The U.S. economy has been on a job-creation spree. It has already added over 1.2 million private-sector jobs this year – a much faster rate than the pre-pandemic trend. The unemployment rate has been hovering around 3.5%, the lowest since the late 1960s, while wage growth is running at a 6% year-over-year pace.
The rapid rate of job creation is both a result of increased consumer spending – and a cause of it. But how can this be?
The relationship between spending and jobs is circular. When consumers spend more, companies are more likely to hire. More hiring increases the purchasing power of consumers and results in further job creation. The same pattern holds true if spending decreases. Companies are less likely to hire, and less hiring reduces the purchasing power of consumers and their spending, resulting in slower job creation. In other words, trends in spending reinforce trends in jobs. This circular relationship means that understanding current consumer spending trends can help us see the path forward for job growth.
While the job market has been strong since early 2022, one question remains top of mind: Will job market conditions shift, and if so, when? Insights on spending trends from Mastercard’s SpendingPulse TM provide one way to gain foresight into upcoming job market conditions. As we suggested above, what people are spending today can tell us about job creation in the next several months.
Controlling for variations across states and time periods, we find that a 1 percentage point increase in year-over-year (yoy) spending growth today is associated with a 0.38 percentage point increase in yoy job growth in three months’ time. 1 Currently, retail sales (excluding autos and gas) as measured by SpendingPulse TM , is running at a six-month average growth of 6.8% yoy, implying job growth three months ahead of 2.6% yoy (in August 2023). This is consistent with job creation holding close to the rate observed earlier in this year – nearly 250,000 private-sector jobs being created on average each month. It is a job market that is holding strong.
Source: BLS, SpendingPulse
Which states are positioned to see the highest job growth? Based on the 6-month average growth in spending ending in May, we find that Nevada, North Carolina, and Texas are setting up for the strongest growth in jobs – nearing 4% yoy. On the other end, Michigan, West Virginia, and Vermont suggest potentially little to no growth in jobs.
Taking a step back, regionally, states in the Southeast have seen strong spending trends in recent months and therefore are likely to continue to experience a robust labor market, but job creation is likely to be more muted, on balance, in the Midwest and Northeast. The Western U.S. is showing a more mixed picture, with the inland states showing strong potential for job growth while others on the Western Seaboard suggest signs of moderate to weak job growth.
Source: BLS, SpendingPulse
Momentum in spending is another guide to a state’s potential job market performance and its evolution. Comparing the state’s 6-month average spending growth with its spending growth rate in the latest month, we can classify states into four categories – those that exhibit continued strength or weakness, and those where the outlook is improving or deteriorating.This momentum analysis reveals similar conclusions about the relative strength and weakness across the country as our econometrics approach above
The states with momentum in spending, i.e., where the outlook shows continued strength or an improvement – many of which are in the Southeast and Mountain regions – are likely going to continue to see stronger job creation. But those where momentum has weakened, such as the Midwest and parts of the Northeast, job creation may be set to soften. Recent months have shown a slowing down in spending growth in certain parts of the country, which could potentially pass through to the regional job market. Indeed, based on current spending data, we have 7 states with implied job growth of over 3.7% and 8 states with less than implied job growth of 1% in 3 months. This regional divergence is consistent with the broader economic data which shows strong migration of people and business creation in the Southern states.
Note: Click on a point to update the timeseries
Source: BLS, SpendingPulse
Understanding the outlook for the job market is critical for businesses, financial issuers, and governments. In the last few years, a tight job market has meant that many businesses have faced a shortage of workers, at least at prevailing wages. Correspondingly, wages have been rising – as workers have had stronger bargaining power – thus increasing costs for businesses. But perhaps most importantly, a growing job market will continue to enable consumer spending (remember the circular relationship?) and thereby impact the business bottom-line and inform future staffing decisions.
On similar lines, understanding the regional job market is crucial for state and local governments, as it has implications for revenue assumptions via consumption and incomes. It can also help governments gauge the likely trajectory of unemployment insurance claims and thereby understand their expenditures for the upcoming months.
Our analysis showcases that trends in consumer spending and in the job market reinforce each other. Therefore, timely insights on consumer spending can help assess changes in the job market and shifts in consumer behavior – enabling more effective revenue and growth planning for businesses, financial institutions, and governments alike.
All signs continue to point to a solid outlook for the job market in the near term. The consumer has still been spending and based on our analysis of the relationship between spending and jobs, this means the job market will continue to hum along, with jobs continuing to grow nationally. But there are clear regional differences. As the economy continues to go through this period of uncertainty, it will be critical to keep tracking consumer spending and its impact on jobs.
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Footnotes
1 For this analysis, we use a panel dataset with monthly consumer spending data from Mastercard’s SpendingPulse™ insights and jobs data from the Bureau of Labor Statistics between 2019 and 2023. Spending growth is measured as the 6-month moving average of year-over-year % change in SpendingPulse™ total retail ex-auto and gas. Job growth is measured as the year-over-year % change in total private employment. Using a fixed-effects regression model that controls for variations across states and time-periods, we find a strong statistically significant relationship between job growth and 3-month lagged spending growth.
About the Mastercard Economics Institute
Mastercard Economics Institute launched in 2020 to analyze macroeconomic trends through the lens of the consumer. A team of economists, analysts and data scientists draws on Mastercard insights - including Mastercard SpendingPulse™ - and third-party data to deliver regular reporting on economic issues for key customers, partners and policymakers.
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