By Steven R. Drexel, President and CEO of the Cornerstone Staffing Solutions, Inc. family of companies
On Friday September 7Th, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering August of 2018. The report was copacetic, with a balance of metrics that give comfort to those that want to see continued robust growth as well as those that worry that the market is running too hot and is approaching burnout. Leading with the indications of strength – job growth, at 201,000 net new positions was stronger than expected and average hourly earnings also surged to reflect 2.9 percent year over year growth, up from 2.7 percent during July. The unemployment rate remained low and constant at 3.9 percent.
Jobs Growth At-a-Glance
The headline jobs growth number at 201,000 net new positions was stronger than the 190,000 expectation and a very reassuring rebound from July’s downwardly revised 147,000 result. This was the record-setting 95th consecutive month of growth and a real indication of strength, particularly when you consider that growth during 2018 is faster than either of the previous two years. It is hard to imagine, but arguably true, that job growth is accelerating despite the low unemployment rate. The mitigating factor, that relieves pressure for the benefit of those that worry about overheating, is that revisions to June and July subtracted 50,000 positions from the total workforce. Moreover, the separate, household survey, indicated that employment declined by 423,000 positions. The household survey is smaller, and statistically less reliable than the establishment survey that provides the headline number. Nevertheless, it is a data point worth noting that suggests that job growth may be a little weaker than the headline report indicates.
Unemployment Rate Update
The unemployment rate held steady at 3.9 percent remaining in the reasonably narrow range that unemployment has occupied for ten months. The unemployment rate is quite low by any historical standard. The fact that it is relatively stable rather than constricting further suggests that the labor force is not getting sharply tighter. This is a reassuring notion in terms of the sustainability of the expansion. Another, related indicator that is telling a less concerning story is the labor force participation rate which declined by 2 tenths of a point to 62.7 percent during August. A lower labor force participation rate suggests that, despite the low unemployment rate, there are pockets of potential workers still available to sustain growth.
Wage Rate Influencers
Average hourly earnings during August indicated that wages grew by 2.9 percent on a year-over-year basis. This was the highest rate in nine years and consistent with the “gold standard” Employment Cost Index published recently covering the second quarter. Accelerating wage growth is long overdue and a very good thing for our workforce. It is not a coincidence that recent reports indicate that productivity has picked up. This would indicate that accelerating wage growth is sustainable, healthy, and non-inflationary. A primary goal of last year’s corporate tax cut legislation was to spur the very investment that would lead to better productivity. It is too early to confirm this outcome — but if true there would be a self-perpetuating impetus to the improving wage growth story.
Measures of Labor Availability
Isolating the prime-age workers (between 25 and 54 years old) eliminates the influence of the aging baby boomers that likely suppress the overall rates of employment and labor force participation. Concentrating on prime-age workers also corrects for the younger slices of the workforce who continue in school or career training. The median duration of unemployment provides insight into how easy it is for unemployed workers to re-enter the workforce. Collectively, these less-followed series can provide insight into the capacity of the labor force or its ability to continue growing despite the long-running expansion and low unemployment:
- The labor force participation rate for prime-age workers decreased by one-tenth of a point to 82.0 percent, this remains notably below the high of 83.4 percent at the end of the last expansion during January of 2007;
- Seventy-nine point three (79.3) percent of prime-age workers were employed during August, down from July, and still below the 80.3 percent peak during the previous expansion – also in January 2007; and
- The median duration of unemployment declined slightly to 9.1 weeks during August roughly in line with the past 9 months. This is still elevated compared to the 7.3-week duration that was the lowest point of the last expansion during June of 2006.
Industry Sector Details
The industry sector metrics remained strong as 60.7 percent of the detailed industries grew during August. This was better than July’s reading but somewhat softer than the previous six months, which twice exceeded 70 percent.
Changes in employment by major industry segment included the following:
- Professional and business services (+53.0k) – including temporary help, consistently strong;
- Health care and social services sector (+40.7k) – always robust and consistent;
- Construction (+23k) – a volatile sector, about average this month;
- Wholesale trade (+22.4k) much stronger than average growth this month;
- Transportation and warehousing (+20.2) – stronger than average during August;
- Leisure and hospitality (+17.0k) – less than average, often seasonal;
- Financial activities (+11.0) – a rebound month;
- Mining (+6.0k) – strong compared to recent months;
- Government (-3.0k) – unusually weak but based on State and Local government;
- Manufacturing (-3.0k) – a soft month given lots of progress this past year;
- Retail trade (-5.9k) – a weak month for a sector under serious digital stress; and
- Information (-6.0k) – a faster than usual decline.
Employment Situation Retrospective
In summary, while the BLS Employment Situation Report for August was expected to be solid, the actual results were stronger and the details reassuring suggesting that the labor market can continue to grow and support the broader economy. This result is consistent with other public and private employment statistics including initial and continuing jobless claims, job openings, consumer and business confidence, announcements layoffs, hiring plans and supply manager’s employment indexes which all tend to confirm that the labor market remains enduringly, and remarkably robust. The unemployment rate is quite low but relatively stable. Average hourly earnings are improving at a better rate. Labor force/employment participation rates and duration of unemployment statistics indicate that the labor market while strong and enduring, is not overheating.
The broader economy is good and improving due in part to fiscal stimulus (tax cuts and increased federal spending). Consumer and business confidence remains high. The near-term outlook is positive. Over the longer term, trade tensions, growing government deficits and uneven income distribution loom as potentially serious policy challenges.
The current expansion has persisted now into its tenth year (compared to an average expansion of five or six years). This is the reward for suffering through the last historically severe, financial crisis-induced recession as well as a slow-growth recovery. The expansion still looks to continue through the end of the decade because there are no obvious looming bubbles and the labor market remains supportive
Expect jobs growth during the remainder of 2018 to average slightly over 200,000 positions per month while the unemployment rate trends down to around 3.5 percent by year-end. The near-term risk of recession remains low.
Word on the street
In the world of recruitment, staffing and employment services, there are no emerging signs of weakness in demand; the tight labor market and skills shortages remains our challenge. The BLS estimates staffing year-over-year employment growth at 2.9 percent, while the American Staffing Association reports 3.7 percent employment growth – slightly improved during August. Employment growth is muted, but wage and margin improvement as well as more search and placement fees drive better results. Wage rates, particularly at the cutting edge, are growing faster than the statistical economic reports suggest. Fill ratios are lower and time to fill metrics are slower, so staffing companies can be more selective in the positions that they choose to fill. Workers, feeling more confident, are more willing to try a new position if it offers a better wage or perceived opportunity.
Please feel free to contact me if you have any questions or comments.
More about Cornerstone Staffing Solutions
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.