November 11, 2024

Taylor St. Germain:
Hi everyone, my name is Taylor St. Germain with ITR Economics and welcome to this episode of TrendsTalk. We at ITR, you’re a political and unbiased source of economic intelligence. And today I wanted to talk about the labor market.

I wanted to take a few different approaches to the labor market. The first is we had a jobs report that came out last month and there were only 12,000 jobs were added. And that had a lot of folks wondering about the strength of the labor market. Now let me remind you there was a lot of numbers impacting that jobs report or I should say a lot of events impacting that jobs report. We had hurricanes, we had strikes. So it’s important to understand what goes into these numbers. And I would also be cautious about thinking this labor market is weak today. It is weaker than maybe what we’ve seen over the past 24 months. However, this is still a very tight labor market when we look at a lot of the metrics that we’re tracking.

And there’s a number of different reasons why, but let me get into some of the data. First I wanted to highlight that it’s a number and it’s a metric we’ve talked about a lot as we discussed the labor market here on TrendsTalk and that is the number of unemployed persons per job opening. So as we sit here today, as I’m talking to you today, that ratio is 0.879. So what does that mean? That means for every one job opening, we only have 0.879 people. That would suggest there’s not enough people on the sidelines to fulfill all of the open jobs that we have out there in this big US economy. So again, that number isn’t as bad as the 0.6 ratio that we saw. you know, 24 months ago, but it’s certainly not at or above one where it would suggest that we have plenty of people on the sidelines to fulfill these open positions.

So just be careful about how you interpret some of these reports because yes, while the job market has slowed down, while the unemployment rate has risen a little compared to where we were last year, this is still an awfully tight labor market. And one of the challenges and reasons and a challenge we’ll continue to deal with as we move into the future is the fact that the baby boomer generation continues to leave the workforce. I spend a lot of time looking at labor force participation rates and if you look at that 65 plus category, the participation rate is only 19.4%. We saw a lot of folks speed up their retirement during that pandemic time. And with below a 20% participation rate in such a large generation, we’re going to be contending with this tight labor market at least over the course of the next five years.

So yes, the labor market is a little bit softer today. I certainly want to categorize it as overall weakness. It’s a great time to do some hiring ahead of the economic growth that we have in ’25 and ’26. But again, I want you to know that we’re going to be dealing with these labor shortage issues really over the course of the second half of this decade, just due to the demographic reality of the United States.

And the unfortunate reality is that we are going to see higher labor costs over the course of the next five years compared to where we’ve been historically. You know, our firm projects that we’re going to see labor costs move higher by a high 20%. I’m talking 28, 29% over the course of the next five years. That’s a much larger increase in labor over a period of time than what we typically would see historically here in the U.S. So it’s important that as we see this growth over the second half of the decade, we take the right steps to prepare our employees, but really find ways to make our businesses more efficient to offset some of these rising labor costs, but also offset the tightness in the labor market.

And it’s really important that we take these steps to prepare because the last thing we want to do is be turning away growth in the second half of this decade because we haven’t taken the right steps to drive efficiency and understand this labor situation. It’s a really important part of preparing for the 2030s.

And speaking of the 2030s, for those of you that are interested, our firm is now forecasting what it might look like for your business into the 2030s. We call this our Financial Resiliency product, and it is something that we are spending a lot of time focusing on lately. If you really want to see what the second half of the decade looks like for you, and what this 2030 timeframe might look like for you, please reach out to us, because it’s something that we’re spending a lot of time focusing on now.

So overall, hey, there’s five good years ahead of us, but this type of growth doesn’t come without challenges, and labor is one of the challenges that we’ll continue to be contending with as we look at the next five years.

I hope you found this information helpful. Thanks for joining me on this episode of TrendsTalk. Please remember to like and subscribe wherever you listen to your TrendsTalk. And I look forward to seeing you on the next one. Thanks so much. Thanks for watching!