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2019 US Labor Market Review and 2020 Outlook: A Slowdown, but Workers Still Gaining

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Employment growth has slowed in 2019 and may do so again in 2020.

Key Points:

  • The labor market has slowed this year as employer demand for workers has eased, but wage earners are still reaping the benefits of a strong job picture.
  • Job gains have been strong enough to pull more people into work, yet wage growth has stagnated in 2019.
  • Wage inequality has declined this year, but geographic gaps and partisan differences remain stark.

The US labor market may not be booming like it was last year, but it still has made progress in 2019. Job growth has slowed, led by easing in the manufacturing and mining industries. Nonetheless, gains from a stronger labor market have been evident. Workers have continued to move into jobs. The prime-age employment rate, or the share of people 25 to 54 with a job, has returned to levels last seen before the Great Recession more than a decade ago. Wage growth has also remained relatively strong, although it hasn’t accelerated this year. Meanwhile, longer-term restraints on job growth remain, such as slower population expansion and potentially reduced immigration.

Although a tighter labor market has by some measures reduced economic inequality this year, stark differences in income and employment opportunity persist. Geographic inequality remains high in 2019 and economic views are polarized along partisan lines. The labor market has been a source of strength in recent years. Whether it can handle any surprises 2020 throws its way — and what happens in election battleground states — are key questions in the year ahead.

Hiring growth slows 

Employment growth has slowed substantially this year. Job expansion was strong in 2018, so milder gains shouldn’t be a surprise. But even accounting for the comedown from a stronger year, the slowdown in job growth is notable.  Average monthly jobs gains are the most tepid since 2010 when the US economy was struggling to recover from the Great Recession.

The job growth slowdown seems to reflect a pullback in employer demand for workers. A downshift in employment gains in a tight labor market isn’t necessarily surprising, as employers may be finding it harder to hire workers. Yet there are signs that underlying employer demand is starting to shrink. Job postings peaked late last year and have been declining on a year-over-year basis for four straight months. 

The goods-producing sector has led the job growth comedown. Employment gains in manufacturing, mining, and construction are volatile, in part because they are more sensitive to foreign demand and trade policy. But some other sectors and industries are having difficult times, including retail trade and journalism. By contrast, growth remains steady in service industries, with health care and social assistance standing out.

Workers continue to see gains in a tighter labor market

Despite the slowdown, the labor market is growing fast enough to put more people to work. Employment is expanding at more than twice the rate needed to keep up with population growth. The result is a slow, but steady increase in employment rates. The share of people from 25 to 54 —  considered prime working age — with a job has now reached levels last seen in 2007, before the Great Recession.

Yet this still stands below its peak in 2000 before the recession of 2001, suggesting the labor market has a bit more room to run. It would take roughly two more years of growth at the current rate for employment of prime-age workers to get back to its previous peak.

Meanwhile, there are longer-run concerns that today’s healthy economy can’t paper over. Productivity growth remains weak, which holds down both the potential expansion rate of the overall economy and wage growth. Slower population increases and a potential fall in immigration are also likely to reduce the pace of economic expansion. Recent changes in immigration policy already appear to have altered the behavior of international job seekers. 

Here’s the best news about the job market for job seekers: For the average worker, wage growth is now the strongest it has been at any point in the current economic expansion. However, the pace of pay gains hasn’t picked up in 2019, but has held steady over the year,  even after adjusting for inflation. Whether wages will accelerate in 2020 is something to keep an eye on.

Inequality could widen and partisanship looms

A stronger labor market tends to reduce wage inequality, narrowing gaps between groups. Wage growth for workers in low-wage industries, such as clothing stores and casinos, has picked up and is stronger than in other industries. Yet a slowing labor market — even if it doesn’t tip into recession — could reverse this trend and reduce pay gains most for lower-wage workers. 

At the same time, employment growth has slowed most in middle-wage industries -— which include many goods-related jobs, such as those in residential building construction, as well as jobs in warehousing and transportation. The latest BLS projections call for middle-wage occupations to post the slowest job growth over the next decade, so this trend might be here to stay. 

While wage inequality narrowed in 2019, geographic inequality has been widening. The richest places in America — those in the top 1% — are pulling away from the rest and are near the highest level of this measure of inequality since the mid-2000s and well above 1990s levels. The tech industry has boosted job growth even in the metros where housing is most expensive, and tech jobs increasingly are concentrated in a handful of top tech hubs. 

Although the top is pulling away from the rest, the bottom isn’t falling out. A broad measure of inequality is the gap in earnings between the top 10% and bottom 10% of counties — known as the 90th/10th percentile ratio. This gap is unchanged from its level in the 2000s. 

Finally, as we turn the corner into an election year, we face an enormous partisan divide. Republicans are much more upbeat about the economy than are Democrats, but that appears driven more by political preference than how people are faring in the labor market. Unemployment rates and job growth are running neck-and-neck in blue-leaning and red-leaning areas. If anything, conditions have improved more in the past year for blue America than for red America. But despite similar current performance, economic fundamentals are dramatically different in red and blue America. Red places have lower incomes and are at greater risk of job losses, while blue places struggle more with high costs and inequality. 

As in recent years, politics is a wildcard for the economy. Trade, immigration, tax, and monetary policies could knock the economy off course or help keep it steady. Next year, all eyes will be on how the economy might affect the election, especially in battleground states. At this point it’s anyone’s guess, with job growth booming in politically competitive Sunbelt states and lagging in Great Lakes states potentially up for grabs. Across these swing states, as in so much else, America’s economy remains divided going into 2020.