The year 2018 was a very
good one for the labor market, but there are signs the country's jobs expansion
is approaching its limits, and economists are trying to ascertain exactly
when—no longer a question of if—a slowdown will be felt in the year ahead.
The unemployment rate held at 3.7
percent from September to December, before ticking back up to 3.9 percent, and
hiring has been bullish all year, months after a falloff was expected. The whopping 312,000 jobs added in December made it
the 99th consecutive month of growth―double the previous record.
"In 2018, the unemployment rate
fell to a near 50-year low, more than 2 million jobs were added, and wage
increases began to accelerate," said Ahu Yildrimaz, vice president and
co-head of the ADP Research Institute.
"Job growth picked up, and
workers have continued to find jobs—a pleasant surprise at this point in the
economic cycle," said Jed Kolko, chief economist for job search engine
Indeed.
Martha Gimbel, research director for
Indeed's Hiring Lab, said monthly payrolls grew by 220,000 on average—stronger
gains than in the last two years, even though job creation typically slows as a
recovery ages and the economy reaches full employment.
Mining,
construction, and professional and business services were the top three
industries for job growth, according to payroll data analyzed by the ADP
Research Institute. Information jobs, including media, was the worst performing
sector in 2018.
"More
people returned to work this year," Gimbel said. "Unemployment
declined across gender, racial and educational lines. And the gains are reaching
more corners of the country. Only two of the 100 largest [U.S. metropolitan
areas] lost jobs, and employment is picking up even in left-behind rural
areas."
The
U.S. labor market is the best on record for those without a high school degree.
The unemployment rate for those older than age 25 without a diploma averaged
5.6 percent through the first 10 months of the year, driven by solid
hiring in lower-skilled jobs.
Gimbel
added that the ratio of employed people of prime working age (25 to 54) to the
overall population—an important indicator of the share of people who are
working—rose from 79.1 percent in December 2017 to 79.7 percent one year later.
And the share of workers involuntarily working part time fell from 3.1 percent
to 2.8 percent during that time.
"Even
better, the tightening labor market brought rising wage gains in 2018," she
said. Wage growth for private-sector workers topped 3 percent and could at long
last be gaining momentum, especially in industries where labor is tightest,
such as construction and technology. Even workers at the bottom of the earnings
ladder, who were left behind early in the recovery, are seeing higher pay.
Wages
increased nearly $1 per hour across all industries, according to ADP. The
average wage increase for job switchers was 5.8 percent ($1.90), while job
holders saw a 4.7 percent increase ($1.34).
Many
economists believe that the good times still have legs.
Josh
Wright, chief economist for recruitment software firm iCIMS, said he expects
wages to continue rising in 2019, though not at an exponential rate. "I
think we'll be above 3 percent, climbing toward 3.5 percent over the
year."
And
respondents to a recent National Association of Business Economists poll said
the jobless rate in 2019 could fall to 3.5 percent, or even as low as 3.2
percent.
Room
for Improvement
The
recovery from the 2007-2009 financial crisis and recession has unequivocally
been reached. But some measures could still be better.
Wright
pointed out that involuntary part-time employment for people with part-time
jobs who would like to have full-time work could be lower and has ticked up in
the last couple of months. As a share of the population, the number of people
who are at optimal working age and are employed remains well below its 2000
peak.
"The
prime-age-employment-to-population ratio, a more sophisticated version of the
labor force participation rate, zeros in on the people who are in their prime
working years," Wright said. "It has been depressed throughout the
expansion and has recovered only to its prerecession level. There are also
clear differentials in joblessness between different ethnic and racial groups,
with African-Americans' 5.9 percent unemployment four years behind the national
average."
He
added that wages and productivity should still see improvement in 2019.
"Wage growth can't be called sluggish anymore, but it's only moderate,
especially relative to the overall job growth and tightness in the labor
market," he said. "Productivity remains the elephant in the room. The
labor market is leading employers to spend more on training, building talent
pipelines and investing in people. That should lead to a pickup in
productivity, but how much and how quickly remains to be seen."
A
Slowdown on the Way
Labor
market economists have been anticipating the end of the recovery for some time.
"Nothing lasts forever, including a booming labor market," Kolko
said. "There are several reasons why the recent years of labor market
growth probably can't be sustained. Whether these reasons hit in 2019 or later,
they will inevitably come."
Wright
said he expects a slowdown by the end of 2019. "The more important
questions are when will it happen, and how deep will it be?" he said.
Factors
to watch include a curtailing of hiring in the sectors—mining, construction and
manufacturing—that led to extraordinary job growth in 2018, a working-age
population that's growing older and continued interest-rate hikes. Other
factors slowing the growth of the labor force, according to Kolko, are
"immigration policies designed to reduce immigration, high housing costs
pricing people out of tight labor markets, licensing requirements making it
hard for people to practice their crafts in new places, noncompete agreements
making it harder to switch to higher-paying jobs, and ungenerous child care and
parental-leave policies holding back female labor force participation."
Fear
of a full-blown recession, on the other hand, appears to be unwarranted.
"A volatile stock market, spurred by mixed signals on trade, has stoked fears
that the U.S. economy will take a sharp downturn in 2019," said Gad
Levanon, chief economist, North America, for The Conference Board. "But
those fears are overblown, and the stock market is overreacting."
Andrew
Chamberlain, chief economist at Glassdoor, said that although there are many
economic risks on the horizon—including steadily rising interest rates, a
slowing housing market, tariff threats and mounting corporate debt—the odds of
a recession in 2019 remain low. "Despite growing uncertainty, most
economic indicators today still suggest a recession is unlikely over the next
six to 12 months," he said. "However, while the economy may not
falter anytime soon … it is overdue for a pullback."
What
It Means for Employers
The
labor market today is defined by low unemployment and a record number of open
jobs.
"That's
pushing up costs in many industries as more employers struggle to fill
jobs," Chamberlain said. "Although average pay has been rising slowly
for years, in 2018 average wages grew at the fastest pace in nine years, a sign
that labor costs are on the rise for U.S. businesses."
A
slowdown will affect employers' bottom lines, Wright said. "We could see a
drop in job postings, a decrease in hiring or a pickup in layoffs, although
employers tend to be loath to take that last step prematurely and would rather
wait and see how the market turns out."
Attracting
candidates to open roles will become easier in a downturn, Chamberlain said.
"However, the problem of sifting through bigger applicant pools can make
for more challenging work. Investing in interview processes that work and technology
that helps screen great candidates, and having a clear employer brand that
attracts the right talent can help prepare employers to hire effectively during
a slowdown."
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