This article is provided by ITR Economics in partnership with IMEC.

Employment

US Total Nonfarm Employment is rising, averaging 150.8 million people employed for the 12 months through September, just 0.3% below the March 2020 record high. Employment transitioned to Phase C, Slowing Growth, in the first half of 2022.

After dropping quickly at the onset of the COVID-19 pandemic, the US Labor Force Participation Rate is now generally rising. In the 12 months through September, the Rate averaged 62.2%, one percentage point below the February 2020 peak. A greater number of workers entering the labor market bodes well for future rise in Employment.

Job Openings

Annual US Total Nonfarm Job Openings ticked down in August from record highs. With the US macroeconomy traversing the back side of the business cycle, Openings rise had been slowing since early this year. Throughout this year, there have been roughly two job openings per unemployed person, indicating a very tight labor market. US Nonfarm Quit Rates were at 3.4% in August, just 0.1 percentage points below the August 2021 record high. This demonstrates workers’ ongoing confidence in a labor market that is to their advantage.

Labor market trends are varying by industry. Annual US Total Manufacturing Job Openings have been declining from an April 2022 record high, roughly in line with the industrial sector’s transition to a slowing growth trend. In the construction industry, while residential activity is cooling, US Total Nonresidential Construction is in a budding accelerating growth trend. Annual Total Construction Job Openings are at record highs and rising.

Given the variability of sector trends amid a cooling macroeconomy, the tight labor market may impact some industries more than others.

Wages

The tight labor market is putting upward pressure on wages as firms look to both retain and attract talent. US Overall Wage Growth − which excludes overtime pay, tips, and commissions – was at a record 6.7% in August.

High inflation, too, is putting upward pressure on wages, as workers look to regain purchasing power. US Consumer Price inflation was at 8.2% in September, down from the tentative June peak of 9.1%. We anticipate disinflation – but not deflation – will characterize Consumer Prices in 2023. This will ease some of the upward pressure on wages, although wages typically lag inflation. While you should avoid locking in labor contracts near this tentative inflation peak, make sure you are adjusting your wages to stay competitive in the longer term, as Consumer Prices will continue to rise.

Takeaway

We are seeing easing in some labor market pressures – including Job Openings, which are posting slowing growth and even tentative decline, and Consumer Prices, which are tentatively undergoing disinflation. However, labor shortages are likely to remain a persistent problem.

Retaining employees is often less expensive than finding and training new ones. Focus on keeping your current workers happy. Make sure your compensation and benefits are competitive both in your industry and in your geographic area. Additionally, look for creative ways to make your firm a more attractive place of work than others. For example, invest in your company culture. Perhaps consider allowing flexible hours or hybrid/remote working options where possible.

Additionally, look for areas where you can minimize your dependence on human capital. Are there options to automate or improve process efficiencies?