Labor Market - Wilmington Trust
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Labor Market As of June 3, 2022
Key Takeaways • Job growth remains very strong at roughly 500,000 over the past 6 months. The leisure & hospitality sector remains at the deepest deficit relative to pre-pandemic but has also made the most gains recently. • Labor force participation has improved notably in 2022, supporting job growth and easing some of the concerns of labor shortages. • Businesses indicate demand for labor remains strong but may be plateauing. • Job openings remain elevated, but growth in the labor force has outpaced that of job openings since the start of the year. • This is contributing to some softening of wage pressures. On a three-month basis, wage growth in May 2022 was 4.7%, down significantly from the peak of 6.4% in 2021. We expect wage growth to slow further going forward. • Virus concerns and caregiving issues continue to keep some workers on the sidelines, though these constraints should ease as virus conditions improve. • We expect labor force participation to continue rising and for wages to continue decelerating in 2022. ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 2
Section 1 Jobs
Recovery of Labor Market Still in Progress
Just over two years after the start of the pandemic in the U.S. total jobs are down 822,000. Returning to the pre-
pandemic level of jobs would take until July 2022 if employers added 500,000 per month going forward. A higher
hurdle would be the pre-pandemic trend, which would take until June 2023 at that rate.
Total nonfarm U.S. jobs (millions)
160 0.5
Jun
2023
0.45
155
0.4
150 0.35
0.3
145
July 0.25
2022
140
0.2
135 0.15
0.1
130
0.05
125 0
2005 2008 2011 2014 2017 2020 2023
Recession Total nonfarm employment Pre-pandemic trend*
+500k per month Pre-pandemic level
*Job growth typically slows late in an economic cycle. Growth in the previous cycle peaked at 2% year-over-year (y/y) in 2014–15 and slowed to 1.4% just before the pandemic.
Here we assume a continued slowing to 1% by mid-2023.
Data as of May 31, 2022. Sources: Bureau of Labor Statistics, WTIA.
©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 4May Payroll Growth: Momentum Remains Strong Job growth came in slightly stronger than expected (+390,000 vs. +328,000 consensus forecast). The six- month trend in job growth remains robust at just above 500,000 per month. Monthly change in nonfarm payrolls and underlying trend (millions) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 5
Job Growth Seen Across Most Industries in May Leisure and hospitality and manufacturing led the gains, while retail jobs saw declines. Payroll growth by industry (month over month) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 6
Six Industries Have Surpassed Pre-Pandemic Employment Professional and business services, transportation and warehousing, retail trade, financial activities, information, and construction employment have now surpassed pre-pandemic levels. Payroll growth by industry (since February 2020) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 7
Section 2 Employment,
Unemployment, and
Labor Force2021 Labor Force Growth Much Stronger After Revisions
After population revisions from the Census, the Bureau of Labor Statistics (BLS) now estimates the labor force
to have been higher at the end of 2021 by 1.5 million people (orange diamond). However, even though the
BLS thinks the labor force was higher in 2021 (akin to the dotted orange line) they did not update the published
data for 2021. Therefore, the official data series (grey line) makes it appear as if the labor force jumped by 1.4
million in January, when that gain occurred over the course of last year.
Labor force (millions)
165.0
162.5
160.0
157.5
155.0
Jan '18 Jul '18 Jan '19 Jul '19 Jan '20 Jul '20 Jan '21 Jul '21 Jan '22
Published data Now estimated to be higher
Data as of January 31, 2022. Sources: Bureau of Labor Statistics, WTIA.
©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 9Low Supply, High Demand = Tight Labor Markets Labor markets are tight based on several measures. There are currently more job openings available than unemployed workers, and consumer perceptions of job availability are near all-time highs, but both have ticked down slightly in the most recent readings. Ratio of job openings to unemployed workers Consumer confidence: “jobs plentiful” minus “jobs hard to get” ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 10
Labor Demand is Elevated, but may be Plateauing The Bureau of Labor Statistics (BLS) data on job openings from April (released with a delay each month) edged down from its record high reading in March. This is in line with more recent high frequency data from job listing website Indeed, which suggests suggest that openings, and therefore labor demand, may be moderating. Indeed job listings and BLS monthly job openings (% change since February 2020) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 11
Labor Supply Improving
Labor force participation rates remain depressed compared to pre-pandemic levels but are showing signs of
improvement. Growth in labor supply since the start of the year has outpaced that of job openings, suggesting
some easing of the worker demand/supply imbalance.
Labor Force Participation Rate (%) Job openings and labor force (5-month change, millions)
Strong job openings and
low labor supply in mid-
2021 created wage
pressure.
In 2022 labor force
growth is stronger
than job openings
so wages have
decelerated.
©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 12Overall Unemployment Rate Continues to Improve The headline unemployment rate sits at 3.6%, within earshot of the 3.5% rate seen in February 2020 (also the Fed’s March median projection for 2022). The broader U-6 unemployment rate has also dropped notably. Unemployment rates (%) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 13
Inclusive Measures of Unemployment have Improved
Unemployment rates by race/ethnicity and education are making progress toward pre-pandemic levels.
Unemployment rate by race/ethnicity (%) Unemployment rate by education (%)
©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 14Section 3 Wages
Wage Pressures Softening
Monthly gains in average hourly earnings held steady at to +0.3%m/m and slowed to +5.2%y/y in May. The 3-
month annualized pace of gains ticked up a bit in part due to monthly volatility but it is still below its recent
6.4% peak in July 2021.
Average hourly earnings Average hourly earnings
(3-month annualized % change) (3-month annualized % change)
©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 16Small Firms’ Wage Plans Point to Softening Pressures The share of small businesses planning to raise worker compensation over the next three months has dropped from recent peaks, suggesting some slowing of wage pressures. Small Businesses Planning to Raise Worker Compensation over Next 3 Months (net %, 3-month moving average) and Employment Cost Index Wages and Salaries for Private Workers (%, y/y) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 17
Wage Risks: Composition Effects Headline wage growth has been driven by composition effects (more net job losses in lower-wage jobs). When looking through those composition effects (Atlanta Fed Wage Tracker), wage growth is still elevated, though base effects are responsible in part due to year-over-year comparisons. Atlanta Fed Wage Growth Tracker ( 3 and 12 mo. moving average, median % change in the hourly wage of individuals observed 12 months apart) vs. average hourly earnings (% change, y/y) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 18
Reassessment of Work Contributing to Wage Pressures An elevated rate of voluntary quits by workers may be contributing to upside wage pressures. Quits rate (%) and Atlanta Fed Wage Growth Tracker (3-month moving average of 12-month change) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 19
Atlanta Fed Wage Growth – By Quartile
Wage growth is picking up most for those at the bottom end of the wage quartile. However, the latest data
have shown some signs of spillover, with an uptick in wages in higher quartiles as well.
Atlanta Fed Wage Growth Tracker ( 12 mo. ma., median percent change in the hourly wage of individuals observed 12 months apart)
©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 20Atlanta Wage Growth Tracker- Job Switcher vs. Stayer Job switchers are seeing the strongest gains in wages, suggesting labor markets are tight as firms increase wages to attract workers. However, wages for job stayers has also picked up notably in recent months, pointing to additional broadening of pressures. Atlanta Fed Wage Growth Tracker ( 3- and 12-month moving averages (mma), median percent change in the hourly wage of individuals observed 12 months apart) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 21
Employment Cost Index: Benefits Jump in 1Q 2022
The employment cost index (ECI) is one of the best measures of wage growth because it is comprehensive
and accounts for composition effects (but is only released quarterly). This measure suggests the pace of wage
growth is elevated (growing at their fastest pace since 2001 on a 2-year annualized basis). The measure ticked
up again in 1Q 2022, though some of the boost in the headline was driven by a surge in benefit costs, which
may be a one-off adjustment.
ECI private industry (2-year annualized % change) ECI private industry (% quarter-over-quarter annualized
©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 22Other Measures of Wage Pressures Are Elevated Nonfarm hourly compensation (broadest measure of wage growth but does not account for composition effects) remained elevated but ticked down in 1Q 2022, though adjusted for inflation it is growing a much slower pace. Unit labor cost growth, a measure of how much businesses pay workers to produce one unit of output, is also at its highest since the early 1980s, though 1Q 2022 saw a slight deceleration. Nonfarm hourly compensation Unit labor costs (2-year % change, annualized) (2-year % change, annualized) ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 23
Small Businesses: Hiring Challenges, Wage Pressures The share of small businesses unable to fill open positions and those that have raised wages remains elevated, but plans to raise wages have edged lower from record highs. Net percent of small businesses reporting Net percent of small businesses raising or planning job openings not able to fill to raise compensation ©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved. Please see disclosures for important information. 24
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