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Economic Forecasts

Workers Are Getting Harder to Find

Kiplinger's latest forecast on jobs

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GDP 2.9% pace in '18, up from 2.3% in '17 More »
Jobs A tight labor market will make hiring more difficult More »
Interest rates 10-year T-notes at 3.3% by end '18 More »
Inflation 2.4% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $60 to $65 per barrel in October More »
Housing Price growth: 5.0% by end of '18 More »
Retail sales Growing 4.9% in '18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in '18 More »

Employers’ taking on 223,000 new workers in May indicates their hiring spree is not done yet. Job growth is still widespread—with the usual strong gain in healthcare, food services, professional and technical services, manufacturing and construction. Somewhat surprising was a strong gain in retail. Eventually, the scarcity of unemployed workers should shrink these monthly additions.

Unemployment dropped to 3.8% in May, down from 4.1% just two months earlier, and its lowest level since 2000. Look for it to edge down a bit further by the end of 2018 as it becomes harder for employers to find suitable candidates. The short-term unemployment rate (those unemployed for less than six months) is at its lowest level since the Korean War in 1953. Monthly initial unemployment claims are the lowest since 1969. Few companies are laying off in this climate.

Further evidence of a tight labor market: The number of discouraged workers and part-time workers dropped in May. More people finding full-time work probably explains the decline in part-time help. The number of temps also fell off, indicating they are finding permanent jobs as well. People currently outside the workforce are coming back in at a slower rate, offering desperate employers little relief. The construction, food services, health care, transportation and warehousing industries have scads of vacancies. Openings in health care and finance are at their highest levels in 17 years.

Non-supervisory workers’ paychecks bumped up at a 2.8% annual rate in May. After being stuck at about 2.5% growth for several years, worker bees are finally getting bigger raises, indicating a tightening labor market.

Expect salaries to advance to a 3% rate by year’s end. Some economists worry that fatter paychecks will stoke inflation. That is possible, but likely won’t happen right away. Some businesses won’t be able to raise their prices and have to accept reduced profits instead.