Over the months of June through August, mixed economic data revived questions about the sustainability of growth and the possibility of a looming recession.
The July jobs report revealed a significant slowdown in employment growth and an increase in the unemployment rate, reaching a peak of 4.3%. This slowdown was quickly followed by a major downward annual benchmark revision, the largest since 2009, lowering employment growth estimates for 2023 and early 2024.
According to the briefing from the NCCI, although the August jobs report showed some improvement, employment growth remained below the pace seen earlier in the year.
Other economic indicators presented a more stable picture. Consumer spending held strong, manufacturing activity rebounded from January lows, and the Federal Reserve adjusted its policy toward reducing interest rates.
The September employment report further eased concerns with a pickup in job growth and positive adjustments to prior data, which helped offset some of the weakness observed in July and August.
The labor market, a central factor for workers compensation, experienced a series of mixed signals over recent months. The NCCI reported two main trends during the summer: a slowdown in employment growth and a gradual rise in the unemployment rate since April 2023.
Together, these trends renewed concerns about the economy’s resilience, sparking some speculation about a potential recession.
However, NCCI’s latest Labor Market Insights report, published following the September employment report, showed some reversal of the negative trends and a modest resurgence in the labor market. Still, questions remain about the broader economic outlook.
At the Federal Reserve’s August meeting in Jackson Hole, Wyo., chair Jerome Powell highlighted labor market developments, stating the Fed did not seek additional cooling in labor conditions. In September, the Federal Reserve responded by lowering interest rates by 50 basis points, marking its first rate cut since 2020.
Although the September employment report showed strength, the Fed’s shift reflected its stance on managing broader economic risks.
The Fed’s rate cut reflects concerns about potential economic shocks while accounting for falling inflation, which has decreased from 3.5% in March 2024 to 2.4% in recent months. Despite the rate cut, real interest rates are still higher than earlier in the year, meaning policy remains restrictive to some extent.
For workers compensation, the key takeaways from recent labor market developments include the slowdown in hiring and the moderated rise in unemployment. Both are typical patterns late in economic cycles as wages stabilize, hiring slows, and businesses balance labor costs.
This cooling trend could leave the economy more vulnerable to a destabilizing shock, raising caution around economic outlooks compared to earlier in the year.
Slowing employment and wage growth could also lead to a decline in payroll growth, potentially impacting premium growth for workers compensation. After years of payroll expansion during the post-pandemic recovery, growth rates may now approach pre-pandemic levels or dip below them. These shifts in payroll growth could limit the premium base for workers compensation insurance in the near term.
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