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Economic Forecasts

Labor Market Keeps Tightening

Kiplinger's latest forecast on jobs

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GDP 2.9% pace in ’18, up from 2.2% in ’17 More »
Jobs Unemployment rate will decline further More »
Interest rates 10-year T-notes at 3.2% by end ’18 More »
Inflation 2.5% 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 $65 to $70 per barrel in December More »
Housing Price growth: 5.0% by end of ’18 More »
Retail sales Growing 5.1% in ’18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in ’18 More »

Employers hired 201,000 workers in August, marking the third time in four months that job gains have exceeded the 200,000 mark. Hiring was still widespread — with the usual strength in the health care, food services, transportation and warehousing services, professional and technical services, temporary help and construction sectors. However, going forward, fewer than 200,000 jobs will be created a month because of the scarcity of workers.

Unemployment stayed at 3.9% in August and will likely fall further. 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 this year are the lowest since 1969. Few companies are laying off in this climate.

More evidence of a tight labor market: The number of part-time workers who want full-time work dropped in August for the sixth consecutive month. More people finding full-time work probably explains the decline. People who had been outside the workforce rushed in during June and July, but the dash is likely over. The construction, food services, health care, transportation and warehousing industries have scads of vacancies. Openings are at or near peaks in most industries, even retail.

Non-supervisory workers’ paychecks rose at an annual rate of 2.8% in July. After being stuck at about 2.5% growth for several years, worker bees are finally getting bigger raises, indicating a constricting labor market.

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