Softening From Earlier Highs, The U.S. Labor Market Expected To Show Solid Growth Through 2019

Pointing toward solid employment growth through the remainder of 2019, The Conference Board’s Employment Trends Index picked up in July, reversing a decline registered in June. The index stands at 110.98, up from 109.30 one month earlier, and up 1.3 percent from the year-ago point. Also in July, the Labor Department reported that total nonfarm payroll in the U.S. increased by 164,000 that month.

Employment growth, The Conference Board reports, has slowed down in 2019, averaging a 141,000-job monthly gain in the past six months, versus over 200,000 during 2018. However, this modest growth continues to tighten the labor market. The unemployment rate remained at 3.7 percent in July, due to an improvement in labor force participation, but the Bureau of Labor Statistics’ broader labor slack measure, U6, dropped to seven percent, the lowest since 2000.

“The Employment Trends Index increased in July but continues to hover around a flat trend since the summer of 2018,” says Gad Levanon, head of The Conference Board’s Labor Market Institute. “In the second half of 2018, the Employment Trends Index started signaling a slowdown in job growth. So far this year, job growth has indeed slowed down compared to 2018, which is not surprising given the modest economic slowdown and the recruiting difficulties associated with a tight labor market. In the coming months, we expect job growth to remain solid, which will be enough to further tighten the labor market. Growing labor force participation rates will somewhat ease these hiring pressures.”

In its assessment of the economy and the Labor Department’s job growth figures, The Conference Board notes that as economic growth is expected to remain above the two-percent rate for the rest of the year, employment growth shouldn’t significantly slow further. The U.S. labor market’s progress should continue its pace, with moderate employment growth, labor market tightening, intensifying recruiting and retention difficulties and higher labor cost growth which will continue to draw more people into the labor force. The board expects the combination of slower revenue growth and faster labor cost growth to continue squeezing corporate profits, and in this environment, further Fed rate cuts are somewhat less obvious.

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