U.S. Jobs Report Suggests Interest-Rate Hike but Also Wage Growth

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Executive Summary:

  • One of the most closely watched economic indicators released by the U.S. Department of Labor this morning indicated that jobs grew by 178,000 in November from the month before. The increase was higher than expected and confirms that job market growth remains strong.
  • Overall, the U.S. has had one of the longest streaks of overall employment growth on record, with businesses adding 15.7 million jobs since February 2010.
  • In addition, the national unemployment rate declined to 4.6 percent from 4.9 percent in October. However, the drop was led by 400,000 people leaving the workforce.
  • The drop in labor participation is mostly due to large groups of baby boomers retiring and exiting the workforce.
  • Nevertheless, strong job growth and falling unemployment provide support for the Federal Reserve to increase interest rates in December, though Federal Open Market Committee members have suggested lately that strong economic data has already given them enough reason to move forward.
  • Despite this month’s setback in hourly wage growth, wages are up 2.5 percent from last year, which has helped spur the strong consumer spending that we have seen in 2016. The monthly hourly wages data, however, is very noisy, and the drop comes after a large October spike due to more overtime hours following September’s hurricane activity.
  • The strongest gains in wages were in the leisure and hospitality, information, and construction sectors, the industries that have been growing solidly in California. With the labor market continuing to tighten and rising inflation expectations, further wage growth is anticipated.
  • For the housing market, the job growth among young adults ages 20 to 34 is favorable and has outpaced all other age groups this year. This will continue to fuel household formation going forward. And while wage growth has been slower among young adults, a continued increase in the number of these workers who are trading up for higher-paying jobs suggests that wage increases are forthcoming, especially since young adults will be replacing retiring baby boomers.
  • Job growth in the construction sector — particularly residential — remains among the strongest of any industry, with a 3.5 percent increase over the last year. The largest growth in construction employment was among home-improvement remodelers.
  • Lastly, tech employment grew for the fifth consecutive month, adding 5,400 new jobs. So far this year, the IT sector has created 79,500 new jobs. IT occupations in other industries have grown by 114,000, for a total of about 200,000 tech jobs created in 2016. With the unemployment rate among IT professionals remaining among the lowest of any occupation, at 2.9 percent, the pressure on wages will continue. Demand for professionals with security, the Internet of Things, and cloud-computing skills has been increasing.

Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.

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