While the economy maintains a slow-but-steady pace of growth, the labor market has continued to tighten.
This reflects two key trends:
- Low productivity growth, which implies most GDP growth has to come from employing more workers, and
- Low labor force growth, which means that much of the job growth has come from re-employing the unemployed rather than new workers entering the labor market.
Solid GDP growth in 2017 and 2018 should cut the unemployment rate further, perhaps to 3.5% by the end of 2018, having already fallen close to 4% by the end of 2017. While wages have been slow to react to a tight labor market so far, extra pressure to find workers spurred by tax cuts could finally boost wage growth in 2018.
Source: BLS, FactSet, JP Morgan Asset Management
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