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 September’s statistics will be out on Friday, October 5, (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.
September’s Expected Employment Highlights
The economy is in the mature stage of the business cycle with many positive influences continuing to support growth. Most recently, forecasters have raised their predictions for growth during 2018 and 2019. The business, consumer and government sectors are all strong and contributing. The labor market has remained strong and supportive with job growth exceeding expectations and wage growth improving, albeit at a slow but steady clip. Nine years into the extended expansion — and with a very low unemployment rate — it is fair to ask ‘how much longer can the expansion continue?”. The consensus of the forecasters indicate that the answer is ‘about two more years’. This being the case, we expect continued steady job growth during the remainder of 2018 followed by continued but more constrained growth during 2019. September’s Employment Situation Report should confirm this narrative that suggests the economy still has enough vitality to continue the campaign. The momentum is certainly positive and there are tax cuts and increased government spending providing accelerating stimulus. The looming headwinds, which may in the longer-term affect the positive momentum, are the gradually tightening labor market, a gradually more restrained monetary policy, building fiscal deficits and uncertainty regarding our trade policy.
An important caveat to consider this month is the notion that September’s results could well be obscured by the unknowable impact of Hurricane Florence which affected the Carolinas and surrounding states toward the end of the survey week that the BLS uses to compile the Employment Situation Report. It is possible that this weather event will cast a cloud over whatever the report indicates.
The headline net job growth number during September should come in with another strong 185,000 net new positions. This would be below August’s 201,000 growth rate but still consistent with the average rate of growth for the past three months. This consistently robust job growth confirms a healthy labor market as well as a robust general economy.
Another important metric of interest is the unemployment rate. I expect the unemployment rate to decline by one click to 3.8 percent during September continuing its very gradual decline. This would keep the unemployment rate in the range it has been occupying for the last eleven months. After a record 95 consecutive months of employment growth, understandably, 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 growth in the labor force is keeping pace with demand rather than running dry or overheating. Demographic changes have certainly pushed the unemployment rate lower during the current cycle. Given that the workforce is, on average, both older and better educated, this skews the unemployment rate lower since unemployment is significantly lower for these groups of workers.
Finally, the change in average hourly earnings has become a very closely watched metric since it has been surprisingly low for an unexpectedly long time. In addition, average hourly earnings 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 hold steady at 2.9 percent during September. This would be consistent with a gradually tightening labor market and gradually increasing price pressure.
The Employment Situation Report, due out this Friday, is typically a market mover because it is a critical and illuminating component of the broader economic picture. Assuming that the report is not too corrupted by the east coast storm effect, this month the relevant question is, does the report support the narrative asserting that the economy remains strong and the expansion is secure?
Employment related economic indicators that suggest September’s report will remain strong or improve include:
- Initial unemployment claims trended down during September from already historically low rates. Continuing unemployment claims also decreased suggesting that the unemployed had less difficulty getting back to work during September;
- The Conference Board’s Consumer Confidence Index improved prominently again during September maintaining an 18-year high. The differential between “jobs plentiful” versus “jobs hard to get” also increased to a singularly imposing 32.5 percent;
- The Institute for Supply Management’s Manufacturing Index remained strong during September and the Employment sub-index improved to 58.8, its highest level in seven months;
- The National Federation of Independent Business’ Small Business Survey, currently at the best level in the survey’s 45-year history, indicated that a net 26 percent of their members have plans to increase employment up from 23 percent during the previous month;
- Federal Reserve Bank Manufacturing Surveys published by the New York Empire State and Philadelphia districts reported improving or otherwise positive employment conditions during September; and
- The American Staffing Association’s Staffing Index improved during September compared to August continuing an eight-month positive 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 August’s report will be softer include:
- Federal Reserve Bank Manufacturing Survey published by the Kansas City, Richmond and Dallas districts reported weaker employment conditions during September; and
- The Wall Street Journal Forecasting Survey for September predicted a rate of employment growth which is softer than what was reported during August but consistent with recent longer-term trends.
Expectations for the remainder of 2018
The 4.2 percent Gross Domestic Product (GDP) growth during the second quarter was one of the fastest rates of the current business cycle, which is impressive this far into an extended expansion. Indicators released during the recently concluded second quarter suggest that the economy, during the third quarter, remains strong albeit growing at a rate about a full point slower than the second quarter. Business and consumer confidence, retail sales, durable goods, industrial production, the stock market and initial jobless claims have all provided a nice lift to the economy. The economy is still benefiting from tax cuts and increased government spending so there is plenty of impetus and fiscal stimulus pushing continued growth through the end of 2018 as well as 2019. Only about 30 percent of the recent economic releases have fallen short of expectations. Emerging but not yet critical headwinds include rising interest rates, intensifying labor shortages, growing fiscal deficits and international trade uncertainties.
Employment has been growing for a record 95 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 is no doubt that the labor force is becoming a constraining factor. And yet, contra indications 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 critically 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. Over the longer-term, expanding 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.