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Economic Forecasts

Hiring Slows to a More Sustainable Level

Kiplinger's latest forecast on jobs

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GDP 2.9% pace in '18, up from 2.3% in '17 More »
Jobs Unemployment rate will decline further More »
Interest rates 10-year T-notes at 3.2% by end '18 More »
Inflation 2.4% 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 5.1% in '18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in '18 More »

Hiring downshifted to a more maintainable pace of 157,000 in July, following an average of 258,000 in May and June. Job gains were still widespread—with the usual strength in the healthcare, food services, professional and technical services, manufacturing and construction sectors. Growth should resume in transportation and warehousing services after a pause in July. Retail took a hit with the loss of 31,800 mostly from the ToysRUs bankruptcy. Although July’s hiring would have been higher if not for this one-time event, going forward, total job gains are still likely to average below 200,000 because of the scarcity of workers.

Unemployment edged down to 3.9% in July 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.

Further evidence of a tight labor market: The number of part-time workers who want full-time work dropped in July for the fifth 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 a 2.7% annual rate in July. 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 will have to accept reduced profits instead.