By Steven R. Drexel, President and CEO of Cornerstone Staffing Solutions, Inc.
On Friday, December 6, the Bureau of Labor Statistics (“BLS”) released its monthly summary of labor market activity covering November 2019. The report was very well received with an impressive 266,000 net new jobs created. This far exceeded virtually anyone’s expectations which were pegged at around 180,000. Moreover, revisions to the prior two months added another 41,000 jobs, injecting additional substance to these prior periods as well. Thankfully, both October and November soundly beat their expected results and given sizable revisions to August and September, these recent months all reflect unexpected strength. The average growth for the four-month period came in at 209,000 net new positions whereas, the run rate looked like around 140,000 per month if we dial back about 120 days. This strength is very welcome news given that slowing global growth, trade anxiety and an obvious softening in the manufacturing sector had raised angst about the durability of the expansion. The unemployment rate edged down one-tenth of a percentage point to 3.5% during November matching a 50 year low. Finally, average hourly earnings during November were up 3.1 percent compared to the prior year. This rate of change has eased a bit since February when the similar growth rate was 3.4 percent. Overall, the Labor Market remains remarkably strong and a powerful support for the broader economy.
Jobs Growth At-a-Glance
The better than expected job growth during August through, and especially during, November has been a reassuring bulwark for our aging but resilient economic expansion. Job growth is an important propellant fueling our consumer-driven economy. Incredibly, job growth has persisted for an unprecedented 110 months. During November, the industry segment data indicated that growth was strong and broad-based in that the share of the 258 detailed industries that improved during November was 61.6 percent, up from 52.7 percent during October. The share of 76 manufacturing industries that improved during November was 54.6 percent notably up from 36.2 percent during October. The average workweek held constant at a respectable 34.4 hours another signal of continuing strength. In summary, November’s job growth along with upward revision to prior months paints a picture of a still strong and expanding labor market.
Unemployment Rate Update
The unemployment rate decreased by one tenth of a point to 3.5 percent. October’s unemployment rate barely rounded up to 3.6 percent whereas November’s rate barely rounded down to 3.5 percent — so in reality, there was very little change during November. That said, the unemployment rate remains close to a 50-year low. There is a gap between the rates of unemployment for teenagers and adults. Teenagers carry an average 12.0 percent unemployment rate while adults average 3.2%. Adult men and women were equally unemployed at 3.2 percent and during November, women advanced to exactly 50 percent of the employed workers. The BLS calculates six versions of the unemployment rate. The official and most quoted rate is the U-3 version. The broadest or most inclusive version of the unemployment rate is U-6 which
includes all persons marginally attached to the labor force plus those employed part-time for economic reasons. During November, U-6 also decreased slightly to 6.9 percent matching the low point of the previous expansion. U-6 was as high as 17% during the last recession. The labor force participation rate contracted to 63.2 percent during November which was about the only metric that did not improve this month.
Wage Rate Update
Average hourly earnings improved during November resulting in an annual growth rate of 3.1 percent. This is down from a peak of 3.4 percent during February of this year. Wage growth has been 3.0 percent or better for 16 months and inflation remains surprisingly subdued at closer to 2.0 percent. Therefore, inflation-adjusted earnings growth is positive. Production and Nonsupervisory workers enjoyed a little better wage growth at 3.7 percent during November. Exactly no one would predict that at this late stage in an expansion, with a historically low unemployment rate, wage growth would be 3.1 percent and stable. This contradiction is likely the result of lower productivity growth, demographic changes (an aging workforce) and regional as well as global workforce competition. Very recently, the slump in manufacturing has pushed the balance toward services that bend toward lower wage rates. The absence of meaningful productivity growth combined with these shifts in the composition of the labor force, lean toward lower average wage growth, offsetting the pressure created by the low unemployment rate.
Measures of Labor Availability
Focusing on the prime-age workers (between 25 and 54 years old) eliminates the influence of the baby boomers that cause the workforce to be on average older, suppressing the aggregate rates of employment and participation. Concentrating on prime-aged workers also corrects for the younger members of the labor market who may opt for school or career training rather than employment. 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 labor force’s ability to continue growing despite the record long-running expansion and historically low unemployment rate:
- The labor force participation rate for prime-age workers held steady at 82.8 percent, this remains below the peak of 83.4 percent at the end of the last expansion during January of 2007;
- Eighty point three (80.3) percent of prime-age workers were employed during November which was unchanged; this metric has crept up recently. This level notably matches the 80.3 percent peak during the previous expansion – also in January 2007, the previous high for prime-age employment was 81.9 during April of 2011; and
- The number of prime-aged workers in part-time jobs for economic reasons (meaning they would prefer to work full-time) is still 1,650,000 workers or about 17% higher than the low point of the last recovery during August of 2006.
- The median duration of unemployment for all aged workers increased to 9.4 weeks during November. This remains 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 have strengthened as 61.6 percent of the detailed industries grew during November which was well below the 70.3 cyclical peak during January of 2012.
Changes in employment by selected industry segments included the following:
- Health care and social services sector (+60.2k) – always robust and healthy and well above average;
- Manufacturing (+54.0k) – includes the inflating effect of the end of the UAW strike during November;
- Leisure and hospitality (+45.0k) – much stronger than the average for this strong but volatile sector;
- Professional and business services (+38k) – including temporary help, over time one of the strongest;
- Transportation and warehousing (+15.5k) – better than average this month;
- Financial activities (+13k) – better than average for this sector;
- Government (+12k) – all State rather than Federal driven this month;
- Construction (+1k) – another volatile, weather-sensitive sector, quite below average this month;
- Retail trade (+2k) – surprisingly slow for this time of year, over time, challenged by online options;
- Wholesale trade (-4.3k) worse than average this month; and
- Mining (-6.9k) – sensitive to energy prices and weather, worse than average.
Employment Situation Retrospective
In summary, the BLS Employment Situation Report for November was all good news. After beating expectations during October and with sizable positive revisions to August, September and October, we are in a better place than anyone could have imagined. The labor market remains robust with a strong tailwind. The unemployment rate is exceptionally low but remarkably stable. Average hourly earnings continue to provide real (greater than inflation) growth. Average weekly hours remain strong. These factors along with prime-age labor force/employment participation rates and duration of unemployment statistics indicate that the labor market while solid and enduring is not overheating and has room to continue to grow. The combination of more employees earning higher wages with a high level of hours worked is a very good formula for consumer spending.
The Outlook for 2020
The broader economy is slowing compared to 2018 but is not fundamentally weaker than 2012 or 2016. The stock market recently set new records. Growth, particularly in China and Europe, is slowing, consumer and business confidence are off their peaks but remain broadly elevated, trade and political tensions remain a headwind. Thankfully, the American consumer is in good shape supporting consumer spending. The banking system is healthy. U.S. growth is and will be slower than 2018 but is still positive through 2020. Presuming that trade and political tensions get resolved reasonably soon, the expansion should continue through at least 2020. Over the longer term, labor shortages, trade, and political tensions, growing government deficits and uneven income distribution loom as potentially serious policy challenges.
The current business cycle expansion has persisted into its tenth year (compared to an average expansion of five or six years). This is our reward for enduring the historically severe, financial crisis-induced 2008 recession as well as the subsequent, slow-growth recovery and ongoing expansion.
For reference, expect jobs growth during 2019 to average around 180,000 positions per month while the unemployment rate stabilizes at 3.5 percent by year-end. Looking to 2020, expect job growth to average around 150,000 while the unemployment rate drifts up a bit to 3.8 percent The near-term risk of recession has been creeping down recently and remains low given the absence of any critically growing asset bubbles or an imminent financial shock.
Word on the street
In the world of recruitment, staffing and employment services, the forecast calls for slow growth very consistent with recent years; the availability of workers combined with critical skills shortages remains the constraining factor. Recruitment of passive or employed, but willing to consider a move, workers is the key to success in this environment. Working candidates, feeling confident, are willing to consider a new opportunity if the new position offers an increase in pay or perceived growth potential or even just a shorter commute. The BLS estimates year-over-year staffing employment growth at a slight increase, while the American Staffing Association reports a mid-single digit decline in employment growth. Employment growth is slow, but wage improvement as well as more search and placement fees all combine to provide a better outlook. Wage rates, particularly for in-demand skilled positions, are growing faster than the published aggregated economic reports suggest. Fill ratios are declining and time-to-fill metrics are stretched, so staffing companies can be selective in terms of the positions that they choose to work on.
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 ClearlyRated’s (formerly Inavero) Best of Staffing® Client Award every consecutive year since 2016. 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 to learn more or contact us.