2017 Economic Overview: Expecting Growth in an Evolving Labor Market Educate and Innovate

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Winifred Gardner
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1 2017 Economic Overview: Expecting Growth in an Evolving Labor Market Educate and Innovate May 30, 2017 Agenda q Background: Broad Economic Overview q Sector Specific Worker and Industry Trends q What You Can Do 1

2 Job Openings: Hovering at record levels Job Openings by Month (SA) Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 Total Private Laborers Job openings continue to hover at record levels. For industries that employ skilled and unskilled laborers, openings are up 85% since 2011 and 28% since early Supply IS the Problem The worker shortage facing America's farmers CNN Money (Sept, 2016) What s Holding Back the Housing Market? Not Enough Construction Workers Reuters (Sept, 2016) Oil companies face worker shortages after 350,000 layoffs USA Today (Jun, 2016) Is 2017 the Tipping Point for the Manufacturing Skilled Labor Shortage? Detroit Business Journal (Jan, 2017) 2

GDP: Rough go but slow and steady in 2017 3.5 3.5 3.0 2.5 2.0 1.5 1.0 0.5 2.6 2.0 2.0 1.4 0.9 0.8 2.1 0.7 2.2 2.0 0.0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17p3Q17p 4 out of the last 6 quarters were lethargic.

3 GDP: Rough go but slow and steady in Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17p3Q17p 4 out of the last 6 quarters were lethargic. A trend that is predicted to end in But why the poor GDP growth if job growth has been so consistent? Job growth, by the numbers, looks great Pre-recession Peak -8.7M +16M Current Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Even though the pace of growth has slowed, we have still added 750K jobs in 2017 (185K/mo). The previous 6 months, 195K/mo. 3

4 But the rate of growth has been going down month net job additions Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 The U.S. has been adding jobs at a slowing rate since the beginning of But, it is still adding jobs! Canada has also felt restrained growth 18,500 Total Employment 18,000 17,500 17,000 16,500 16,000 Jan2006 Jul2006 Jan2007 Jul2007 Jan2008 Jul2008 Jan2009 Jul2009 Jan2010 Jul2010 Jan2011 Jul2011 Canada Canada faced a recession in 2009 with a decline of almost 400,000 jobs in one year. Canada quickly rebounded in 2011, although at a pace slower than previously seen prior to the recession. Jan2012 Jul2012 Jan2013 Jul2013 Jan2014 Jul2014 Jan2015 Jul2015 Jan2016 Jul2016 Jan2017 Source: StatCanada 4

5 There are two key factors that have been influencing the economy: Oil & Gas drilling China transition to a service based economy Plunging oil prices and their effect on labor Bankruptcies 114 North American O&G producers 2015 to now. Involve approximately $74 billion in cumulative secured and unsecured debt. As of Dec 14th, 2016, 70 producers had filed bankruptcy in 2016 There were 16 Midstream bankruptcies since Canceled Projects $380 billion worth of oil and gas projects have been cancelled since major projects were scrapped in 2015, which account for around 27 billion barrels of oil and natural gas. $170 billion in capex spending was slashed for the period between 2016 and Major players (Exxon, Shell, ConocoPhillips, Chevron, etc.) announced record losses; Canada has had its worst GDP growth in years. 10 Source: Haynes and Boone, Wood McKenzie, Energy Matters 5

China s transition to services Western exposure is significant Exports to China: Qualcomm (48%), Texas Instruments (30%), Intel, Boeing, Western Union, Mastercard (around 10%) In 2014, China

6 China s transition to services Western exposure is significant Exports to China: Qualcomm (48%), Texas Instruments (30%), Intel, Boeing, Western Union, Mastercard (around 10%) In 2014, China represented around 46% of the global market for steel products. CAT was selling one fifth as many large machines to China last year compared to 2 years prior. They announced a 10K layoff late 2015 as a result. 11 Source: Investopedia, MarketWatch, CNN Industries are hiring, just not the shakers * Nonstore retailers up 21K Apr YoY Ch (k s) Health Care 337 Hotels and Restaurants 275 Government 179 Construction 173 Temp Help 112 Transportation/warehousing 84 IT Services 79 Mgmt Consulting 79 Retail* 75 Insurance 56 Banking 42 Manufacturing 40 Scientific Research 25 Oil and Gas 0 Information -46 Largely unskilled laborers Durable goods down 8K Telecom down 40K, Software up 14K 6

7 Which States are hiring the most manuf.? Apr YoY Ch (k s) Texas 6.2 Michigan 4.8 Wisconsin 4.7 Minnesota 1.9 Oregon 1.5 Pennsylvania -1.6 North Carolina -1.7 Indiana -2.2 Virginia -2.7 California -2.8 Ohio -4.5 There is no rhyme or reason to which States are hiring which shows that success will depend largely on the market a company is located in. The pool is getting drained, even lower end Unemployment rates Jan Apr Change Some High School High School Diploma Assoc Degree/Some College College Degree or higher All time record low was 5.8% in December 1999! 7

8 The pool is getting drained If we remove the Vietnam War, the lowest unemployment rate ever for year olds was in June 2000 at 12.3% Last month we hit 13.7% after peaking in 2010 at 26.2%. In Y2K, the Labor Force Participation rate was 52% for this age group. Now, it is 36%. Conditions are tight, but stable, with LI a little loose Low High Current OTY Change Admin/Clerical Business and Financial Engineering IT Management Production Sales Skilled labor has been and will be a concern. But there is proof that low skilled workers are also completely tapped out. 8

9 Unemployment rates for key manufacturing skill set groups 14 Maintenance, Production, and Transport/Materials Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 The 3 largest skill set groups in manufacturing have seen their unemployment rates fall over 50% since 2012 while Durable Goods manufacturing only grew by 4%. Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 IMR Prod Trans/Mat Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Wage Growth for Full-Time Job Holders 1Q, Year over Year YoY Wage Growth Holders Switchers ALL 4.3% 5.1% Manufacturing 4.0% 3.4% Construction 4.8% 5.6% Mining (Oil & Gas) 3.0% -6.5% Finance 4.6% 4.9% Information 5.1% 6.5% Prof Business Srvs 4.5% 6.2% Hotels/Restaurants 5.0% 8.5% Education/Healthcare 4.0% 6.5% Trade, Transport 4.1% 4.3% The weakest sectors employment wise have also seen the weakest pay growth outside of healthcare. Supply and demand are clearly linked. SOURCE: ADP Workforce Vitality Report 9

10 So, when will this improve? Oil and Gas OPEC initially drove the barrel price well below the breakeven price point for countries like the U.S. and Canada. They have let the price rise to the mid $50s, a number that lets running wells make enough money to stay open, thus stopping job losses. While various experts predict different outcomes, there is no sensible reason for OPEC to allow the U.S. to gain oil independence in the near term. The price to employment manipulation game Emp in K s Oil barrel price ($) TOTAL O&G Emp Oil Price (Cushing spot price) Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov Industries included: O&G extraction, Support, O&G construction, and O&G manufacturing. Combined, they lost 1/3 rd of their workforce in just over 2 years. Source: Bureau of Labor Statistics, U.S. Energy Information Administration, 10

11 Metal Treating Recent labor trends Metal Treating hiring slows since Metal Treating vs Motor Vehicle and Parts Employment Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Oct MV/Parts Although employment has softened since 2015, it is still within 2,000 of its pre-recession high. The same cannot be said for auto manufacturing which is 15% below where it was before the recession. MT 11

Hours heading down, earnings heading up $ 21.5 21 20.5 20 19.5 19 Avg Weekly Hours vs Avg Hourly Earnings hrs 43 42 41 40 39 38 18.

12 Hours heading down, earnings heading up $ Avg Weekly Hours vs Avg Hourly Earnings hrs Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan Avg Hr Earn Avg Wk Hrs With employment lagging, the decline in hours is not surprising. If conditions are weaker since 2015, the increase in earnings may indicate that metal treaters are laying off lower end workers to address lower demand. What Can You Do? Recent labor trends 12

13 The new landscape of talent o Statement of Work o Gig workers o Robotics and Automation o Globalization The truth is, none of these are new at all. But the way you include them in your workforce planning and management is evolving. Some tips to assist in hiring Ø Pay competitively Ø Keep job descriptions simple. Cast a wide net and be willing to train. Ø Do longer hiring ramp up times and over-hire if possible. Ø Look to place good workers in other parts of your company rather than release them. Ø Prevent attrition of good employees or risk a bidding war on the open market. 13

14 Thank you! Questions? Ron Hetrick 14

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