Jul 12 2018
The US economy is amid one of the longest expansions on record, with June marking 108 months of sustained economic growth. The June employment report recently released by the Bureau of Labor Statistics (BLS) revealed a 4.0% unemployment rate, which is up slightly from 3.8% in May. However, this is down remarkably from nine years earlier at the outset of the current recovery in June 2009, when unemployment rose to 9.5%. Employers have added to payrolls for 93 consecutive months, extending the longest employment expansion on record. As a result of this streak, labor market conditions have tightened in recent years, with shortages of qualified workers reported across various specialized trades and occupations.
The Construction sector has experienced one of the strongest recoveries in the domestic economy, with revenue for the sector expected to rise an annualized 3.4% to $2.0 trillion over the five years to 2018. However, despite strong demand for construction services, skilled-labor shortages among several specialty trade industries have plagued construction contractors across the sector in recent years, limiting the level of construction investment and volume of new projects. Reported shortages among homebuilders, in particular, have restricted the supply of new housing, leading to steep home price appreciation in many areas of the country. According to a recent survey by the National Association of Home Builders (NAHB) in December 2017, a record 82.0% of builders reported labor shortages as a significant problem, up substantially from just 53.0% of builders in 2013. Additionally, according to the latest Job Openings and Labor Turnover Survey (JOLTS) released by the BLS, the level of job openings within the Construction sector reached a record-breaking monthly average of 198,000 in 2017, surpassing the previous high in 2007. In 2018, the year-to-date monthly average is even higher. A tightening labor market has created difficulties among small- and medium-sized building firms as jobs go unfilled, making delivering projects on time more challenging.
Improved household finances have enabled the Retail Trade sector to grow steadily over the past five years, with revenue for the sector anticipated to rise at an annualized rate of 2.1% to $5.5 trillion over the five years to 2018. However, according to the latest JOLTS data released by the BLS, job openings within the Retail Trade sector have risen each consecutive year since 2010 to reach a record monthly average high of 651,000. Domestic retailers have reported increased difficulty in hiring and retaining workers as potential employees seek positions with more flexible hours and higher pay. According to the latest available data from the BLS Occupational Employment Statistics (OES) program, the hourly median wage for retail sales workers was $11.24 in 2017, having hardly risen from $11.05 in 2013 and well below the 2017 median hourly wage of $16.87 across all industries. As retailers primarily hire workers on a part-time basis, workers have been further discouraged from filling retail positions due to the lack of benefits that are typically given to full-time employees in other sectors. A shortage of workers has exacerbated the decline of brick-and-mortar retail within the sector, as retailers have struggled to provide the customer service necessary to effectively compete against e-commerce operators.
Revenue for the Accommodation and Food Services sector has risen strongly over the past five years in light of heightened consumer spending, rising an estimated annualized 3.5% over the five years to 2018 to total $1.1 trillion. Despite positive consumer demand for accommodation and food services, the sector has struggled with an unprecedented level of job openings; the latest JOLTS data released by the BLS reveals that job openings within the sector reached a record-breaking monthly average of 739,000 in 2017. Year-to-date in 2018, this value is already significantly higher. Food service operators, in particular, have struggled to fill open positions, with the National Restaurant Association reporting in 2017 that 37.0% of its members listed labor recruitment as their top challenge, up from 15.0% just two years ago. Similar to employees in the Retail Trade sector, food service workers earn low average wages and often do not receive benefits awarded to full-time employees in other sectors. As a result, workers have increasingly sought positions in alternate fields with better pay, contributing to a rise in open positions. Tightened labor conditions across food service industries have been further exacerbated by a recent crackdown on undocumented workers, leading restaurants to become increasingly wary of hiring low-wage employees from the nation’s undocumented workforce. Food service companies have increasingly turned to automation in light of a shrinking labor pool, with popular restaurant chains such as Panera Bread, Arby’s, Dunkin Donuts and Wendy’s implementing labor-saving technologies like self-timing ovens, automated dishwashers and self-service kiosks to reduce human input behind the scenes and fill more positions at the front of the house.
The Manufacturing sector has faltered over the past five years amid volatile commodity prices and weakened exports, with revenue for the sector anticipated to decline an annualized 0.5% over the five years to 2018 to total $6.2 trillion. The sector has experienced an acute rise in job openings in recent years, with total openings within the sector reaching an unprecedented monthly average of 390,000 in 2017; this includes high levels of open positions in both the durable and nondurable goods manufacturing subsectors. However, analysis performed by the Federal Reserve reveals that the level and volatility of labor supply constraints tend to be greater in durable goods manufacturing industries relative to nondurable goods. The shortage of skilled and highly skilled workers necessary for manufacturing operations has created difficulties along entire supply chains, exacerbated by a lack of science, technology, engineering and mathematics (STEM) skills among workers and a negative perception of the manufacturing industry among younger generations. In a recent study conducted by Deloitte using BLS data, an estimated 3.5 million manufacturing jobs will need to be filled over the next decade as a result of baby-boomer retirements and an expanding economy. However, the skills gap is expected to result in 2.0 million of these positions remaining unfilled, constraining future growth for the sector.
Healthcare and Social Assistance
Rising health expenditure and shifting demographics have enabled the Healthcare and Social Assistance sector to expand steadily over the past five years, with revenue for the sector expected to rise an annualized 2.6% over the five years to 2018 to total $2.7 trillion. As demand for domestic healthcare services has risen rapidly amid an aging US population and expanding health care coverage, employment within the sector has struggled to keep pace. According to the latest JOLTS data released by the BLS, job openings within the Healthcare and Social Assistance sector have risen to a record-breaking monthly average of 1.0 million as of 2017. In particular, a nationwide nursing shortage has negatively affected the sector; according to a survey conducted by NSI Nursing Solutions, over 80.0% of facilities surveyed had a vacancy rate of 5.0% or higher, compared to just 50.0% of facilities surveyed in 2013. The nation’s nursing shortage can be attributed to both an increasing number of experienced nurses entering retirement age and the number of new nursing graduates falling short of what is necessary to replenish the workforce. In an effort to avoid risking patient safety or closing down departments, hospitals have begun offering lucrative incentives such as large bonuses and free housing and tuition to aid in recruiting and retaining nurses, which cuts into profit margins.
Despite Tightening Market, Real Wage Growth Remains Sluggish
One of the largest indicators of recent labor shortages among several pockets of the domestic economy is the current ratio of job openings to hires; total nonfarm job openings have exceeded nonfarm hires each consecutive year since 2015, departing from the opposite pattern witnessed over the bulk of the JOLTS’ history. However, while some firms have responded to a tightening labor market by increasing wages and compensation packages, wage growth has remained sluggish and rising inflation has partially diminished domestic workers’ more recent pay gains, contributing to the cycle. The labor shortage trend is expected to drive up wages over the long term, which will have a significant effect on operating conditions for the industries that are most affected.
Edited and designed by Miranda Romano.