In the latest newsletter, NCCI examines the current state of the economy and the implications for workers compensation insurance. This edition also reviews changes in the US labor market, with emphasis on drivers of employment and wage growth across states and regions during 2015 and 2016.
Among the findings:
After posting the fastest growth since the recession during 2015, private employment growth is projected to slow in 2016 and 2017.
Average weekly wages are forecast to increase by 2.2% in 2016, and to accelerate to a 4.2% rate of increase in 2017—the fastest rate of wage increase since the Great Recession.
Medical inflation is forecast to run between 3.5% to 4.0% during 2016 and 2017, up from 2.6% in 2015 and outpacing general price inflation.
While interest rates remain low, an expectation for increasing price inflation suggests that interest rates may begin to rise as well. Increasing investment yields will increase insurers’ investment income as asset portfolios are reinvested. However, faster medical price inflation can be expected to have an offsetting negative effect on operating income, depending in part on future trends in medical utilization.
Key takeaways from our review of employment and wage trends:
- In 2016, both employment and wage growth have decelerated in comparison with 2015
- For both employment and wages, stronger performing states are concentrated in the West and South; and the slower growing states are primarily in the Midwest and Rust Belt. Some Southwestern states also show slower wage growth
- The Large Service sectors are the primary drivers of overall growth in most states
- Manufacturing is not a primary driver, but makes small positive contributions to overall growth in some states and small negative contributions in others
- States with overall declines are primarily driven by declines in the Energy sector
- The Construction sector’s contribution is generally correlated with the state’s overall growth