October 26, 2026

The below transcript is a translation of the podcast audio that has been machine generated by Adobe Podcast.

Tara Bayke: On average, we do see elevated wage pressures really across the entire United States. But again, there’s a lot of variability across states.

Taylor St. Germain: Hi, everyone. This is Taylor St. Germain with ITR Economics. Thanks for joining me on this episode of TrendsTalk. We at ITR are you’re apolitical and unbiased source of economic intelligence. And today I have Tara back with me again. And we wanted to discuss the labor market wages and how we should be thinking about labor as we move forward into 2027.

Taylor St. Germain: So, I’m going to kick things off here just by highlighting where we’re at from an overall labor market perspective. I’ll be referencing a series in our Trends Report. So, it’s in the core section of our Trends Report for any of you Trends Report subscribers, and that is US Private Sector Employment. A lot of media outlets like to reference unemployment, which is perfectly fine. We like to look at employment, especially due to the correlation it has to the world that our clients live in. So, I wanted to highlight a few things. You know, the media has spoke a lot in 2026 about how the labor market has been weakening, and I want to be careful using that word weakening, because when we look at the data for private sector employment, the data is slowing, it’s not contracting though. We do see a slower rate of rise and that’s been really evident throughout 2026, but it still rise just at a slower pace. We call that phase C slowing growth here at ITR, and that’s what we’ve really seen characterized 2026. So, if we look at where we’re at today from a labor market standpoint, Private Sector Employment has slowed down to about 0.5% on the quarter-over-quarter growth rate. And we would expect to stay at about that level through the end of this year. I know we’ve only got a few months left in the year, and our team is forecasting 2026 to come in at 0.5%. So essentially flat labor situation from a growth rate perspective, given where we are today through the end of the year. But in 2027, we have private sector employment accelerating to a 1.4% year-over-year growth rate number. So, we do have the labor market still remaining tight as we move into 2027. I think Tara and I can certainly discuss some of the areas that are a little bit tighter relative to others, but this isn’t a weakening labor market in terms of actually seeing contraction. It’s not that we’re going to have all of these people all of a sudden available for us to hire. And that’s one of the concerns we have as we move forward over the next few years. Yes, 2027 is a bit of a slower year for the industrial economy, but we still have GDP accelerating to a record high, and we have GDP reaching record highs in ‘28 and ‘29. So, we do expect that labor remains a challenge, especially the cost of labor as we move forward. You know, in order for a lot of people to become available. You sort of need a recession. And that’s not in our forecast until we get into 2030. So, this tight labor market is here to stay. I wanted to have Tara come on so she could highlight some of the wage pressures, some of the cost pressure, and where we’re seeing some of these pressures in the labor market that we’re in here today. So, Tara, maybe you can help us out with that here.

Tara Bayke: Yeah, definitely. So, to your point, there is a lot of pressure, but it’s not just concentrated in one area. On average we do see elevated wage pressures really across the entire United States. But again, there’s a lot of variability across states. So, it really depends on where you’re doing business, really looking at those numbers and seeing how much wages have increased within those states where you operate, because that’s really going to tell you whether or not you need to really be concerned about these wage pressures. And most of that is coming from the fact that the labor market has been so tight. We don’t have as many workers. So, we’re having to pay those employees that we already have a little bit more, having to pay new employees a little bit more as well. So really, when we look at the map and we look at how much wage pressures have elevated across the United States, on average, we’re well above 3% in total, but certain states are seeing even higher rates of wage pressures or seeing those wage pressures elevated. Florida being one of those states, we have some of that happening in Texas, really that northeastern portion of the United States has slightly higher wage inflation versus some other areas. I’ll even throw in California as well. Now, the Midwestern states, we’re still seeing that above 3%, but not quite into the 4% or almost 5% that we’re seeing close to some of these other states. So again, really depends on where you’re operating. Definitely need to take a look at how much those wage pressures are impacting those individual states. And then even when we look at individual markets and industries, this is really not going to be much of a surprise for any of you who are in this manufacturing or logistics space. But trucker wages are also elevated right now at the 12/12, we’re seeing those up about 4.1%, and those are continuing to accelerate. Now on the 3/12 basis, there’s a little bit of good news here. We’re seeing that rate slowing down just a little bit. But either way those rates are moving upward. And then on the manufacturing side as well, this is where we’re seeing most of the labor market tightness. So, manufacturing wages just on the 12/12 basis already up about 4%, slightly slowing down there. We’re seeing that in a slowing growth phase. Same on the 3/12 basis as well, only up about 3.6%. So, we’re seeing that slowing trend continuing. But really, we’re seeing wages moving upward even with that slowing pressure. Definitely something to keep in mind as we’re doing that budgeting and planning over the next couple of years.

Taylor St. Germain: Yeah. Tara, there’s a few things I wanted to highlight that you said. As you had mentioned, we’re just at a new normal, and I think this is reflective of where we were pre-pandemic versus where we are today. Pre-pandemic was 2-3% increase in the cost of labor. That was pretty normal here in the United States. That’s just not the case here anymore. And I think you can point to a number of things, lack of immigration, certainly a piece of that, especially as you highlighted the tightness and logistics and manufacturing, continuing to see the baby boomers retire out of the workforce. And the reason this conversation is so important to me is because we need to retain our key players as we move forward and look at the growth years that are ahead of us, especially as we get out to 2028 and 2029. And folks, that’s exactly what our team wrote in the latest edition of the Trends Report. You know, the management objective that they highlighted was retain key players wherever possible because the cost of onboarding and training new employees is going to hurt your bottom line. And the bottom line, we’ve talked about profitless prosperity with Tara and with some of our other economists in the past, that’s something that really worries us. You know, the other thing that you said, Tara, that I think is really important is there’s for companies that operate nationally that have locations all over the country, there’s this thing that drives me a little bit nuts that they say, which is, “We’re going to give a 2 or 3% increase to our workforce across the board.” Right? Somebody in California who’s expecting 5% is not going to be thrilled with that, and they might go look for other opportunities as a result of that. So, you need to understand, everyone, the geographical differences between what folks expectations are because, as Tara highlighted, it’s not even across the board. And Tara, please feel free to chime in on this, but I think we have to unpack AI here a little bit because yes, there is some of layoffs that are happening when we look at some white-collar industries. I think it’s information services, financial and professional business services are the ones Tara and I tend to focus on. And those layoff numbers are up relative to the 10-year average. But the blue-collar situation is a whole different story. When we look at manufacturing, construction and distribution, you’re seeing that layoff numbers are way down because again, like Tara said, we just don’t have the people to fill all of these open positions. So even if the labor market is slowing like it is today, I think there’s a new normal when it comes to wages and how we should be planning in 2027. Anything you wanted to add to that, Tara?

Tara Bayke: Yeah, no, I agree with everything you said, that’s absolutely true. We look at these headlines and then we keep seeing, oh, layoffs are happening here and there. And then a lot of business owners, particularly on the manufacturing, wholesale trade, distribution side of things, construction side of the economy, they’re looking around and saying, “Okay, I hear about layoffs, but where are the people that I need to fill these particular jobs?” But it really shows the dichotomy within the labor market. It’s mostly the white-collar side that is seeing some job displacement from AI and the new technology that’s coming forth. The other side of the economy, the more so blue-collar side, they’re actually not seeing that they’re holding on to their employees. Their employees aren’t leaving because they’re getting paid more. They’re fine where they are, they’re in high demand. So, it’s very different based on which side of the labor market you’re looking at. So definitely important to take that into consideration as well. Don’t just look at the headlines. You have to look at the data and see what that tells us.

Taylor St. Germain: Yeah. And I think the trades are going to become more attractive folks. And I don’t think that’s a bad thing in our country, to see some higher wage costs. I know it does create a challenge for margins, but we could use some of these young folks getting excited about the trades again. And, you know, with the numbers we’re seeing, if you all need a welder and electrician in the future, keep Tara and I in mind because we might be there before you know it. But again, folks, really, as we look forward to ‘27, don’t expect a lot of folks to become available, retain your top talent, make sure you’re understanding the geographical difference between these wage numbers. It’s going to be important if we want to retain those employees. We have a lot of resources available for you folks, especially when it comes to labor market. We’ve got a lot of great data. There’ll be some links in the description for you to interact with ITR in a number of different ways, as well as interact with some of our economists. So please check that link out in the description. Tara, thanks for jumping on with us again. We appreciate you being here. And for everyone else, I hope you enjoyed this episode. Like and subscribe to TrendsTalk wherever you get your podcasts. We look forward to seeing you on the next one. Thanks so much. Take care for now.