Still Mixed

Chief Economist Scott Brown discusses current economic conditions.

The Bureau of Labor Statistics reported that nonfarm payrolls rose by 130,000 in its initial estimate for August, even as temporary hiring for the 2020 census added 25,000. Private-sector payrolls rose by 96,000, leaving the three-month average at 129,000 (a +145,000 average for the first eight months of 2019, vs. +215,000 in 2018). While the recent trend in job growth is widely seen as “slow,” it’s still more than what is needed to absorb new entrants into the workforce. This slowing in job growth appears to be natural – that is, reflective of a further tightening of labor market conditions (a lack of skilled workers). This view is supported by faster wage growth. For production workers, average hourly earnings were reported to have risen 3.5% year-over-year in August.

The BLS recently updated its 10-year employment projections. The BLS expects that the economy will add 8.4 million jobs between 2018 and 2028. That averages out to 70,000 per month – significantly slower than in recent years. The slower employment outlook is driven by the demographics, not economic weakness. Granted, there may still be some slack in the labor market, which would permit job growth beyond a long-term sustainable rate in the near term, but it will eventually slow. Immigration had been expected to account for about 40% of labor force growth over the next decade. However, under the current administration, expectations for legal immigration have been cut in half.

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Output is the amount of labor input times productivity (output per worker). Hence, growth in real output will equal job growth plus productivity growth. If labor force growth is 0.5% per year and productivity growth is 1.0-1.5%, then potential real GDP growth ought to be 1.5-2.0%.

The BLS projects job growth by sector. Employment in health care is expected to lead the way over the next 10 years, reflecting the needs of an aging population, followed by professional and business services, leisure and hospitality, and construction. Manufacturing, federal government, utilities, and wholesale and retail trade are expected to shed jobs – reflecting advances in technology (robotics, the rise of internet commerce).