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 August’s statistics will be out on Friday, September 7, (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 August 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.
August’s Expected Employment Highlights
The general economy is in the prime phase of its cycle with the consumer, corporate and government sectors each firing on all cylinders. This is about as good as it gets before the labor market runs dry and inflation heats up typically leading to the end of the expansion. Employment growth has remained strong and supportive with job growth exceeding expectations and wage growth improving but at a surprisingly reserved rate. These metrics suggest that there is still capacity in the labor market to fuel growth. Nine years into the extended expansion — and with a very low unemployment rate — it is fair to ask ‘how long the good times can last?’ The best estimates suggest that the answer is ‘a couple more years’. This being the case, we expect continued steady growth during the balance of 2018. Observers will be interested to see if the August Employment Situation Report confirms this narrative that suggests the good times will persist. The sheer momentum is certainly positive and there are tax cuts and increased government spending providing stimulus. The looming headwinds, which may affect the positive momentum, are an increasingly constrained labor market, a more restrained monetary policy, building fiscal deficits and uncertainty regarding our national trade policy.
The headline net job growth number during August should come in with another strong 190,000 positions. This would be stronger than July’s growth rate but generally on par with the average rate of growth for the past 12 months. This consistently robust job growth confirms a healthy labor market as well as a vibrant general economy.
The second most significant metric of interest, but subject to less month-to-month variation, is the unemployment rate. I expect the unemployment rate to decline by one click to 3.8 percent during August continuing its gradual decline. This would keep the unemployment rate in the range it has been hovering around for the last ten months. It is not surprising that after 94 months of employment growth the unemployment rate is exceptionally low. It is encouraging to note the rate has been relatively stable at close to this level for some time suggesting that the labor force is keeping pace with demand rather than running dry or overheating.
Finally, the change in average hourly earnings has become a ‘headline number of interest’ because it has a big influence on general inflation and provides further insight into the availability of labor needed to sustain the expansion. I expect that the change in average hourly earnings will move up to 2.8 percent during August. This would be consistent with a gradually tightening labor market and gradually increasing price pressure.
The Employment Situation Report, due out this Friday, is an important and revealing piece of the broader economic picture. This month the relevant question is, can the good times last or are we approaching an inflection point?
Employment related economic indicators that suggest August’s report will remain strong or improve include:
- Initial unemployment claims stabilized during August at historically low rates. Continuing unemployment claims decreased during August as compared to July suggesting that the unemployed had less difficulty getting back to work during August;
- The Conference Board’s Consumer Confidence Index improved dramatically during August to an 18-year high. Further, the differential between “jobs plentiful” versus “jobs hard to get” also increased to a remarkably impressive 30.0 percent;
- The Institute for Supply Management’s Manufacturing Index was stronger than expected in August and the Employment sub-index improved to the highest level in six months;
- The National Federation of Independent Business’ Small Business Survey indicated that a net 23 percent of their members have plans to increase employment up from 20 percent during the previous month;
- Federal Reserve Bank Manufacturing Surveys published by the Dallas and Richmond districts reported improving or otherwise positive employment conditions during August; and
- The American Staffing Association’s Staffing Index improved during August compared to July continuing a seven-month positive trend and reaching a record peak since its 2006 inception.
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 August’s report will be softer include:
- Federal Reserve Bank Manufacturing Survey published by the Philadelphia, Kansas City and New York districts reported weaker employment conditions during August; and
- The Wall Street Journal Forecasting Survey for August predicted a rate of employment growth which is softer than what was reported during July and below longer-term trends.
Expectations for the remainder of 2018
Gross Domestic Product (GDP) growth at 4.2 percent during the second quarter, is one of the fastest rates of the cycle which is remarkable this deep into an expansion. Indicators released during July and August suggest that the economy during the third quarter remains strong. Retail sales, business and consumer confidence, the stock market and initial jobless claims in particular have all proven very resilient. The economy is still benefiting from tax cuts and increased government spending so there is plenty of momentum and fiscal stimulus pushing continued growth forward through the end of 2018 as well as 2019. Only about a quarter of the recent economic releases have fallen short of expectations. Emerging but not yet critical headwinds include rising interest rates, intensifying labor shortages and international trade uncertainties.
Employment has been growing for a record 94 consecutive months and the unemployment rate is quite low. Further, every anecdotal survey including the well documented Federal Reserve Bank’s Beige Book reports that employers are struggling to fill open positions. So there are plenty of reasons to believe that the labor force could be the constraining factor. And yet, contraindications include the absence of rapidly growing wages, lower than expected labor force participation and employment to population ratios even among prime-aged workers, and still elongated average periods of unemployment suggest that the labor market is not yet tapped out.
Consumers enjoy more job opportunities, improving hourly wage rates, lower federal tax rates, stronger home values and improving 401k balances. Businesses benefit from lower marginal tax rates, a friendly regulatory posture, improving earnings and more liberal lending standards. Through the rest of the decade, the fundamentals and shear momentum carry the day. Over the longer-term, ballooning fiscal deficits, tighter monetary policy and the distorted income distribution pose some vexing political and policy challenges.
Expect job growth during 2018 to remain strong while the unemployment rate drifts down closer to 3.6 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.
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. Visit Cornerstone at: http://www.cornerstone-staffing.com.