State of the Labor Market

Jobs Day Preview: Payroll Growth Remains Strong, yet Gains for Workers Slowing

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A slowdown in employment-rate growth doesn’t necessarily mean the labor market is heading for a downturn, but continued deterioration could be a warning sign.

Job growth may have slowed recently, but over 10 years into the current expansion, the labor market is adding, on average every month, more than double the amount of jobs needed to keep up with population growth. Yet even with these strong payroll numbers, the employment gains for people in their prime working years — ages 25 to 54 — have slowed considerably.

The share of people aged 25 to 54 with a job grew at an average year-over-year rate of 0.9% during 2018, as a strengthening labor market boosted employment for prime-age workers. So far in 2019, average growth has dropped to 0.6%, with year-over-year growth in July dropping to zero. 

A slowdown in employment-rate growth doesn’t necessarily mean the labor market is about to weaken. Slower growth could mean that the labor market has gotten as strong as it can get. But the labor market doesn’t seem to be at full employment as the prime-age employment rate was 79.5% in July, below its peaks in 2007 and 2001.

Or the slowdown could be a temporary blip. The last time the employment rate for prime-age workers didn’t grow over the year was October 2013, which was merely a soft patch in the labor market. The prime-age employment rate had grown every month since until July. 

However, a consistent decline in growth in this employment rate may be a sign of a weakening labor market. Prime-age employment-rate growth was negative for several months prior to the last two recessions. 

In addition to looking out for the growth in the employment rate for prime-age workers, this month I’ll be keeping my eye on:

  • Whether the state of wage growth — a sign of slowing labor demand — continues to level off.
  • If the U-6 unemployment rate, the broadest measure of unemployment and underemployment, continues its decline, signaling progress for workers elsewhere in the labor market.
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