Non-Supervisory Wages Highest in 10 Years
The U.S. labor market added 145,000 jobs last month, falling short of economists’ forecast average of 160,000 jobs. The pace of job growth has accelerated over the past four months, with an average of 186,500 per month when compared to the year-to-date number of 175,000 jobs per month. At this time, both trade negotiations and the political environment have not deterred hiring decisions.
The U.S. economy remains steady and the job market remains strong with:
- 3.0 percent growth for average hourly earnings of production and non-supervisory employees, indicating lower-wage earners are benefiting from the tight labor market.
- A record low unemployment rate of 3.5 percent.
- Healthy labor force participation at 63.2 percent.
ThinkWhy™ It Matters
With the low unemployment rate and continued job growth, companies are challenged to find the talent they need to grow due to 80.3 percent of the working-age population already participating in the workforce. The U.S. labor market could still see growth, if workers can be attracted back into the workforce. With higher wages, it is more likely these workers will enter the workforce, helping to sustain job growth.
Businesses will continue to see labor supply challenges as the unemployment rate remains historically low. Organizations can consider:
- Focusing on retention with enhanced benefit packages, including non-compensation incentives.
- Offering higher-than-average wages to remain competitive in the labor market.
- Creating internships and leveraging college and university job fairs for recruitment.
- Pursuing non-traditional employees, including graduates of certificate programs and vocational schools.
Average hourly earnings of production and non-supervisory employees grew by 3.0 percent.
Labor force participation rate held at 63.2 percent in December 2019.
The unemployment rate remains unchanged at 3.5 percent in December 2019.
A healthy job market and rising stock market are boosting consumer confidence.
Final December Consumer Sentiment Index numbers rose to 99.3, the highest in seven months.
Eventual passage of USMCA and phase one of the China trade deal could benefit manufacturing and agriculture industries.
The change in total nonfarm payroll employment for October and November combined was revised down by 14,000 jobs.
Business investments including commercial real estate, infrastructure and machine buying decelerated indicating businesses are investing cautiously.
Uncertainty surrounding trade remains a downside risk to the labor market along with a global slowdown.
Trade, Transportation and Utilities make up 18.3 percent of total employment. Gain within this industry was 40,000 jobs this month, driven by an increase of 41,200 jobs in Retail Trade. Monthly job gains in the industry have averaged 7,000 jobs thus far in 2019, below the average monthly job gain of 26,000 in 2018. In the past 12 months, this industry has produced more than 125,000 jobs.
Leisure and Hospitality makes up 11.1 percent of total employment. Gain within this industry was 40,000 jobs this month. Monthly job gains in the industry have averaged 26,818 jobs thus far in 2019, below the average monthly job gain of 31,455 in 2018. In the past 12 months, this industry has produced more than 388,000 jobs.
Education and Health Care Services make up 16.1 percent of total employment. Gain within this industry was 36,000 jobs this month. Monthly job gains in the industry have averaged 52,636 jobs thus far in 2019, above the average monthly job gain of 42,455 in 2018. In the past 12 months, this industry has produced more than 647,000 jobs.
Construction makes up 5.0 percent of total employment. Gain within this industry was 20,000 jobs this month. Monthly job gains in the industry have averaged 8,636 jobs thus far in 2019, below the average monthly job gain of 24,909 in 2018. In the past 12 months, this industry has produced more than 151,000 jobs.
Professional and Business Services make up 14.2 percent of total employment. Gain within this industry was 10,000 jobs. 9,200 of these jobs were in Professional and Technical Services. Monthly job gains in the industry have averaged 35,636 jobs thus far in 2019, below the average monthly job gain of 47,636 in 2018. In the past 12 months, this industry has produced more than 397,000 jobs.
Manufacturing makes up 8.4 percent of total employment. Loss within this industry was -12,000 jobs this month. Monthly job gains in the industry have averaged 2,636 jobs thus far in 2019, below the average monthly job gain of 22,546 in 2018. In the past 12 months, this industry has produced more than 46,000 jobs. Boeing 737-Max production has halted, negatively impacting manufacturing jobs but trade deals should alleviate some of the pain of job loss.
2019 Labor Market Recap
The underlying health of the U.S. economy is strong. Although some deceleration has been seen from 2018, job gain in 2019 remained resilient, particularly in the last four months of the year.
The U.S. saw continued strength in consumer confidence and consumer spending. This was influenced by high wage growth, strong stock market gains and growth in home equity.
Moderate confidence was seen from businesses through 2019. The service-providing sectors were stronger with goods-producing industries starting to show signs of decline. This is evident in the slow decline of the Purchasing Managers Index®, which recently hit its lowest mark since June 2009.
Corporate debt and financing increased in 2019 driven by lower interest rates.
Average hourly earnings of production and non-supervisory employees grew by 3.4 percent for the year.
Fiscal policy, geopolitical tensions and tariff conversations have caused concern for businesses, although tariff conversations have recently cooled.
Monetary policy, for the most part, supported continued economic expansion.
The Employment Cost Index lagged behind wage growth, indicating many companies have not yet made up wage variances with strong benefits packages.
Strong late-year job gains, averaging 186,500 monthly from September to December, could bring momentum and positive sentiment regarding the U.S. economy into 2020.
What to Expect in 2020
The labor market will continue to be competitive, with similar wage growth as in 2019.
Average annual wage growth will hit 3.3 percent for the year, with two of the largest sectors, Professional and Business Services and Information, growing at 3.0 and 3.5 percent, respectively.
Import/export and geopolitical volatility will be a big driver of business confidence.
Businesses should be leery of political rhetoric about the economy during the 2020 campaign season, paying attention instead to accepted indicators.
There is no expectation of an interest rate hike in 2020. But if/when job growth starts to slow, up to 2 interest rate cuts are expected.
Average annual job growth in 2020 may decelerate from 1.6 percent in 2019 to 1.2 percent, with jobs in Construction leading the country in growth at 1.8 percent, supported by healthy housing markets.
GDP is forecasted to slow from 2019’s expected 2.2 percent to 1.8 percent in 2020.
The Outlook Beyond 2020
Long-term job growth is expected to slow meaningfully starting in late 2020 and will bottom out during the 3rd quarter of 2021.
Expect the Professional Business and Technical Services, Healthcare and Leisure and Hospitality industries to lead job gain and growth in the U.S.
Mining and Logging and Manufacturing sectors will continue to struggle to add jobs.
Expect gradual increases in job growth beginning in late 2021, with the magnitude increasing during 2022 and continuing at a robust trajectory through 2024. After the low is reached in Q3 2021, availability of labor is expected to loosen up as new workers join the labor force.
Excluding the Great Recession, historically low unemployment rates will force the U.S. economy into a shortage of skilled labor conditions if those not in the labor force remain on the sidelines. This could create a hurdle to higher nominal job gain despite healthy U.S. economic fundamentals.