Preparing for an Even Tighter Labor Market
Despite healthy U.S. economic fundamentals, the Fed cut interest rates by 25 basis points. This is less about the state of the economy and more to mitigate downside risk from the global slowdown, trade tensions and to stimulate the inflation rate to the 2 percent Fed target.
Be prepared for an even tighter employment market.
ThinkWhy™ It Matters
• Lower interest rates will benefit consumer spending of large purchases primarily in housing, credit card loans and automobiles.
• Increased spending drives up business revenues, increases capital investment, and reduces borrowing costs.
• Our economy is over 70 percent consumer driven and consumer spending impacts employment for most industries.
• Job growth coupled with the Fed interest rate reduction will increase demand for labor.
• Job openings will continue to outpace unemployment, signifying companies’ need for more employees to fuel growth.
In the current economic condition, companies will likely face several realities:
• Higher wage offers, including the potential of retention bonuses
(See more about wage and job growth performance in your city HERE. )
• Pressure to hire less skilled labor to fill key roles
• Increased investment in process improvement and workflow automation
• Increased investment in training, upskilling and use of freelance talent
• Pursue employee engagement and retention initiatives
U.S. employers added workers at a healthy pace in July, emphasizing a steady labor market ahead of this week’s Federal Reserve interest-rate cut and President Trump’s increase in tariffs on Chinese goods.
• The U.S. nonfarm total employment increased by 164,000 jobs in July
• Job growth has averaged approximately 165,000 jobs per month through July 2019 compared to a 227,000 job gain for the same period in 2018
• The change in total nonfarm payroll employment for May and June was revised down by 10,000 and 31,000, respectively
• Over the year, average hourly earnings have increased 3.2 percent
• The unemployment rate remained unchanged at 3.7 percent
• Labor force participation rate went up slightly from 62.9 percent in June 2019 to 63.0 percent in July 2019
Professional and Business Services make up 14.2 percent of total employment. Gain within this industry was 38,000 jobs.
Within this industry, tech-related gain captured by Professional and Technical Services was 30,800, about 81 percent of Professional and Business Services jobs. The job gain in this industry was the highest this year.
Education and Health Care Services make up 16 percent of total employment. Education and Health Care Service industries produced approximately 66,000 jobs, which indicates a higher average monthly increase than job gains seen from January to June 2019.
Within this industry, Healthcare and Social Assistance amounts to 84.3 percent share, thus produced the highest portion of job gain (+50,400 jobs). Employment in Ambulatory Health Care Services gained 29,000 jobs, whereas Social Assistance added 20,000 jobs.
Leisure and Hospitality and Construction, both dominated by blue collar jobs, make up 16 percent of total employment and has shown the most volatility of all industries this year. Leisure and Hospitality and Construction produced 10,000 and 4,000 jobs, respectively.
Manufacturing makes up 8.5 percent of total employment. Manufacturing increased strongly in June and continued in July, producing 16,000 jobs, following a flat average monthly gain of 3,000 jobs from February to May 2019.
Mining and Logging and Information industries lost 5,000 and 10,000 jobs, respectively. Mining and Logging has produced no new jobs, on average, this year. Volatility in the Information industry continues as the industry produced 14,000 jobs in June and lost almost all gains in July.
What to Expect
At this stage of the economic cycle, some deceleration in job growth is expected. Although this reduction is expected, moderate job gains for the remainder of 2019 should be seen albeit below the growth rate seen in 2018. The annual pace of job gains in July 2019 was 2.235 million jobs or 1.5 percent.
• Long-term, magnitude of job growth is expected to slow meaningfully starting late 2020 and will reach the trough during the 3rd quarter of 2021
• Expect gradual increases during late 2021, with the magnitude of growth expected to increase during 2022 and continue at a robust trajectory through 2024. After the low in Q3 2021, availability of labor is expected to loosen up along with new workers joining the labor force.
• Excluding the recession, historically low unemployment rates will force the U.S. economy into a shortage of skilled labor conditions, creating a hurdle to higher nominal job gain despite healthy U.S. economic fundamentals