Executive Summary:
- Following a strong start to 2017, with an average of 217,000 jobs added in the first two months, the U.S. Department of Labor reported that March job growth slowed to 98,000. The slowdown is largely attributed to milder weather conditions in the first two months of the year, which led to more early hiring, but that is arguable considering that weather patterns varied widely across the country. The three-month average is still at a strong 178,000 jobs added.
- The retail industry suffered from the sharpest slowdown in hiring, reflecting the ongoing change in the way consumers shop. The mining industry, which was hit hard by a drop in oil prices, again saw notable job gains, as did the manufacturing sector. Construction jobs are being added slowly, possibly due to seasonal factors but also because of a continued shortage of available labor. The lack of available workers is leading to higher wages in the construction industry but consequently higher costs of new construction. Wage growth overall has been disappointing except in some higher-paying industries, such as information and business and professional services, which have benefited from larger employment gains.
- Despite the lower-than-anticipated job growth, the report was overall positive. There are other employment measures that are becoming increasingly relevant at this stage of the economic cycle. First, the U.S. unemployment rate dropped to a new cycle low of 4.5 percent, primarily due to more workers finding jobs than giving up on their searches. In addition, the long-term unemployment measure also decreased to a cycle low of 8.9 percent, which is the lowest level since December 2007. Still, most people entering the workforce were not previously employed — for example, new graduates compared with the number of people who re-entered the job market. Hence, the long-term unemployment numbers have been decreasing slowly. In fact, employment for 20-to-34-year-olds averaged 2.5 percent in the first quarter, which is the strongest among all age groups and bodes well for household formation going forward. Furthermore, the employment-to-population ratio has reached 78.5 percent, which is a postrecession high. An earlier Department of Labor report showed that voluntary separations, or people quitting their jobs due to better opportunities, surged in January, pushing the total number of to a cycle high.
- Overall, the latest report suggests continued strength in the labor market and could lead the Federal Reserve to continue gradually raising interest rates. Mortgage rates, however, have declined for three straight weeks following the Fed’s early March announcement that it would raise rates; 30-year, fixed-rate mortgages currently stand at 4.10 percent, according to Freddie Mac. Falling mortgage rates could reflect markets’ adjusting to the workings of the new administration and the realization that changes, if enacted, will take longer than expected. In fact, it has become increasingly harder to predict how President Trump’s policies will change and what the impact on the economy will be. The effort to overhaul health insurance met resistance from both parties, as did proposed immigration and travel policies. Though many observers expect tax reform to be next on the agenda, the government is now facing debate over the debt ceiling and spending, which will slow any progress on tax-reform talks.
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.