FORECAST 2023
Strong Employment Reports from the field reflect early glimmers of a less robust business environment. “In the first half of 2022, many of our members were still experi- encing high demand,” says Tom Palisin, executive director of The Manufacturers’ Association, a York, Pa.-based regional organization with more than 390 member companies. “But as the year progressed there was a significant slowdown caused by the labor shortage, inflationary issues, and global events.” With its diverse membership in
food processing, defense, fabrication, and machinery building, Palisin’s association is something of a proxy for all American industry. The good news is that a strong employment environment at the association’s mem- bers, as well as at companies else- where in the nation, is helping allevi- ate the negative impact of the
economy’s headwinds. Moody’s Analytics expects a continuation of that favorable condition, forecasting an unemployment rate of 4.1 percent by the end of 2023. That’s not much higher than the 3.7 percent rate of late 2022. Many economists peg an unemployment rate of between 3.5 percent and 4.5 percent as the “sweet spot” that balances the risks of wage escalation and economic recession. On the downside, low unemploy-
ment usually increases business costs by forcing employers to boost wages to attract scarce workers. Today is no exception. “Our organization surveys members annually on their baseline entry level hourly wage figure,” says Palisin. “Increases typically run around 2.5 percent to three percent, but the figure was eight percent in 2022.” While Moody’s Analytics forecasts a continu- ation of labor cost increases, they should moderate to 3.5 percent in
2023, down from their current five per- cent. Even so, those increases are expected to affect business profitability.
Worker Shortage The tight labor market hits business profitability not only in the form of higher wages but also in a scarcity of the very workers needed to produce goods and services. “Employers will be very focused on labor availability in 2023 as baby boomers continue to retire and the supply of immigrant labor has yet to fully recover from severe pandemic-related disruptions,” says Yaros. “Despite a slowing econ- omy, layoffs are low, indicating that businesses are holding onto labor in a reaction to the hiring difficulties they encountered during the pandemic.” When will workforce availability
increase? Not anytime soon, say observers. “The labor market’s going to be tight for years to come,” says
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