Can the U.S. Economy Continue to Expand?

November 1, 2019 – Employers added 128,000 jobs last month as the U.S. unemployment rate was little changed at 3.6 percent, according to the most recent U.S. Bureau of Labor Statistics report. The increase was above the 95,000 forecast by economists. The September gain is the 109th consecutive month of job growth. The number of unemployed currently stands at 5.9 million.

The key question now: can the U.S. economy continue to expand in the face of growing headwinds – from weak manufacturing to a looming recession in Germany to the fallout from Brexit later this year.

“As long as confidence remains pretty elevated, as long as job gains continue albeit at a slower pace, and as long as those job gains continue to deliver wage growth, consumption should continue to drive the economy,” said Ben Herzon, an economist for Macroeconomic Advisers, told the New York Times

Where Job Growth Occurred

• In October, food services and drinking places added 48,000 jobs. Job growth in the industry has averaged 38,000 over the past three months, compared with an average monthly gain of 16,000 in the first seven months of 2019.
• Employment in social assistance increased by 20,000 in October and by 139,000 over the last 12 months. Most of the gain occurred in individual and family services, which added 17,000 jobs over the month and 111,000 over the year.
• In October, employment in financial activities rose by 16,000, with gains in real estate and rental and leasing (+10,000) and in credit intermediation and related activities (+6,000). Financial activities has added 108,000 jobs over the last 12 months.
• Employment in professional and business services continued to trend up in October (+22,000). The industry has added an average of 33,000 jobs per month thus far in 2019, compared with an average gain of 47,000 jobs per month in 2018.
• Healthcare employment continued on an upward trend in October (+15,000). Healthcare has added 402,000 jobs over the last 12 months.
• Manufacturing employment decreased by 36,000 in October. Within manufacturing, employment in motor vehicles and parts declined by 42,000, reflecting strike activity.

Employers to Continue Hiring Plans into Final Quarter of 2019
U.S. employers expect the hiring pace to remain positive in the fourth quarter with hiring intentions improving one percentage point compared to a year ago, according to the latest “Employment Outlook Survey,” released by ManpowerGroup. Employers in all U.S. regions and industry sectors said they were expecting headcount to grow. 

• Federal government employment was down by 17,000 over the month, as 20,000 temporary workers who had been preparing for the 2020 Census completed their work.
• Employment in other major industries—including mining, construction, wholesale trade, retail trade, transportation and warehousing, and information—showed little change over the month.

Good or Bad Hiring Market?

It’s been called one of greatest markets for job hunters in recent memory, with unemployment at decades-low levels, and companies virtually scrambling to fill many jobs. And for recruiters plying their trade across almost every imaginable sector, these have been heady days indeed. But a key measuring stick suggests the good times may not last.

The National Association for Business Economics (NABE) said Monday that hiring fell to a seven-year low. Of the 101 business economists the group surveyed, only 20 percent said their firms hired more people over the last three months. Just last July, 34 percent said they were hiring.

Such results can always change, of course, but the trend so far has been observed across most industries. “The fundamentals of the U.S. economy remain relatively strong, but we are seeing most organizations taking a more conservative view around costs near-term,” said Scott Macfarlane, senior client partner at Korn Ferry and global account lead in the firm’s financial services practice.

The results of the NABE survey parallel the decline seen in the September jobs report, where payrolls expanded by just 136,000, nearly 10,000 less than expectations and lower than growth in both July and August.

CEO Confidence Remains Moderately Optimistic
Although chief executives continue to be upbeat about the economy, their confidence levels have waned in recent months. In its most recent report, the Conference Board’s “Measure of CEO Confidence” was unchanged at 43 in the second quarter (a reading of more than 50 points reflects more positive than negative responses).

It isn’t just the jobs market that is slowing, either. Third-quarter GDP growth was 1.9 percent, less than the second quarter’s 2.0 percent growth. More than two-thirds (69 percent) of the business economists surveyed expect real GDP growth of 1.1 percent to 2.0 percent over the coming year, while only one out of five expects growth of 2.1 percent to 3.0 percent.

Mr. Macfarlane says the impact of geopolitical turmoil and trade tension on manufacturing is spilling over into the entire economy. As a result, organizations are looking at how to improve operating margins by capitalizing on still-robust consumer demand while not increasing their cost base. “While we aren’t seeing large layoffs yet, organizations are scrutinizing hiring and pay practices more closely,” said Mr. Marfarlane.

To be sure, the sudden slowdown isn’t affecting all job markets. Experts say organizations aren’t, for example, pulling back on investment in digital transformation. That is an area where search firms like Wilton & Bain and Heidrick & Struggles are seeing growth in finding new leaders. So while shifting into artificial intelligence, automation, and machine learning may inevitably decrease hiring in certain areas, it also increases the need for human skills in others.

David Farris, a Korn Ferry senior client partner and global account leader who specializes in technology, says organizations are still actively looking to hire and retain talent with critical skills or the ability to influence revenue growth. To be sure, 82 percent of respondents to the NABE’s business conditions survey said they are having difficulty staffing high-skill positions. “People costs are always a major factor, but talent that can help advance digital strategy is still very valuable and in great demand,” Mr. Farris said.

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor  – Hunt Scanlon Media