The exhibits below reflect current economic conditions that impact workers compensation. Forecasts are derived from Moody’s Analytics unless otherwise indicated.

  • GDP is forecast to grow 2.5% in 2019, slowing to below 2% in 2020 from softer investment and consumption, as well as trade-related issues
  • Forecast employment growth follows a similar path: 1.8% in 2019, slowing to 0.9% in 2020
  • The unemployment rate is currently 3.7% and total job openings outnumber the unemployed
  • The average weekly wage grew 3.4% in 2018. It is forecast to grow 3.6% in 2019 and 4.4% in 2020. The forecast has been revised down for 2019 and up for 2020 relative to forecasts from the April 2019 QEB
  • Medical inflation is forecast to remain below 2% in 2018 and 2019, increasing thereafter
  • Treasury yields have declined further since March and remain flat across the yield curve


During the first quarter of 2019, real gross domestic product (GDP) grew at a 3.1% annualized rate, a strong start to the year. However, personal consumption expenditures contributed only 0.6% while net exports added nearly 1%. More typically, the contribution to GDP growth from personal consumption expenditures is closer to 2% and that from net exports (exports minus imports) is negative or zero. Although the first quarter sum of the two contributions is fairly typical, their respective magnitudes are not, suggesting that tariffs imposed since last summer may be increasing net exports but pushing down personal consumption.

Gross private nonresidential fixed investment grew at an annual rate of 4.4% during the first quarter, an uptick relative to subdued investment activity during the second half of 2018. For the past three quarters beginning in July 2018, private nonresidential fixed investment has increased at an annualized rate of 4.2%. This compares with an annualized increase of 10.5% during the first two quarters of 2018 immediately following the enactment of the Tax Cuts and Jobs Act, and a 6.4% year-on-year increase for all of 2017.

Weak private investment activity for the past several quarters points to a limited impact of the Tax Cuts and Jobs Act, as we discussed in the last issue of the QEB and may also be a consequence of growing uncertainty about US trade relations with China and several other countries.

A series of largely unexpected trade developments during May and June between the US and China elevated the perception of trade-related risks to the US economy. In a climate of heightened uncertainty, businesses and consumers are inclined to defer discretionary investment and consumption decisions. Thus, the perceived risk of future tariffs and trade restrictions, as distinct from trade sanctions already in place, can depress current economic activity. This line of thinking is evidenced in comments from Hock Tan, CEO of Broadcom, Inc., a US semiconductor manufacturer, during the company’s quarterly investor call on June 13: “[I]t is clear that the US/China trade conflict, including the Huawei export ban, is creating economic and political uncertainty and reducing visibility for our global OEM [original equipment manufacturer] customers. As a result, demand volatility has increased and our customers are actively reducing inventory levels to manage risks.”

Moody’s forecasts GDP to increase 2.5% in 2019 before slowing to 1.7% in 2020. The forecasted 2020 slowdown includes softening consumption and investment, increased trade-related risks, and higher labor costs.


Job creation has slowed down in 2019. Average job creation for the year to date, from January through June, is 172,000 jobs per month—well short of 223,000 new jobs per month in 2018. US employers expanded their payrolls by 224,000 jobs in June after a disappointing 72,000 jobs added in May.

Hiring weakness in 2019 is broad-based across economic sectors. Eight of ten NAICS supersectors have experienced slower job growth in 2019 so far than in 2018. Education and Health Services is the lone exception among large sectors, with an average growth of 53,000 jobs per month in 2019 compared to 44,000 jobs per month in 2018.

Indicators of job market tightness remain strong. The unemployment rate (formally U-3) fell to 3.6% in April and held there into May before rising slightly to 3.7% in June. These values are the lowest the unemployment rate has been since 1969. The broader U-6 unemployment rate in June, which also includes marginally attached workers and those employed part-time for economic reasons, is 7.2%. The number of workers employed part-time for economic reasons has declined by more than half a million over the past 12 months.

Although job openings have leveled off over the past year, the number of open jobs stood at 7.3 million in May, the last available report. That amounts to 1.2 job openings for each unemployed person in the labor force. During the pre-recessionary years 2001–2007, the ratio of job openings to unemployed was between 0.4 and 0.7. The quit rate for May was also high at 2.3%. The quit rate had risen steadily from its low of 1.2% in 2009 to its current value in June of last year, where it has held steady since.

Moody’s June forecast calls for private sector employment to increase by 1.8% in 2019 before slowing to 0.9% in 2020. Moody’s forecast for job growth tracks similarly with its forecast for gross domestic product for these two years.


Average weekly wages grew 3.4% in 2018 according to the preliminary June report from the Quarterly Census of Employment and Wages (QCEW). This matches actual wage growth in 2017 and is close to our 2018 forecast of 3.3% in the last QEB. The QCEW will release its final value for 2018 wage growth in September.

Assuming that the June number holds up, then weekly wages will have increased between 3% and 3.5% in four out of the past five years. For comparison, wages grew on average by 3.5% per year from 2001 to 2007.

Our current forecast for annual wage growth is 3.6% in 2019 and 4.4% in 2020. This amounts to a deferral of forecasted wage growth relative to the forecast in the April 2019 QEB, which called for wage growth of 4.3% in 2019 and 3.4% in 2020. We expect that continued low unemployment will maintain upward pressure on wages, although our forecasts for wage growth above 4% are pushed out by one year. Our 2019 wage growth forecast is supported by data from the Atlanta Fed wage growth tracker, which reported 3.7% annualized median wage growth among continuously employed people for the three months ending in May 2019.


As a proxy for medical price inflation, NCCI relies primarily on the Personal Health Care deflator (PHC) from the Centers for Medicare & Medicaid Services (CMS).

CMS forecasts PHC inflation below 2% in 2018 and 2019 (the 2018 estimate depends on category weights that are not yet final). Projections for 2020 and beyond remain largely unchanged: the PHC’s annual growth rate is expected to increase gradually to 2.8% per year by 2025. Underlying the long-term PHC forecast is CMS’s expectation that wage increases in the health care sector will drive higher prices for medical services.

NCCI also monitors the healthcare component of the Personal Consumption Expenditures price index (PCE-HC). As with CMS’s forecast for the PHC, Moody’s has revised down its near-term forecast for PCE-HC inflation as well. As of the last QEB, Moody’s forecasted that PCE-HC inflation would reach 2.2% in 2019; that forecast has been revised down to 1.6%. Moody’s revision for 2019 is due to lower than expected PCE-HC growth during the first quarter. Moody’s current forecasts for PCE-HC inflation in 2020 and beyond are substantially unchanged.

Digging deeper, a main driver of muted medical inflation in 2019 is likely to be lower price increases for prescription drugs, coupled with small price changes for physician services and hospital services. Taken together, these three categories account for three-quarters of the PHC. Moody’s forecasts annual price inflation for prescription drugs and medical supplies of only 0.4% in 2019. This is far below the 1.6% and 3.4% growth rates in the two prior years, but consistent with annualized year-to-date growth of 0.5% in the prescription drug component of the Consumer Price Index (CPI). Increases in Producer Price Indices for physician services and hospital services have been stable for several years, the former averaging 0.8% per year and the latter 2.1% per year over the three-year period ending with the first quarter of 2019.


US Treasury yields are down further across the spectrum since March and yield curve flatness persists (see the left panel). The 2’s−10’s spread (the difference between 10-year and 2-year US Treasury yields, see the right panel) held positive at 25 basis points in June, up slightly from 13 basis points in March. If the combination of low yields and curve flatness in the US Treasury market reflects a perception of economic uncertainty, that concern is evidently not shared by US equity markets. The S&P 500 index hovered around 2900 for most of the month before climbing to an all-time intraday high above 2960 on June 21. Seemingly contrarian actions in bond and equity markets—a flight to quality in the former and the latter hitting an all-time high—is odd but fitting in an economic environment where worries of elevated macroeconomic concerns and trade-related risks coincide with a 50-year-low unemployment rate.

Unsurprisingly, Moody’s has cut its yield forecast for the US Treasury 10-year bond. Moody’s now predicts that the 10-year yield will rise to 3.0% in June 2020, up from 2.1% in June 2019.

At the June meeting of the Federal Reserve Open Market Committee, members expressed optimism about continued economic growth despite “soft” business fixed investment, but also cautioned about increased uncertainties. While announcing no new policy actions, the statement accompanying the meeting did include a shift in tone, changing the wording from “patient” in March to say that the Fed will now “closely monitor” economic developments. At a press conference following the meeting, Chairman Jerome Powell remarked that “the case for additional accommodation has strengthened” because of emerging risks. The Fed, too, is not immune to mixed sentiments of optimism and uncertainty.