The U.S. Quarterly Employment Forecast – Q4 2019

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Things change and things stay the same. That’s the theme of this edition of our quarterly employment update. And that’s because job growth appears to be slowing but the unemployment rate continues to be impressively low. Of course, there’s much more to it than that, so let’s take a deeper look.

Explaining the record-low unemployment rate

We’ll start with the new, record-low unemployment rate. Earlier this month, the U.S. Bureau of Labor Statistics (BLS) announced that the unemployment rate hit a 50-year low of 3.5%. And it’s even lower—down to about 2%—for many management-level and professional positions. Good news, clearly, but it merits further explaining.

The first explanatory point is pretty straightforward: Lots of America’s businesses have hired workers over the past several years, and the unemployment rate has gradually decreased. Although not every month’s job projections are met, there has been consistent growth since a few years after the 2008-09 recession.

However, there’s another important factor—a not so positive one—that contributes to low unemployment: the labor force participation rate, which is essentially the percentage of able and eligible workers who are actually working. Currently, it sits nearly idle at 63%, but it’s been as high as 67% in the early 2000s. That 4% difference accounts for over 6,000,000 workers (total labor force = 160,000,000), and if those workers started looking for jobs, there’s a good chance the unemployment rate could rise by a noticeable margin.

So, while it’s mostly positive news, we should temper our expectations a bit. David Blanchflower, an economics professor at Dartmouth University, says it best, “No longer does the unemployment tell you much of anything about the labor market. People have not understood that the labor market is not nearly as strong as people think.”

Again, it’s good, but not all rainbows and butterflies.

The projection? The unemployment rate is expected to remain low—below 4%—for the foreseeable future, as in Q4 2019 and likely Q1 2020. Per the BLS, the labor force participation rate is expected to remain flat during the same time period and possibly start to creep downward.

Discussing the mediocre wage growth

In the vast majority of surveys that assess what’s most important to employees, wages usually rank first. It’s logical to think that with regular inflation, healthier businesses and more confident consumers, wages would rise impressively, but they continue to rise modestly.

In the private sector, wages grew by 2.9% in September 2019, compared to September 2018. This is the slowest pace since July 2018. While any single month shouldn’t be considered alarming on its own, it will trigger a slight amount of concern from business leaders and economists.

“With demand for labor softening and many companies contending with higher input costs as the trade war lingers and broadens, we do not expect to see any meaningful strengthening in wage growth in the coming months,” said Sarah House, an economist at Wells Fargo.

The projection? According to the Economic Policy Institute’s Nominal Wage Tracker, the “growth target for nominal wages” is 3.5% to 4%, but the “actual year-over-year growth for private employees” is 3.2%, so we’re lagging behind, and workers are hardly noticing the increase considering recent year-over-year inflation is 2%. As for Q4 2019, no change is expected. As for 2020, there is little to no change expected across hierarchies, from hourly employees to management.

Breaking it down by industry

There are myriad factors—many related to consumer behavior, geographic advantages and disadvantages, and technology—that determine industry job growth. Here are some of the industries performing the best and worst based on September 2019 data.

Best industries or niches:

  • Leisure and hospitality (+21,000 jobs)
  • Transportation and warehousing (+15,700)
  • Hospitals (+8,100)

Worst industries or niches:

  • Retail (-11,400 jobs)
  • Manufacturing (-2,000)
  • Transportation equipment (-1,700)

Final Thoughts

Mixed feelings based on mixed data. That about sums it up. The economy is generally healthy, and people have jobs and frequent advancement opportunities, but it’s somewhat offset by a flat labor force participation rate and lethargic wage growth. There’s really no key piece of data that screams either hope or warning. However, it will be interesting—and behoove all of us—to continue to monitor the landscape as we exit 2019 and enter 2020. Because either way—change or no change—you need to understand the labor market in order to effectively build the workforce you need.

For more on the referenced BLS data, read our article “Caveats of the Bureau of Labor Statistics’ Monthly Employment Situation/Jobs Report.”

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