The exhibits below are updated to reflect the current economic outlook for factors that typically impact workers compensation. Each exhibit also provides some context for the outlook, relative to the historical data. Forecasts are derived from Moody’s Analytics.

  • Employment growth in 2018 is forecast to be slightly above 2017 and growth is expected to decline in 2019. The unemployment rate is holding steady below 4%.
  • Wage growth is expected to increase to 3.6% in 2018 and accelerate in 2019 to 4.5%.
  • Medical inflation is projected to rise above 2% in 2018 and continue rising in 2019.
  • The 10-year Treasury rate is expected to rise to 3.4% by June 2019.


Employment growth continued its streak of 95 consecutive months as of August. The economy added 208,000 jobs in June, and preliminary estimates of employment increases were 147,000 for July and 201,000 for August.

The unemployment rate remained steady at 3.9% in August. The broader U-6 measure of unemployment dropped to 7.4% in August, its lowest rate since April 2001. The U-6 includes total unemployed, persons marginally attached to the workforce, and persons employed part-time for economic reasons.

Moody’s forecast for employment growth is 1.9% for 2018 and 1.6% in 2019. The forecasted decline in 2019 corresponds to projected slowing of real GDP growth in 2019 and 2020 and reduced slack in labor markets. Employment growth depends on the rate of job attainment by two different labor force groups: people who are unemployed and people not currently in the labor force who want a job. Since August 2017, people in the former category decreased by 12.5%, while those in the latter decreased by 5.4%.


With tightening labor markets, average weekly wage growth is projected to increase to 3.6% in 2018 and 4.5% in 2019. Moody’s projections for 2018 and 2019 have been revised slightly but are similar to the 3.9% and 4.7% reported in second quarter’s Quarterly Economics Briefing (QEB).

In a prior edition of the QEB, we discussed reasons why wage growth to date remains below prerecession levels despite the long economic expansion and low unemployment. We suggested that in today’s strong labor market, higher wage growth for continuously employed workers may be partially masked by new workers entering jobs at lower wages. But the Atlanta Fed’s wage growth tracker reported 3.5% wage growth for continuously employed workers in August 2018. The newest reported wage growth is comparable to wage growth in 2017 and below projected wage growth in 2018 for all workers, so changing workforce composition does not solve the wage growth puzzle.


Medical inflation as measured by the Personal Health Care (PHC) deflator has accelerated since 2015. The Centers for Medicare & Medicaid Services forecasts that trend to continue, with the PHC increasing 1.4% in 2017, 2.2% in 2018, and 2.4% in 2019.

Because the PHC is updated annually, we supplement the forecast of medical inflation with historical and projected changes in the healthcare component of the Personal Consumption Expenditures (PCE-HC) price index. The PHC and PCE-HC are strongly correlated, which makes the PCE-HC a useful indicator for the PHC.

Moody’s Analytics projects the PCE-HC to increase 1.9% in 2018 and 2.8% in 2019, as shown by the white dots in the figure above. Moody’s projections for 2018 and 2019 have been revised downward from 2.6% and 3.1% as reported in last quarter’s QEB.


The yield curve continues to flatten since our second quarter report. The 2-year Treasury rate increased by 29 basis points to 2.81% at the end of the third quarter, while the 10-year Treasury rate increased by 20 basis points to 3.05%.

The Federal Reserve Board has raised the federal funds rate by a quarter point three times this year, most recently on September 26, and is expected to raise it once more before the end of 2018. Raising the federal funds rate pushes up short-term interest rates.

In addition, reductions in the Federal Reserve’s bond portfolio and increases in planned borrowing by the US Treasury will put upward pressure on interest rates across the maturity spectrum. The Federal Reserve System Open Market Account has reduced its holdings by $228.4 billion since the beginning of the year, of which $151.9 billion was Treasury notes and bonds. The US Treasury plans to borrow $329 billion during the third quarter of 2018, a jump of $56 billion from its April estimate.

Moody’s Analytics forecasts the 2-year and 10-year Treasury rates to rise to 3.1% and 3.4% by June 2019.