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 is expected to come in at 1.9% in 2018, slightly above 2017; it is forecasted to drop off to 1.7% in 2019
  • The unemployment rate is currently 3.7%, a historically low level, and has fallen year-to-date
  • Another measure of labor market tightness, the prime-age non-employment rate, has also fallen year-to-date, but has not reached its minimum in previous expansions
  • Wage growth for 2018 is expected to be 3.3%, accelerating to 4.5% in 2019
  • Medical inflation is projected to be above 2% in 2018, and higher in 2019
  • During a turbulent December, US Treasury yields tightened while the stock market sold off
  • Early December forecasts for rising interest rates in 2019 may get revised down


Month-to-month employment growth has been remarkably consistent throughout 2018. Total nonfarm employment increased by an estimated 155,000 jobs in November and 237,000 in October. Job growth has averaged around 200,000 per month since 2011. Moody’s forecasts overall employment growth to be 1.9% for 2018 and 1.7% in 2019, close to the growth rates observed in 2016 and 2017.

The unemployment rate has declined to 3.7%, continuing this year’s push to historically low levels. The unemployment rate is currently below the minimums reached in the last two expansions: 4.4% in 2006 and 3.8% in 2000. While this implies a decreasing supply of potential new workers, the persistent decline in the unemployment rate has not perceptibly slowed employment growth.

How can employment continue to grow steadily despite low unemployment? One answer is that a strong economy may hire new workers directly from people outside of the labor force. As defined by the US Bureau of Labor Statistics (BLS), an unemployed person is someone without a job who is actively seeking work according to criteria that it has set forth. See “Who is counted as unemployed” at How the Government Measures Unemployment The unemployment rate is the share of unemployed people in the labor force, which is the total of employed and unemployed people. Jobless people whom the BLS does not consider to be actively seeking work are not counted in the labor force.

As an indicator of overall slackness in the labor market, an alternative to the unemployment rate is the prime-age non-employment rate: the percentage of all Americans ages 25-54 who are not employed, whether they are counted in the labor force or not. The notion of employment as a share of population rather than a share of the labor force is an acknowledgement that the BLS’s traditional distinctions between active and inactive job search behaviors are less valid today than historically.

At the beginning of 2008, the prime-age non-employment rate was 20.0%, but it rose to 25.2% by late 2009 during the Great Recession. After holding steady around 25% for 2010 and 2011, it has steadily recovered since then. As of November 2018, 20.3% of all Americans age 25-54 were not employed.

The figure below shows low points for the unemployment rate and prime-age non-employment rate during economic expansions since 1990. Both rates suggest that the labor market is getting tighter. But unlike the unemployment rate, the non-employment rate is not as low today as it was late in the prior two expansions. In fact, it was below its most recent level during every month from mid-1996 through the 2001 recession.

The non-employment rate offers a potential explanation why employment and wage growth have been steady even as the unemployment rate has gotten lower and lower. Today’s remarkably low unemployment rate suggests that there are few available new workers, and that employers will increasingly have to hire away people who already have jobs. In this scenario, wages will be pushed up while net employment growth slows down. But if there remains a substantial pool of new workers outside of the labor force, then employment growth unaccompanied by wage acceleration may continue.

NCCI’s research has found that increased hiring of new and inexperienced workers puts upward pressure on injury frequency in workers compensation Schmid, Frank A., “Workplace Injuries and Job Flows,” NCCI research report, July 2009, LINK. If people currently outside of the labor force have less − or less up-to-date − work experience than people who are currently working or actively looking for work, then new hires coming more often from outside the labor force could put upward pressure on injury frequency. However, since injury frequency has been steadily trending down over the long term, increased hiring of inexperienced workers may result in less of a decrease to injury frequency, or a modest increase. To date as of Accident Year 2017, NCCI has not seen any evidence of upward pressure on injury frequency.State of the Line Guide, NCCI, May 2018, LINK. See slides 37 and 39. However, at least one carrier has indicated that it is seeing a shift in frequency in 2018. NCCI will monitor claim data for Accident Year 2018 when it becomes available in March.


NCCI projects average weekly wage growth to be to 3.3% for 2018 and 4.5% in 2019. These are little changed from prior projections, and the full-year 2018 forecast is very close to the actual rate of wage growth in three of the past four years.

A couple of signs point to higher projected wage growth in 2019. First is the tightening labor market, shown by the decreasing unemployment rate and decreasing non-employment rate discussed in the previous section. The second is that wage growth has started to trend up during 2018. The Atlanta Fed wage growth tracker, which focuses on people who have been continuously employed, most recently reported 3.7% median wage growth. This statistic is a moving average for the three months ending in October 2018. The 3-month moving average has not decreased since May and is up from 3.0% at the beginning of the year. The upward trend in wage growth throughout 2018 supports the projection of higher wage growth in 2019.


As we have done previously, we present historical data and forecasts for two measures of medical inflation: the Personal Health Care (PHC) deflator, and the healthcare component of the Personal Consumption Expenditures (PCE-HC) price index. The PHC is our preferred measure; but the Centers for Medicare & Medicaid Services (CMS) produce projections only once a year, whereas Moody’s Analytics produces PCE-HC projections more frequently. Both measures anticipate rising medical inflation. The PHC price index is projected to grow by 2.2% in 2018 and 2.4% in 2019, while the PCE-HC is projected to grow by 1.8% in 2018 and 2.1% in 2019. PCE-HC projected growth is slightly below prior quarters’ projections but still represents larger medical inflation than occurred throughout 2017, when the PHC and PCE-HC increased 1.3% and 1.5%, respectively.

Medical price changes are a result of different price components moving in opposite directions. Moody’s projects average price growth in prescription drugs and medical supplies to be 2.0% in 2018 – slower than the 3.4% and 4.8% growth rates in the two prior years. On the other hand, price growth in hospital and physician services – the two largest components of medical expenses in workers compensation – have been increasing. The Producer Price Index for hospital services increased by 2.5% in the last 12 months from the 12 months prior, up from 1.7% and 1.2% in the two previous 12-month periods. Physician services increased 0.6% in the same time frame, up from 0.5% and 0.0%. Accelerating growth in the prices of these services has increased medical inflation since 2015.


In the 2018 second quarter edition of the Quarterly Economics Briefing, we highlighted how the US Treasury yield curve had flattened. We noted concerns about an inverted yield curve, a state in which short-term interest rates exceed long-term rates. An inverted yield curve is often taken as a leading indicator of a recession. Writing in that issue, we expected the yield curve to stabilize rather than invert for both economic and technical reasons. As an example of the latter, until the end of the fiscal year in September, pension plans would be able to deduct contributions at higher tax rates. Increased pension funding drives up demand for long-term bonds, depressing their yields. In fact, by October corporate pension funding levels had risen to their highest mark in a decade.

For much of the fourth quarter, US Treasury rates did stabilize according to expectations. As shown in the first panel of the figure below, the Treasury yield curve drifted up but did not materially flatten from June until early December. The 2’s–10’s spread (the difference between 10-year and 2-year Treasury yields) stayed between 20 and 35 basis points for all but two days from July through November.

But December was an entirely different story.

Increased uncertainty surrounding US border politics, monetary and trade policy, and an economic slowdown in China drove Treasury yields down sharply. From early December to year end, yields dropped by about 30 basis points for all Treasury maturities of two years and above, while the 2’s–10’s spread contracted to the range of 10−20 basis points (see the second panel in the figure above). Equity markets fell sharply, too. The S&P 500 index dropped nearly 16% from December 3 to December 24 before recovering in the short week after Christmas to finish down 9% for the month. It was the S&P 500’s worst December performance since 1931.

At its December meeting, the Federal Reserve raised the federal funds rate by 25 basis points. While the rate hike was expected, the tone of Chairman Jerome Powell’s accompanying remarks surprised those observers who had expected “soft” wording to signal a pause in further rate hikes. Instead, Chairman Powell’s matter-of-fact tone was taken to indicate that two or even three more rate hikes are likely in 2019. At least as important as Chairman Powell’s tone was his announcement that the Fed will continue to run off its portfolio of government bonds and mortgage-backed securities, assets acquired during and after the 2008 financial crisis. Continuing Fed sales of these securities on the open market, together with new debt issuance to fund the federal deficit increased by the 2017 tax cut, would put upward pressure on interest rates during 2019, potentially heightening the risk of an economic slowdown.