2005
Staffing Forecast
2005 Is Looking
Up!
During 2005, we expect the economy will shift from a recession-rebound
phase into a mid-cycle trend phase. The GDP growth rate is expected
to slow from last year’s 4.5 percent to a still-healthy 3.5
percent growth rate during 2005. Albeit slower than last year, this
is still stronger than the long-term trend rate for the economy.
What this
means for the labor markets
Employment increased by 2.2 million jobs during 2004, up from a
net reduction of 61,000 jobs during 2003. In fact, employment declined
2001 through 2003. That three-year slide was the longest period
of employment contraction in at least 65 years. Job growth during
2004 was the first positive movement since the cyclical trough during
2001. 2004 was a good year in the sense that it was a significant
reversal of employment contraction, but not impressive in the long-term
context of post recession recoveries. The expectation for 2005 is
for modestly stronger employment growth on a year-over-year basis.
How can slower
GDP growth generate an increase in employment growth?
In a word: productivity. Productivity growth is unprecedented during
this post-recession period. The annual rate of productivity growth
was 4.4 percent during both 2002 and 2003, and I expect it to top
four percent during 2004. Rarely has annual productivity growth
exceeded four percent, and never before have two consecutive years
grown above four percent. Very fast productivity growth continued
during the first half of 2004 but has moderated to a more reasonable
pace recently. The consensus forecast calls for productivity growth
in the 2.2 percent range in 2005.
Productivity
growth is good for the long-term economy because it suppresses inflation,
improves competitiveness and raises our standard of living. In the
short-term, however, productivity growth limits employment growth.
But there’s good news for the American worker: during 2005,
as the economy slows down to a healthy GDP growth rate, employment
growth will not be diminished because the slower growth in output
will be offset by slower growth in productivity.
Modest improvement
in workweek length and wages
Average hourly earnings increased 2.7 percent during the past year,
up from the 1.8 percent improvement in earnings recorded during
December, 2003. Average work week metrics reinforce the earnings
data: the average work week consisted of 33.8 hours during December
of 2004. While this was somewhat higher than the year-earlier reading,
it was not high compared to the typical recovery period. The earnings
and workweek data suggest some relative sequential tightening, but
nothing severe in the longer-term context. Moreover, the Federal
Reserve Board staff in a recent report to policy makers noted a
significant tightening in the market for skilled workers while demand
for less skilled workers remained soft.
Recent statistics
support the case for an improving job market
Announced layoffs declined notably during January, compared to both
prior month and prior year. The Purchasing Managers Manufacturing
index in January indicated “a strong willingness to add jobs”.
Initial Jobless Claims, currently at 319,000, have been trending
downward and remain well below the 400,000 level -- that which is
generally associated with declining employment. Consumer Confidence,
as captured by a Conference Board Survey, rose for the second consecutive
month and the employment component of the survey improved in terms
of the percentage of respondents indicating “jobs are plentiful”
compared to the percent saying “jobs are hard to get.”
Overall, the
economy is moving from a robust recovery phase into a slower-but-healthy
trend phase. Employment growth, on the other hand, is still
building, and the outlook is for a need for more workers in
the wake of increasing jobs growth, slowing productivity and
gradual tightening of labor markets. Expect job growth, while
the unemployment rate holds steady or declines one tenth of
a point.
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