1. LaborMarkets
E M P L O Y M E N T A N D L A B O R C O S T S
Economists surveyed by BNA expect the labor market to continue on a trajectory of slow
growth in 2012, drawing out the long, ongoing jobs recovery. Payroll employment is ex-
pected to increase by an average of 110,000 jobs per month during the first half of the year,
followed by an average monthly gain of 126,000 in the second half. The unemployment rate
is expected to remain elevated in 2012, averaging 8.8 percent in both the first half and the
second six months of the year.
Forecasters See 2012 Job Growth Continuing at Sluggish Pace
N
onfarm payroll employment will grow at a slow
pace in the first half of 2012 before picking up
slightly in the second half, as the nation’s unem-
ployment rate will remain elevated throughout the year,
according to a panel of economists surveyed by BNA.
The unemployment rate, which fell to 8.6 percent in
November 2011, its lowest level since March 2009, will
likely remain above that in 2012. BNA’s panel forecasts
the monthly jobless rate will average 8.8 percent over
both the first six months of the year and in the second
half.
Importantly, the survey respondents’ labor market
forecasts hinge on whether Congress extends both the
payroll tax cut and emergency unemployment benefits,
both of which were set to expire at the end of 2011, for
a full year. Lawmakers agreed late December to a two-
month extension, but the fate of programs for the rest
of the year remains uncertain. Most economists sur-
veyed assumed the payroll tax cut and UI benefits
would be extended throughtout 2012, which they
agreed would add to payroll job growth.
Over the entirety of 2012, BNA’s panel of forecasters
predicts nonfarm payroll employment will increase by
110,000 jobs per month during the first half of the year,
followed by an average monthly gain of 126,000 in the
second half, for a total of about 1.4 million jobs.
By comparison, between January and November
2011, payrolls already had risen by about 1.4 million
jobs, according to the Labor Department’s Bureau of
Labor Statistics. In the second half of the year through
November, the latest data available show gains aver-
aged 132,000 jobs per month, about the same as in the
first half.
Although private payrolls increased in each of the 11
months of 2011 for a total gain of about 1.7 million jobs,
state, local, and federal governments combined shed a
total of 263,000 jobs.
Individual forecasts by BNA panel members for aver-
age payroll gains in 2012 range from 80,000 jobs per
month to 190,000 jobs per month in the first half of the
year, and from 50,000 jobs per month to 225,000 jobs
per month in the second half.
Jobless Rate Estimates in 8.8 Percent Range. Individual
estimates for the unemployment rate range from an av-
erage of 8.2 percent to 9.2 percent in the first half and
7.9 percent to 10.0 percent in the second half.
As the recovery continues this year, BNA’s panelists
see different forces at work in the labor market and ex-
press varying degrees of optimism about job growth.
Nigel Gault, chief U.S. economist at IHS Global In-
sight, told BNA that businesses seem more willing to
hire than earlier in the recovery, citing monthly job
gains of around 125,000 to 155,000 per month in late
2011.
‘‘But there are still substantial headwinds facing the
U.S.,’’ which will limit employment gains in 2012, Gault
said. His firm projected an average monthly job gain of
120,000 in the first half of 2012 and 178,000 in the sec-
ond half, close to BNA’s panelists’ average forecast.
Labor Compensation Trends
Total Compensation Per Hour From Fourth Quarter to Fourth Quarter
A BNA Graphic/aeo12g07Sources: Bureau of Labor Statistics, BNA Economic Survey*
Actual
Projected*
Percentage basis
2005 2006 2007 2008 2009 2010 2011
0
1
3
4
2
ECI Private Industry, All Workers Data
2012
2.2
2.4
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2. Although the firm’s baseline forecast calls for the job-
less rate to stay around 9.0 percent in 2012, it could end
up being lower, Gault said, citing the unexpected drop
in November to 8.6 percent.
‘‘There is a risk that the labor force could remain flat
or dip a little further,’’ as more people give up looking
for work and drop out as they did in November, helping
push down the unemployment rate, he said. ‘‘Ultimately
at some point, some of those people are going to come
back [into the job market], and we think it is going to
be a long slow process to get that unemployment rate
down.’’
Beth Ann Bovino, senior economist with Standard &
Poor’s, told BNA that the U.S. recovery is just starting
to gain some momentum, as ‘‘jobs are starting to come
back, with the second half of [2011] receiving a boost.’’
S&P projected an average monthly job gain of 120,000
in the first half and 170,000 in the second half, close to
the average forecast.
Labor Force Participation Expected to Rise. Meanwhile,
analysts from Macroeconomic Advisers are slightly
more optimistic about hiring in the first half of 2012,
predicting an average monthly job gain of 136,000. That
pace is expected to trail off significantly in the second
half, as they forecast monthly job growth of only
78,000.
The share of the U.S. population that is working or
unemployed and looking for jobs has declined ‘‘fairly
consistently’’ both during the recession and so far in the
recovery, Ben Herzon, Macroeconomic Advisers econo-
mist, told BNA. The recent decline in the jobless rate to
8.6 percent partly reflects an increase in the number of
people giving up their job search or staying out of the
job market, Herzon said, adding that next year that
trend is expected to stabilize and could turn around.
‘‘Labor force participation should start picking up
next year, and that’s good news and bad news,’’ he said.
On the plus side, the higher participation in the labor
market ‘‘likely will reflect renewed confidence in job
prospects,’’ Herzon said. At the same time, however,
the entry of more workers into the job market will keep
upward pressure on the unemployment rate in 2012.
The jobless rate will rise next year because growth in
the labor force is projected to outpace job creation, he
predicted.
David Shulman, senior economist at UCLA Anderson
Forecast, was less optimistic about employment, pre-
dicting only 85,000 jobs per month in the first half of the
year and 110,000 in the second half. He said this was
based on the collapse of the employment-to-population
ratio, which has remained below the level reached at
the official bottom of the recession in 2009. His firm
also predicts that the unemployed will stay in the labor
force and continue to look for work.
Scott Brown, economist with Raymond James Finan-
cial Inc., told BNA that the crisis in Europe is ‘‘just a
huge risk at this point,’’ potentially causing a loss in ex-
ports and a ‘‘tightening in credit.’’ Partly for that reason
his firm projected an average monthly job gain of
127,500 in the first half and 160,000 in the second half,
he said, more on the optimistic side for BNA’s forecast,
but still considered a low forecast for his firm, he said.
A gain of some 250,000 to 300,000 jobs per month
would be considered healthy economic growth, he said.
Brown said there was a lack of job creation in small-
and medium-sized firms in 2011, but he expects a
pickup in 2012. Meanwhile, ‘‘large corporations [will]
still hold the line on labor expenses,’’ he said.
Extension of Payroll Tax Relief Expected. The majority
of BNA’s forecasters assumed the payroll tax cut would
be extended through 2012 and that extended unemploy-
ment compensation program benefits would be re-
newed.
Brown said if his 2012 forecast had not assumed Con-
gress would extend the payroll tax cut and emergency
unemployment benefits, his firm’s employment outlook
would be much weaker.
Herzon said Macroeconomic Advisors, whose fore-
cast was one of a few that assumed neither the payroll
tax cut nor the emergency unemployment benefits
would be extended, expects job growth to fall off in the
second half of 2012 because of the delayed impacts of
the tax and UI benefits expirations.
‘‘The increase in payroll taxes is expected to slow
economic growth in the first half of 2012, but the impact
on employment won’t show up until later in the year,’’
he said. ‘‘That downshift [in the economy] puts a soft
Job Creation Trends and Unemployment Rates
Average Monthly Change in Employment on a Half-Year Basis Average Annual Composite Unemployment Rate
A BNA Graphic/aeo12g05Sources: Bureau of Labor Statistics, BNA Economic Survey* aThrough November 2011
’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11a ’12
0
4
8
10
’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11a ’12
I II I II I II I II I II I II I II I II I II I II
-700
-500
-400
0
200
300
400
2
6
-600
-300
-100
-200
Actual
Projected*
Thousands of jobs
100
126110
Actual
Projected*
Percentage basis
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3. spot in employment growth in the second half of next
year.’’
Gault of IHS Global Insight said if the payroll tax cut
and extended unemployment benefits programs are not
extended for a full year, the resulting slowdown in eco-
nomic growth would translate into an increase in the
unemployment rate of roughly 0.3 percentage point
over his forecast of 8.8 percent and a reduction in total
job gains for the year ‘‘in the region of’’ 400,000 to
500,000 jobs.
Government to Cut Jobs. The BNA panelists on aver-
age forecast the economy in 2012 will add another 1.4
million jobs overall, reflecting continued growth in the
private sector and job losses in government.
Mark Zandi, Moody’s Analytics chief economist, said
in a written analysis falling house prices also reduce
revenue from property taxes, which will force local gov-
ernment to cut jobs. The prospect for further declines in
U.S. housing prices as foreclosures accelerate also
poses a substantial threat, he said. Houses remain the
most important assets for most middle-income house-
holds, as well as a prime source of collateral for small-
business owners seeking loans, he said. ‘‘Big cuts in
municipal budgets could cut growth more than antici-
pated,’’ Zandi wrote.
By contrast, Brown of Raymond James told BNA that
while housing will remain relatively weak through
2012, it will be less of a drag on state and local govern-
ment than it was in 2011.
Most analysts expect recent trends in job creation
among industries to continue in the coming years.
Manufacturing, ‘‘in any of our scenarios, is not going
to be an important generator of jobs,’’ Gault of IHS Glo-
bal Insight said. ‘‘For job growth, we will have to rely
mainly on the domestic service sector.’’
Meanwhile, Shulman of UCLA Anderson Forecast
expects continued job losses in state and local govern-
ment, but a pickup in jobs in the mining and energy in-
dustries in 2012.
Kathryn Kobe, Economic Consulting Services econo-
mist, said she expects the financial services industry to
shed jobs, based on recent announcements of cutbacks
at Morgan Stanley and other firms. ‘‘Financial services
is still struggling’’ to readjust their balance sheets after
the 2008 financial market collapse, Kobe said.
Modest Wage Gains Likely. Total compensation for pri-
vate sector workers will increase 2.4 percent in 2012, as
measured by the Labor Department’s employment cost
index, according to BNA’s panel of forecasters.
Excluding benefits, wages and salaries are expected
to grow 2.0 percent. In 2011, by comparison, compen-
sation rose 2.1 percent, as of the third quarter, while
wages and salaries were up 1.7 percent.
‘‘I don’t think we’re going to see enough strength in
the labor force to give us much push on the wage side,’’
Kobe said, noting there still is a large pool of unem-
ployed workers.
‘‘I think we’ll see a slow upward push on wages and
salaries, but annual growth still is going to remain
around the 2.0 percent range probably,’’ Kobe said.
Individual forecasts ranged from 1.8 percent to 2.6
percent for wages and salaries and from 2.0 percent to
3.3 percent for total compensation.
The 2009 health care overhaul law temporarily
boosted employer costs for health insurance for about
two years, driving labor compensation costs up signifi-
cantly relative to wages and salaries, James Glassman,
a senior economist at JPMorgan Chase & Co., said.
In contrast to the consensus BNA outlook, his fore-
cast for 2012 assumes that benefit costs will flatten, and
that as a result, total compensation will rise more
slowly in percentage terms than wages and salaries (2.0
percent versus 2.3 percent).
BNA’s forward-looking Wage Trend Indicator also
predicts a pickup in the pace of year-over-year wage in-
creases in the coming months, according to the revised
fourth quarter index released Dec. 13.
Reflecting a slight improvement in labor market con-
ditions, the WTI rose to 97.48 in the fourth quarter (sec-
ond quarter 1976 = 100) from 98.36 in the third quar-
ter. If confirmed by the final fourth quarter reading, to
be released Jan. 18, the increase would be the sixth con-
secutive gain following a steady decline lasting more
than two years.
BY ALICIA BIGGS
Sources: Wage Trend Indicator Database, Bureau of Labor Statistics A BNA Graphic/aeo12g06
Wage Trend Indicator™ and Private Industry Wage Growth
1991—2011
’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07’93’92’91
* Twelve month percent change in private industry wages as measured by the BLS Employment Cost Index.
100
101
102
103
104
99
98
97
95
94
96
6%
7%
8%
9%
10%
5%
4%
3%
1%
0%
2%
’08 ’09 ’10 ’11
Wage Trend Indicator (Left Scale)
Private Industry Wage Growth* (Right Scale)
Left Scale is Magnified
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