2018 is kicking off on an auspicious note with economic growth taking place in the labor market. When forecasting the trajectory of the economy, there are a few key indicators such as gross domestic product (GDP), unemployment rates, and inflation rates that provide insight into the economy’s health. Exploring this year’s projected unemployment rates will paint a picture of what to expect in the tightening labor market. Although the observed growth is overall healthy for the economy, it poses a few caveats that make hiring and retaining talent additionally tricky for businesses. Regardless of your role in the labor market, you will not want to miss out on these facts.
The unemployment rate is the number of people in the civilian labor force divided by the number of people unemployed. It is important to note the Bureau of Labor Statistics (BLS) does not classify everyone without a job as unemployed. To be factored into the unemployment rate, one must not have a job and have been actively searching for employment for a minimum of four weeks. The BLS identifies those without jobs who have given up on their search as discouraged workers. The unemployment rate does not account for this population of people. Additionally, economists refer to the unemployment rate as a lagging indicator because it measures the effects of an economic event. For example, when a recession occurs the unemployment rate rises after the recession has already begun. Understanding the components of the unemployment rate and that it is a lagging indicator allows for more thoughtful interpretation when observing changes in the unemployment rate.
Between the years 2008-2012, the unemployment rate has fluctuated between the range of 7% and 10% as a result of the Great Recession. In 2016, the labor market began to stabilize, and the Federal Reserve reported a 4.7% unemployment rate followed by a 4.1% unemployment rate in October of 2017. After the Federal Open Market Committee met on December 13, 2017, they projected year-end unemployment to be around 4.1%. The New York and Atlanta Federal Reserve banks anticipate the unemployment rate to be lower with estimates of 3.9% and 2.9% occurring in the fourth quarter.
In addition to shrinking unemployment rates, the New Year is kicking off strong with significant job creation. According ADP’s monthly jobs report, private companies created 234,000 jobs this January. Service-related industries led with the majority of 212,000 jobs, followed by manufacturing creating 12,000 positions and 9,000 openings in construction. Jobs created in January surpassed the forecasted analysis of 185,000. The current labor market would be classified as a tightening labor market because it consists of more open jobs than workers. As businesses continue to expand and create new positions, many of these areas will go unfilled. Hiring and retaining talent is increasingly difficult for firms in this type of labor market setting. Not only is there fierce competition among companies for the best talent, but also workers have a range of opportunities.
This year’s labor market is signaling a prosperous economy, and with reassuring low unemployment rates and increased job creation, it is an optimal year for workers.