April 20, 2018

NCCI Releases Q4 2017 Quarterly Economics Briefing

Boca Raton, FL – NCCI recently announced the release of the Q4 2017 edition of its Quarterly Economics Briefing, which examines the current state of the economy and implications for workers compensation insurance.

Key takeaways from this edition include:

  • Employment growth has slowed slightly from 1.9% in 2016 to 1.7% in 2017 and is projected to decline to 1.6% in 2018
  • Wage growth has increased from 1.2% to 2.0% in 2017 and is projected to increase to 4.1% in 2018
  • Continuously employed workers have seen consistently rising wage growth since 2010, currently at 3.2%
  • Medical inflation is expected to rise above 2% in 2018, higher than it has been since 2010
  • The yield curve flattened in 2017 as short-term interest rates rose but long-term rates held steady

Forecasts are derived from Moody’s Analytics.

Employment Growth
Employment growth is estimated to be 244,000 in October and 228,000 in November after a final number of just 38,000 in September. However, the low September number largely reflects the temporary displacement of workers in hurricane-affected areas, especially in food services and drinking establishments. The three-month average growth of 170,000 jobs is right in line with the average employment growth of 176,000 in the first eight months of the year.

Real gross domestic product (GDP) growth in the third quarter was 3.2% at the seasonally adjusted annual rate, slightly higher than 3.1% in the second quarter. This is especially impressive, since many observers expected a slight decline due to hurricanes Harvey and Irma. There was a slight deceleration in third quarter personal consumption expenditure, per the Bureau of Economic Analysis, but this was outweighed by faster growth in private inventory investment and other factors.

Moody’s forecasts private employment growth to be 1.7% this year and 1.6% in 2018. The Bureau of Labor Statistics projects the civilian labor force aged 20–64 will rise from 144 million in 2016 to 150 million in 2026, an annualized growth rate of just 0.4%. This may make it difficult for employment growth to remain around 2% as it has been since 2011. If employment growth cannot come from demographics, it must come from bringing more potential workers into the workforce. The labor force participation rate has been stable since 2015. And the U-6 unemployment rate, which includes discouraged and underemployed workers, has recently declined to 8.0%. It has not been this low in over a decade.

The Drilling Down section of this issue examines employment growth and wage growth in detail by state and economic sector.

Wage Growth
Average weekly wages are forecast to increase by 2.0% in 2017 and by 4.1% in 2018. The 2018 forecast is down from the 4.5% forecasted growth reported in the last Quarterly Economics Briefing (QEB) but would still represent a very large increase from previous years. The high forecast for 2018 continues to highlight the tension between low unemployment and the lack of wage growth that economists expect to accompany an apparently tighter labor market.

The unemployment rate kept falling last quarter, from 4.4% in August to 4.2% in September and 4.1% in October and November, the lowest rates since 2000.

In the last edition of the QEB, we discussed the possibility that wage growth for continuously employed workers may be masked, in part, by an inflow of lower-paid new entrants, who are drawn into the workforce by strong labor market conditions. We showed that the employment-to-population ratio is rising fast enough to suggest that indeed, the current labor market is pulling in weakly attached workers. In a weaker labor market, some of these workers would not even be actively looking for a job and would therefore not be counted in the unemployment rate.

Using survey data, we can directly evaluate the wage growth for workers who were continuously employed for a period of time. The Federal Reserve Bank of Atlanta publishes such a series for median wage growth1 from 1997 to the present. As of November 2017, it reports median annual wage growth of 3.2% for continuously employed workers. This series has shown a general upward trend since 2010, when unemployment was over 9%, through the present. This evidence supports the hypothesis that changes in workforce composition are masking upward wage pressure. However, that current wage growth of 3.2% is still lower than the roughly 5% median wage growth for continuously employed workers in the same series from 1998–2001 or median wage growth above 4% throughout 2006–2007, the last two times before the current run that the unemployment rate was below 5% for an extended period.

Click here to read the full report: NCCI: Q4 2017 Quarterly Economics Briefing

Click here to read the second section: NCCI: QEB: Employment and Wage Growth in 2017

Source: NCCI

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