October 27, 2025

Hi everyone, Taylor St. Germain with ITR Economics here. Thanks for joining me on this episode of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence. And today I wanted to check in on the labor market with you all.

This has been a trend that’s gained a lot of attention from the media, of course, with some of the challenges with the BLS. A lot of our clients, as we prepare them for higher labor costs, we’re having a lot of discussions again around labor as we prepare for 2026. So I wanted to call out a few different metrics. The very first thing I wanted to highlight is a metric I’ve pointed out on TrendsTalk in the past, but it’s an important one to check in on. And it is the number of unemployed people per job opening. That number is at 1.071. Whenever that number is above one it means there’s a little bit of slack in the labor market. So the way I always tell folks to interpret this number is anytime this ratio is at one, we’ve got a balanced labor market. Anytime the ratio is above one, there’s some slack in the labor market. And anytime that ratio is below one, it means that we’re in a very tight labor market. So with that number coming in at 1.071 means there is a little bit of slack in the labor market. Again, we have to go out to three decimal places to get there. So, being the economist in me, it does technically mean that there’s a little bit of slack in the labor market. However, we expect that to change as we move into ’26, ’27 and the second half of this decade.

So the takeaway here is, if there’s any hiring that you can do in the next six to nine months in advance of this accelerating growth trend we’re forecasting for the economy in 2026, that will likely serve you well, because we would expect the labor market to tighten further as the economy heats up as we go into next year. I’ll remind you that labor metrics are often lagging indicators, so it doesn’t suggest anything about the future or the economy, but of course it has implications on our hiring process. So if you can do some hiring now in advance of all this growth, it will serve you well in that regard, but there’ll also likely be more people for you to hire today than if we were to fast forward 12 months from now.

Now I’ll continue to highlight one of the trends that’s challenging us out there, which is the different participation rates for the various age groups. So if you look at what we refer to as our prime age labor force, that’s the folks between 25 and 54, you’re seeing those different age groups participating in the labor force really on trend with how previous generations have. It’s the fact that we have a 66% participation rate for the 55 to 64-year-olds, and only a 55.6% participation rate for the 16 to 24-year-olds. This is something we’ve talked a lot about, especially as it pertains to our 2030 outlook, which is we have a demographic challenge. We’ve got a big baby boomer generation that will be continuing to retire out of the workforce over the coming years. The participation rate for the younger age groups isn’t keeping pace, and it’s part of the reason we expect to see some higher labor costs.

So again, the takeaway that we have from this is, okay, there’s some slack in the labor market now, let’s take advantage of it, but let’s not lose sight of the fact that we expect a lot higher wage costs over the coming second half of the decade because we see this demographic imbalance out there. We need to find ways to offset this people problem. ITR’s wage forecast is that we have wages rising 28% from 2025 through 2029. That’s a big number. So if we want to see the margin benefit of the next few years and not see our margins get eroded by these higher wage costs, yes, we have to focus on our retention strategies. Because of the demographic challenge we’re facing, we need to find a solution to this people problem. That’s where AI, that’s where automation comes in, this technology adoption. This demographic challenge is going to become even more apparent as we move through the second half of this decade. So if we want to see our margins expand while our sales and revenue are likely growing over the second half of this decade, we need to make sure we’re laser focused on retention, but we’re finding ways to offset this people problem.

There might be some slack in the labor market today, but don’t get used to it, especially as this economy heats up into the future. We’re going to continue to check in on this trend. It’s very important as it relates to this growth trend in the second half of the decade, and equally as important as it relates to our expectation going into 2030.

I hope you found this information helpful. Thanks so much for joining me on this episode of TrendsTalk. Please like and subscribe to TrendsTalk wherever you listen to your podcast. I look forward to seeing you all in the next one. Thanks so much. Take care for now.