Quarterly Economics Briefing

Posted Date: March 27, 2017
    

NCCI's Quarterly Economics Briefing examines the current state of the economy and implications for workers compensation insurance. This edition also focuses on manufacturing. The report includes a survey of state manufacturing presence and also discusses how the rise of automation and supply chain decentralization has contributed to long-term trends in manufacturing output, employment, and productivity.

Among the findings:

Employment Growth

After slowing in 2016, private employment growth is projected to continue to slow this year and next year.

Wage Growth

Average weekly wages are forecast to accelerate due to tightening labor market conditions.

Medical Inflation

Medical inflation is forecast to slow slightly to 3.4% this year and continue at that pace in 2018. This is still above the average of 3.0% for the previous five years, and also higher than general inflation in both years.

Interest Rates

Low interest rates have constrained investment income in the property/casualty industry for many years. However, with price inflation returning to more normal levels, interest rates are also expected to rise.

Drilling Down

Key takeaways from our review of economic trends in manufacturing:

  • Manufacturing is important to the workers compensation industry because it makes up a disproportionate share of premium (15%) relative to exposure (8%).
  • States with high manufacturing employment shares are primarily located in the Midwest and central South. States in the East and West tend to be more service-oriented, with lower shares of manufacturing employment.
  • Durable manufacturing is more cyclical than nondurable manufacturing. Therefore, states with higher concentrations in durable goods industries can be harder hit by economic slowdowns.
  • For several decades, US manufacturing real output has increased while employment has declined. In 2016 the US produced almost 72% more goods than in 1990, but with only about 70% of the workers.
  • Increases in automation have reduced manufacturing costs, making US manufacturers less expensive and more competitive, and reducing employment required to produce output.
  • Decentralized supply chains allow manufacturers to achieve lower costs, but they also contribute to a decline in US manufacturing employment to the extent that production is located outside the United States.