Employment Growth: Which Sectors Are Doing the Heavy Lifting?

Chief Economist Eugenio J. Alemán discusses current economic conditions.

In the middle of 2023 we argued that, according to our forecast for GDP at the time for the whole of 2023, employment was growing too fast and that it would have to slow considerably during the second half of the year. Our forecast was lower than what actual growth was for the whole year but nevertheless, employment slowed down considerably during the second half of the year, albeit not as much as we were expecting. Furthermore, yesterday’s release of GDP growth for the last quarter of the year, up 3.3% on a quarter-over-quarter basis, annualized, confirmed that the U.S. economy remained strong as the year came to an end and that the economy grew at a 2.5% rate for the whole of 2023 compared to 2022.

However, we are still holding to our forecast for a slowdown later this year and we still have a very mild recession in our forecast. As we have said in the past, there are several reasons for us to keep this forecast call for now. First, interest rates are very high, in nominal as well as in real terms, as inflation continues to come down. Second, the Leading Economic Index (LEI) continues to show that the economy is expected to enter a recession soon. Third, the ISM Manufacturing Index has been in contraction territory for more than a year and the ISM Services Index weakened considerably at the end of last year. Fourth, we think the employment situation is even weaker than the nonfarm payroll numbers are reflecting. The reason for this is that out of all the employment sectors in the U.S. economy, a handful of them are doing the heavy lifting. That is, as the graphs below shows, the health care & and social assistance sector, professional & technical services, leisure & hospitality, construction, as well as state and local governments, are doing the heavy lifting. In December of 2023, 86% of all the jobs added were from these six sectors and 90% during the last 12 months. However, the second graph shows that these six sectors represent only 49% of all the jobs in the U.S. economy.

Jobs Added by Industry to total Nonfarm

Furthermore, if we take out employment by state and local governments, that is, if we only consider employment created by the private economy, the percentage of jobs created by four of these private sectors also accounted for 86% of total private employment during the last month of 2023 while they accounted for 91% of total private employment during the last 12 months. However, these four sectors represent only 43% of total private employment.

Composition of Sector Jobs in Total Private