Markets in a Minute

Visualized: The State of the U.S. Labor Market

Published

2 years ago

March 5, 2023

Dorothy Neufeld

Visualized: The State of the U.S. Labor Market

Visualized: The State of the U.S. Labor Market

The last time the U.S. labor market was this strong was in 1969.

Unemployment fell to 3.3%, incomes were soaring to historic levels, and inflation was rising at a fast clip. Like today, the Federal Reserve was tightening monetary policy to stifle inflation. Yet much of the wage increases were washed out by rising consumer prices.

The above graphic looks at the industries driving today’s robust job market using data from the Bureau of Labor Statistics. Later, we look into the impact on inflation, and whether today’s market can be sustained.

What is Driving the U.S. Labor Market?

Broadly, service-led industries witnessed the highest share of job growth in January.

Still, as the table below shows, a key part of the services sector—leisure and hospitality employment—remains under pre-pandemic levels. A similar trend is seen in retail services.

Rank	Industry	Job Growth Jan 2023	Job Growth Since 2020
1	Leisure and Hospitality	128K	-495K
2	Education and Health Services	105K	361K
3	Professional and Business Services	82K	1,475K
4	Government	74K	-482K
5	Retail Services	30K	-37K
6	Construction	25K	276K
7	Transportation and Warehousing	23K	955K
8	Manufacturing	19K	214K
9	Other Services	18K	-121K
10	Wholesale Trade	11K	148K
11	Financial Activities	6K	245K
12	Mining and Logging	2K	-55K
13	Utilities	-1K	8K
14	Information	-5K	211K

Adding 1.5 million jobs since 2020 is professional and business services, the highest overall. This sector covers legal, accounting, veterinary, engineering and other specialized services.

We are also seeing strong gains in transportation and warehousing. Last year, the sector added an average of 23,000 jobs, totaling almost 955,000 over the course of the pandemic. Today, trucking jobs exceed 2019 levels and warehouse employment is roughly 50% higher.

Although manufacturing hasn’t seen the highest gains, the sector has one of the lowest unemployment rates across job sectors, at 2.4%. Yet the industry faces an acute labor shortage—if every skilled unemployed worker were to fill open job vacancies, a third of jobs in durable manufacturing would remain open.

Cooling Wage Growth

Despite rock-bottom unemployment numbers, wage growth is slowing. In January, it fell to 4.4% annually, down from a multi-decade high of 5.9% in March last year.

At the same time, wage growth falls below inflation by about 1%.

U.S. Wages and Inflation

Wage growth is carefully watched by the Federal Reserve. Typically, their annual wage growth target is 3.5% to be compatible with 2% inflation.

In the current environment, this wage growth trend serves as a double-edged sword. As wage growth slows, workers are less likely to see wages keep up with inflation. On the other hand, slower wage growth could help prevent inflation from rising in the first place—and interest rates from climbing higher.

Where is the Job Market Heading?

The question on everyone’s minds is whether today’s job market will stay resilient.

According to Fitch Ratings, slowing aggregate demand in response to higher interest rates will begin to weigh on the U.S. labor market, and the 517,000 new jobs created in January—three times the level expected by analysts— won’t last long.

Eventually, both higher borrowing costs and elevated compensation costs could weigh on corporate profits. On the other hand, the pandemic has changed the labor market. Relief legislation may continue to buoy the job market and workers may also remain scarce as people retire or leave for other reasons.

Given how unemployment serves as a lagging indicator, the material effects in the economy will likely appear before cracks begin to show in the U.S. labor market.

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Markets in a Minute

The Average American’s Financial Portfolio by Account Type

From retirement plans to bank accounts, we show the percentage of an American’s financial portfolio that is typically held in each account.

Published

8 months ago

September 11, 2024

Jenna Ross

The Average American’s Financial Portfolio by Account Type

Where does the average American put their money? From retirement plans to banks, the typical financial portfolio includes a variety of accounts.

In this graphic from Morningstar, we explore what percentage of a person’s money is typically held within each account.

Breaking Down a Typical Financial Portfolio

People put the most money in employer retirement plans, which make up nearly two-fifths of the average financial portfolio. Bank accounts, which include checking, savings, and CDs, hold the second-largest percentage of people’s money.

Account Type	% of Financial Portfolio
Employer retirement plan	38%
Bank account	23%
Brokerage/investment account	14%
Traditional IRA	10%
Roth IRA	7%
Crypto wallet/account	4%
Education savings account	3%
Other	1%

Source: Morningstar Voice of the Investor Report 2024, based on 1,261 U.S. respondents.

Outside of employer retirement plans and bank accounts, the average American keeps nearly 40% of their money in accounts that advisors typically help manage. For instance, people also hold a large portion of their assets in investment accounts and IRAs.

Account Insight for Advisors

Given the large focus on retirement accounts in financial portfolios, advisors can clearly communicate how they will help investors achieve their retirement goals. Notably, Americans say that funding retirement accounts is a top financial goal in the next three years (39% of people), second only to reducing debt (40%).

Americans also say that building an emergency fund is one of their financial goals (35%), which can be supported by the money they hold in bank accounts. However, it can be helpful for advisors to educate clients on the lower return potential of savings accounts and CDs. In comparison, advisors can highlight that investment or retirement accounts can hold assets with more potential for building wealth, like mutual funds or ETFs. With this knowledge in mind, clients will be better able to balance short-term and long-term financial goals.

The survey results also highlight the importance of advisors staying up to date on emerging trends and products. People hold 4% of their money in crypto accounts on average, and nearly a quarter of people said they hold crypto assets like bitcoin. Advisors who educate themselves on these assets can more effectively answer investors’ questions.

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Markets in a Minute

5 Factors Linked to Higher Investor Engagement

Engaged investors review their goals often and are more involved in decisions, but which factors are tied to higher investor engagement?

Published

9 months ago

August 22, 2024

Jenna Ross

Partial bar chart showing the factors linked to higher investor engagement along with a picture of a man looking at a cell phone.

5 Factors Linked to Higher Investor Engagement

Imagine two investors. One investor reviews their investment goals every quarter and actively makes decisions. The second investor hasn’t reviewed their goals in over a year and doesn’t take part in any investment decisions. Are there traits that the first, more involved investor would be more likely to have?

In this graphic from Morningstar, we explore five factors that are associated with high investor engagement.

Influences on Investor Engagement

Morningstar scores their Investor Engagement Index from a low of zero to a high of 100, which indicates full engagement. In their survey, they discovered five traits that are tied to higher average engagement levels among investors.

Factor	Investor Engagement Index Score (Max = 100)
Financial advisor relationship	Don’t work with financial advisor: 63
	Work with financial advisor: 70
Sustainability alignment	No actions/alignment: 63
	Some/full alignment: 74
Trust in AI	Low trust: 61
	High trust: 74
Risk tolerance	Conservative: 62
	Aggressive: 76
Comfort making investment decisions	Low comfort: 42
	High comfort: 76

Morningstar’s Investor Engagement Index is equally weighted based on retail investors’ responses to seven questions: feeling informed about composition and performance of investments, frequency of investment portfolio review, involvement in investment decision-making, understanding of investment concepts and financial markets, frequency of goals review, clarity of investment strategy aligning to long-term goals, and frequency of engagement in financial education activities.

On average, people who work with financial advisors, have sustainability alignment, trust AI, and have a high risk tolerance are more engaged.

The starkest contrast was that people with high comfort making investment decisions have engagement levels that are nearly two times higher than those with low comfort. In fact, people with a high comfort level were significantly more likely to say they were knowledgeable about the composition and performance of their investments (84%) vs. those with low comfort (18%).

Personalizing Experiences Based on Engagement

Advisors can consider adjusting their approach depending on an investor’s engagement level. For example, if a client has an aggressive risk tolerance this may indicate the client is more engaged. Based on this, the advisor could check if the client would prefer more frequent portfolio reviews.

On the other hand, soft skills can play a key role for those who are less engaged. People with low comfort making investment decisions indicated that the top ways their financial advisor provides value is through optimizing for growth and risk management (62%), making them feel more secure about their financial future (38%), and offering peace of mind and relief from the stress of money management (30%).