases of previous expansions, 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.
More About Cornerstone Staffing
Cornerstone Staffing Solutions is among the largest staffing firms in America and received Inavero’s Best of Staffing® Client Award in 2016, 2017 and 2018. Since 2003, Cornerstone has grown from a neighborhood staffing provider to a national firm that employs thousands of people at hundreds of companies from coast to coast. The Cornerstone family of companies also includes Dallas, Texas-based Rightstone (www.rightstone.com), and Chicago, Illinois-based Arlington Resources, Inc. (www.arlingtonresources.com) and Casey Accounting & Finance Resources (www.caseyresources.com). Providing candidate searching and job placement for administrative, industrial, technical, sales and transportation positions, Cornerstone truly is where talent and jobs meet.