Here Are Two Tailwinds For The US Labor Market

As market analysts dish their 2014 forecasts, the consensus seems to be that next year will be a significant turning point for the economy.

Major "shocks" to the economy - fiscal ones from Washington and uncertainty in Europe - may be behind us, the thought goes.

Still, if there's one area of the economy that has lagged behind, it's the labor market. Stocks have had a banner year, and while that's great for wealthy investors, wages on Main Street continue to stagnate.

But in a new report on labor market themes, Morgan Stanley points to two tailwinds that might help bolster the 2014 recovery.

On income growth, "Five years into the recovery, the rebound in expectations has underperformed that of prior recessions and there has been only minor improvement in 2013," Morgan Stanley writes. "With significant tax increases and peak fiscal drag behind us, there's reason to believe 2014 will be a brighter year for consumers and businesses alike. The positive, self-perpetuating cycle of spending and hiring could begin to take hold and push up income expectations, providing the strong fundamental backdrop needed for a more positive outlook in 2014."

Morgan Stanley

"Second, state and local (S&L) government jobs have experienced a trend shift to positive growth after five years of substantial weakness," according to the report. "Given the S&L labor force is about seven times greater than the Federal labor force, this growth is enough to offset continued job loss at the federal level and provide a notable tailwind for overall job growth in 2014."