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.

  • Private sector employment increased by 2.6 million jobs in 2018
  • Employment is forecast to grow 1.8% in 2019, slowing to 0.9% in 2020
  • The unemployment rate has held at or below 4.0% since March 2018
  • We expect average weekly wage growth of 3.3% in 2018, increasing to 4.3% in 2019
  • Forecasted medical inflation is revised down, below 2% in 2018 and 2019 but increasing thereafter
  • Treasury yields are lower since last December and remain flat across the yield curve


After impressive job growth in January, nonfarm payroll employment in February experienced the lowest monthly gain in more than a year. According to the Bureau of Labor Statistics (BLS), after adding 312,000 jobs in January, February was virtually flat with only 33,000 new jobs. Employment growth bounced back in March, with 196,000 new jobs for the month.

Overall for the first quarter of 2019, job growth averaged 180,000 per month, down from 223,000 per month in 2018 but still a strong performance.

Private sector employment (excluding government jobs) grew 1.9% for the full year 2018, adding 2.6 million new jobs at an average rate of about 215,000 jobs per month. While job growth was broad based across all economic sectors, Professional and Business Services and Healthcare accounted for well over a third of new jobs during the year. The unemployment rate fell to 4% in March of 2018 for the first time since 2000, and has remained at or below that level to date. Early estimates from the US Bureau of Economic Analysis (BEA) indicate that real GDP expanded by 2.9% in 2018—the strongest year since 2015.

In its most recent March forecast, Moody’s Analytics projects private nonfarm employment to increase 1.8% in 2019, or about 190,000 new jobs per month. The 2019 forecast is close to the average annual employment growth rate for the past three years from 2016 through 2018 (see the chart above). However, Moody’s expects annual employment growth to tail off next year, dropping below 1% in 2020.

The forecast for slowing employment growth in 2020 goes hand-in-hand with the expectation that US economic growth will slow down on the same schedule. Changes in several indicators during 2018 point to the real possibility that annual growth of US gross domestic product (GDP) will drop to the neighborhood of 1% by 2020, down from 2.9% in 2018. In a more severe downturn, GDP growth might even go negative in 2020, indicating a recession. Necessarily, any recessionary scenario is more extreme than one in which GDP growth slows down but stays above zero. While strong employment and consumer demand make a 2020 recession unlikely, concerns about a slowdown show how much expectations have changed since this time last year.

Among various economic indicators pointing to slowing US economic growth, the following are likely to be particularly important:


Our forecasts of average weekly wage growth are little changed from last December. We expect US average weekly wage growth to gain momentum this year, going from an annual rate of 3.3% in 2018 to 4.3% in 2019, and then falling back to 3.4% in 2020.

Our expectation of 2019 wage growth above 4% is a consequence of low unemployment and increasingly tight labor markets, and assumes that the US economy does not fall into recession. But, to play devil’s advocate, in spite of historically low unemployment for the past several years, weekly wage growth has not gone much above 3% per year. Why should 2019 be different?

In last December’s QEB, we observed that despite the low unemployment rate, many working-age people remain outside the labor force. Low labor force participation rates may explain the combination of low unemployment and sluggish wage growth if employers can attract new hires at prevailing wage levels from people not presently counted in the labor force. A more comprehensive measure of labor market participation is the prime-age non-employment rate, the percentage of people ages 25−54 who are not employed, including people who have not actively sought work in the recent past. Since peaking around 25% in 2009−2010, the prime-age non-employment rate has steadily declined, reaching 20.2% as of last February. From 1989 to 2007, the prime-age non-employment rate varied in the range from 18% to 22%. With today’s non-employment rate having fallen back within its pre-recessionary range, it will be increasingly difficult for employers to fill new jobs unless they offer higher wages.


As part of its annual update in February, the Centers for Medicare & Medicaid Services (CMS) revised down its growth forecast for the Personal Health Care Deflator (PHC) by half a percentage point in both 2018 and 2019. CMS now estimates medical inflation for 2018 at 1.7%, and projects an increase to 1.9% in 2019. CMS projections for 2020 and beyond remain largely unchanged: PHC growth is expected to increase gradually to 2.8% per year in 2025. In CMS’s opinion, the primary driver of future medical price inflation will be growth in health sector wages.

While the PHC is NCCI’s preferred measure of medical inflation, it has the disadvantage that CMS only updates its PHC forecasts once a year. We also monitor forecasts of the healthcare component of the Personal Consumption Expenditures (PCE-HC) price index from Moody’s Analytics, which are updated monthly. The two series track each other reasonably closely, although actual and forecasted rates of growth in the PCE-HC index are consistently higher than those for the PHC deflator from 2017 onward. Moody’s currently forecasts that annual medical inflation as measured by the PCE-HC index, will peak at 2.8% in 2021, then fall back to 2.5% in 2025. This is a more rapid upward trajectory than CMS’s forecast for the PHC deflator, but also a quicker decline.


When the Federal Reserve raised the federal funds rate last December, Chairman Jerome Powell spooked bond and equity markets with remarks that were widely interpreted to foreshadow further rate hikes in the works for 2019. With investors already anxious about slowing economic growth, an unresolved trade dispute with China, and a government shutdown, Powell’s comments accelerated market movements that had begun a few weeks earlier. The S&P 500 stock index dropped more than 9% in December while US Treasury prices rose sharply – depressing yields across most maturities by about 0.3% – with much of the price movement occurring after the Fed’s December meeting.

The Fed took notice, and emphasized in a statement accompanying its January, 2019 meeting that it would be “patient” with interest rate policy “in light of global economic and financial developments and muted inflation pressures.” Minutes of the January meeting also showed that Fed officials favor slowing down open-market sales of the Fed’s portfolio of government bonds and mortgage-backed securities, a move the Fed had begun in the second half of 2018 and which would tend to drive interest rates up. Not wishing to be misunderstood, Chairman Powell noted in a March interview on 60 Minutes that US economic growth faces headwinds from slowing overseas economies and reaffirmed the Fed’s commitment to “be patient” with future interest rate hikes.

Securities markets responded promptly. From the end of December through late March, US Treasury interest rates fell still further while the yield curve remained flat (see the left panel below). In late March, the yield curve momentarily inverted insofar as the yield on the 2-month T-bill slightly exceeded that on the 10-year bond. However, a more widely used indicator of the yield curve’s slope, the 2’s−10’s spread, still held positive at 13 basis points (see the right panel below).

Stock prices rallied as bond yields fell. From its low on December 24, the S&P 500 index rose 19% to 2,800 in mid-March – exceeding its previous levels for all but two days in November. Underlying economic uncertainties still remain, but at least for the moment the stock market is not worried.

Unsurprisingly given recent developments, Moody’s has revised downward its December forecast for yields on the benchmark US Treasury 10-year bond. Back in early December, Moody’s had predicted the yield on the 10-year bond to get to 3.4% in June. Consistent with the Fed’s dovish revival and expectations for lower yields at all maturities, Moody’s now predicts the 10-year yield to reach 3.0% in June, then to rise gradually to 3.3% in 2020.