U.S. Macroeconomic Conditions
- 1. The U.S. economy slowed down significantly in the first half of 2012, growing at an annual rate of just 1.75 percent, and is expected to continue to be weak in the second half of 2012.
- 2. The major components contributing to the slowdown were:
- a) Consumption of goods and business investment;
- b) Government spending continuing to shrink;
- c) The recession in Europe and slowdown in China, India, Brazil and other emerging countries which are hurting U.S. exports and profits;
- d) Consumer, business, and investor confidence deteriorating in recent months;
- e) A part of the decline in sentiment due to uncertainty regarding the prospects of higher taxes and lower government spending (“fiscal cliff”) in early 2013;
- f) Corporate profits declining slightly, mostly due to operations in the rest of the world.
3. However, several positive factors support the economy:
- a. Housing construction is recovering.
- b. Oil and commodity prices are much lower than in early 2012.
- c. Interest rates are at historically low levels
In this environment it is unlikely that the U.S. economy will rapidly expand. The Conference Board expects the U.S. economy to grow by around 1.5 percent (annualized) for the remainder of 2012.
Labor Market Conditions
1. The slowdown in economic activity in the U.S., coupled with lower business confidence, resulted in weak labor market conditions. Employment growth slowed down significantly in recent months, averaging just a little over 100,000 jobs per month in the past 3 months.
- a) The slowdown in employment growth occurred across most industries.
- b) Layoff rates picked up a bit from May through June.
- c) Hiring rates and quit rates were still well below pre-recession levels.
2. In the past year, labor productivity (i.e., output produced per hour of work) in the non-farm business sector grew by just 1 percent – well below its long-run trend of over two percent in the past two decades. There is uncertainty about why growth in labor productivity slowed down so much, and whether it was a temporary blip as a reaction to the rapid productivity growth during the recession, or the beginning of a new and slowing trend. The future trajectory of employment growth largely depends on the answer to this question.
3. The very high unemployment rate stopped declining and even inched up to 8.3 percent in July.
- While the overall U.S. unemployment rate remained very high, in specific regions and occupations, the unemployment rate has been much lower. After examining detailed unemployment and average weekly hours worked data by occupation, our findings suggest that some extraction and STEM occupations may be developing talent shortages.
4. While employment in the U.S. has been increasing in almost every state over the past 2 years, the magnitude of the increase has varied quite significantly between states. This variation is largely due to the following factors: the recovery in manufacturing and mining sectors, the intensity of government austerity, and the recovery in the housing and construction sectors.
5. Despite the improvement in employment in recent months, wage growth remains historically low with no signs of acceleration. The total wages bill of private production and nonsupervisory employees grew at 1.3 percent in the past 12 months, the lowest rate ever recorded in the establishment survey.
6. The growth rate in wages and salaries has been even weaker for state and local governments. While wages for state and local government workers grew faster than wages in the private sector during the second half of the previous decade, this trend has reversed in the past two years, according to the U.S. Bureau of Labor Statistics’ Employment Cost Index. In particular, in the past year, wages and salaries of state and local government workers grew by only 1 percent.
7. The weakness in labor market conditions halted the gradual increase in voluntary quit rates. In all industries the quit rate is still below its pre-recession rates, although in some industries, such as extraction, the current quit rate is almost as high as the pre-recession rate.
8. The Conference Board Employment Trends Index™ (ETI) increased slightly in July, but is still below its May level, and is only slightly above its February level, suggesting that the July pace of job growth (163,000) is unlikely to be sustained. We expect employment to grow by a little over 100,000 jobs a month in the next several months.
9. The unemployment rate is likely to stay above 8 percent through the first half of 2013.
10. With the unemployment rate remaining high, revenues slowing down, and profitability declining, employers in the U.S. are likely to keep labor costs growing at historically slow rates.
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