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 October’s statistics will be out on Friday, November 2, (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 October 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.
October’s Expected Employment Highlights
The economy remains strong as demonstrated by the Gross Domestic Product estimate released Friday indicating that the Third Quarter grew by 3.5 percent. This following the Second Quarter’s robust 4.5 percent growth rate confirms the ongoing strength. The fourth quarter is expected to be strong as well with forecasted growth still north of 3 percent. Consumer and government spending were the strongest contributors during the third quarter; the business sector is expected to bounce back during the fourth quarter. The economy can be characterized as in the later part of the mid-cycle with low near-term risk for contraction. The labor market has remained strong and supportive with job growth exceeding expectations and wage growth improving, albeit at a muted rate. Given this backdrop, expect continued steady job growth during the remainder of 2018 followed by continuing but somewhat softer growth during 2019. October’s Employment Situation Report will be consistent with this thesis suggesting a strong but aging expansion. The momentum continues to be supportive and there are tax cuts and increased government spending providing ongoing stimulus. The headwinds are the tightening labor market, a more restrained monetary policy, building fiscal deficits and uncertainty regarding our trade policy. These may, in the longer-term, disrupt the expansion.
The headline net job growth number during October should come in with a strong 190,000 net new positions. This would be a rebound from September’s weather-depressed 134,000 growth rate, but equal to average rate of growth for the past three months. This level of robust job growth confirms a healthy labor market as well as the ongoing strength in the general economy.
Another important metric of interest is the unemployment rate. I expect the unemployment rate to hold steady at 3.7 percent during October following an unusual two-tenth decline during September. Given a record breaking 96 consecutive months of employment growth, the unemployment rate is extraordinarily low. Demographic influences have deflated the unemployment rate during the current cycle. The workforce is, on average, both older and better educated; this tips the unemployment rate lower since unemployment is significantly lower for older and more educated cohorts.
Finally, the change in average hourly earnings is very closely observed because it has been notoriously low for a very long time. Moreover, growth in average hourly earnings drives broader inflation and provides further insight into the availability of workers needed to support further GDP growth. I expect that the change in average hourly earnings will improve to 2.9 percent during October. This would be consistent with a gradually tightening labor market and gradually increasing price pressure.
The Employment Situation Report, is potentially a market mover because it is a critical and illuminating cog in the larger economic ecosystem. This month the pressing question is, will job growth rebound from last month’s hurricane suppressed levels and will wage growth continue to improve at a moderate rate?
Employment related economic indicators that suggest October’s report will remain strong or improve include:
- Initial unemployment claims trended slightly up during October but remained at historically low levels. Continuing unemployment claims decreased suggesting that the unemployed had more success getting back to work during October;
- The Conference Board’s Consumer Confidence Index improved again during October sustaining an 18-year high. The differential between “jobs plentiful” versus “jobs hard to get” also increased to a remarkably positive 32.7 percent;
- The Wall Street Journal Forecasting Survey for October predicted a rate of employment growth which is stronger than what was reported during September and consistent with recent longer-term trends.
- The National Federation of Independent Business’ Small Business Survey, remained at the best level in the survey’s 45-year history, indicated that a net 23 percent of their members have plans to increase employment;
- The California Manufacturing Survey published by Chapman University indicated that their employment index increased from 57.6 during the third quarter to 62.9 during the fourth quarter suggesting that employment will increase;
- Federal Reserve Bank Manufacturing Surveys published by the Texas, Kansas City, Richmond and Philadelphia districts reported improving or otherwise positive employment conditions during October; and
- The American Staffing Association’s Staffing Index improved during October compared to September continuing a nine-month positive run.
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 October’s report will be softer include:
- Federal Reserve Bank Manufacturing Survey published by the New York Empire State district reported weaker employment conditions during October.
Expectations for the remainder of 2018
The 3.5 percent Gross Domestic Product (GDP) growth during the third quarter was better than expected and remained above trend. Indicators released during October suggest that the economy, during the fourth quarter, remains strong. Business and consumer confidence, durable goods, factory orders, industrial production and initial jobless claims have all remain strong. The economy is still benefiting from tax cuts and increased government spending so there is plenty of stimulus pushing continued growth through the end of 2018 as well as into 2019. The stock market has stalled recently as investors consider high tech valuations, uncertainty around mid-term elections, Federal Reserve policy, trade tensions and the sense that earnings may not continue to grow at such a torrid rate. These are speculative rather than fundamental concerns. Only about 20 percent of the recent economic releases have fallen short of expectations recently. 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 96 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. The labor force is on the verge of becoming a constraining factor. On the proverbial other hand, 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 has room to continue growing.
Consumers enjoy more job opportunities, improving hourly wage rates, lower federal tax rates and stronger home values. Businesses benefit from lower tax rates, a friendly regulatory environment, better earnings and more relaxed lending standards. Over the longer-term, expanding fiscal deficits, tighter monetary policy and the distorted income distribution foreshadow some worrisome governance and policy challenges.
Expect job growth during 2018 to remain strong 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.
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.