NEWS RELEASE
CORESTAFF COMMENTARY:
SLOWER PRODUCTIVITY GROWTH KEY TO EMPLOYMENT GROWTH
By Steven Drexel,
CORESTAFF president and chief executive officer
This article is among a series of commentaries written by Steven Drexel discussing
key issues and trends affecting today's labor market. Drexel is a member of the Bureau
of Labor Statistics' Business Research Advisory Council. An archive of past commentaries
may be found at www.corestaff.com/press. Please attribute information to Steven Drexel,
president and chief executive officer of CORESTAFF Services if you adapt all or part of
this piece for articles. If you are interested in connecting with Drexel or receiving more
information about CORESTAFF, please contact Sally A. DeVito Jozwiak at 713-438-1567 or
sally.jozwiak@corestaff.com.
February 2005 - During 2005, the economy will shift from a recession-rebound phase into a mid-cycle trend phase. The
GDP growth rate is expected to slow from last year's 4.5 percent to a still-healthy 3.5 percent growth rate during 2005. Albeit slower
than last year, this is still stronger than the long-term trend rate for the economy.
What this means for the labor markets
Employment increased by 2.2 million jobs during 2004, up from a net reduction of 61,000 jobs during 2003. In fact, employment declined
2001 through 2003. That three-year slide was the longest period of employment contraction in at least 65 years. Job growth during 2004
was the first positive movement since the cyclical trough during 2001. 2004 was a good year in the sense that it was a significant
reversal of employment contraction, but not impressive in the long-term context of post recession recoveries. The expectation for 2005
is for modestly stronger employment growth on a year-over-year basis.
How can slower GDP growth generate an increase in employment growth?
In a word: productivity. Productivity growth is unprecedented during this post-recession period. The annual rate of productivity
growth was 4.4 percent during both 2002 and 2003, and I expect it to top four percent during 2004. Rarely has annual productivity
growth exceeded four percent, and never before have two consecutive years grown above four percent. Very fast productivity growth
continued during the first half of 2004 but has moderated to a more reasonable pace recently. The consensus forecast calls for
productivity growth in the 2.2 percent range in 2005.
Productivity growth is good for the long-term economy because it suppresses inflation, improves competitiveness and raises our standard
of living. In the short-term, however, productivity growth limits employment growth. But there's good news for the American worker:
during 2005, as the economy slows down to a healthy GDP growth rate, employment growth will not be diminished because the slower growth
in output will be offset by slower growth in productivity.
Modest improvement in workweek length and wages
Average hourly earnings increased 2.7 percent during the past year, up from the 1.8 percent improvement in earnings recorded during
December, 2003. Average work week metrics reinforce the earnings data: the average work week consisted of 33.8 hours during December
of 2004. While this was somewhat higher than the year-earlier reading, it was not high compared to the typical recovery period. The
earnings and workweek data suggest some relative sequential tightening, but nothing severe in the longer-term context. Moreover, the
Federal Reserve Board staff in a recent report to policy makers noted a significant tightening in the market for skilled workers while
demand for less skilled workers remained soft.
Recent statistics support the case for an improving job market.
Announced layoffs as reported by the Challenger report declined notably during January, compared to both prior month and prior year. The
Purchasing Managers Manufacturing index in January indicated "a strong willingness to add jobs". Initial Jobless Claims,
currently at 319,000, have been trending downward and remain well below the 400,000 level -- that which is generally associated with
declining employment. Consumer Confidence, as captured by a Conference Board Survey, rose for the second consecutive month and the employment
component of the survey improved in terms of the percentage of respondents indicating "jobs are plentiful" compared to the percent
saying "jobs are hard to get".
Overall, the economy is moving from a robust recovery phase into a slower-but-healthy trend phase. Employment growth, on the other hand, is
still building, and the outlook is for a need for more workers in the wake of increasing jobs growth, slowing productivity and gradual tightening
of labor markets. Expect job growth on Friday to be around 200,000 jobs, while the unemployment rate holds steady or declines one tenth of a point.
The Conference Board's Consumer Confidence Index, which had improved in December, edged up in January. The Index now stands at 103.4 (1985=100), up
from 102.7 in December. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted
for The Conference Board by TNS NFO.
About CORESTAFF Services
CORESTAFF Services is one of the largest national staffing firms in America, with offices in 20 states. CORESTAFF also operates as
TeleSec CORESTAFF in the Washington, DC area and Leafstone Staffing Services in the New York City and northern New Jersey metropolitan
areas and southern Connecticut. CORESTAFF is not affiliated with Core Staffing Services, Inc. which operates in the New York Metro
Area. CORESTAFF is headquartered in Houston, Texas; 713-438-1400.
Visit CORESTAFF Services on the Web at: www.corestaff.com, www.it.corestaff.com,
www.careertrust.com, www.techresources.coretaff.com, www.infocurrent.com
and www.employmentzone.org.
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