Executive Summary:
- The first indicator of the new administration’s ability to deliver on its promise was today’s U.S. Department of Labor report on nonfarm job growth, which rose by 227,000 in January. The gain was relatively strong and continues the longest streak of overall job growth on record. Job gains were broad across a number of sectors, including 5,000 new manufacturing positions and 36,000 new construction jobs. The three-month average of new jobs added increased to 183,000.
- The last three months saw the largest relative employment growth in the business and professional services and education and health services sectors, generally the type of jobs that pay higher wages.
- The leisure and hospitality and financial sectors also enjoyed substantial gains, which reflects stronger consumer spending and continued economic growth. The construction industry saw a continued solid increase in new jobs.
- The national unemployment rate increased to 4.8 percent in January from 4.7 percent in December due to an increase in the labor-force-participation rate. Additionally, the broadest measure of unemployment — the U-6 rate — increased, and more people were working part-time for economic reasons. This is again consistent with strong job growth in the retail and leisure and hospitality sectors, which generally consist of part-time jobs. Further notable decreases in the national unemployment rate will prove difficult, as the labor market is already nearing full employment. At this point in the economic cycle, the focus shifts to increasing productivity gains and ensuring wage growth, which has remained stubbornly subdued.
- January’s wage-growth numbers disappoint due to relatively more hiring in lower-paying sectors. The retail sector gained the most jobs in January, increasing by 46,000 positions over the month and by 229,000 on an annual basis. Nevertheless, the tight labor force in some higher-paying sectors suggests that wage pressure will continue. Also, the share of workers who are willing to leave their current jobs has been continually trending upward since 2010 and is reaching the highest level of the past decade. This is a leading indicator for wage growth. Wage-growth pressures, however, differ between industries, and some sectors have seen notable pressure due to a lack of qualified workers. Construction remains a sector that has experienced notable pressure on labor costs and one in which wages have accelerated at a faster rate than wages overall.
- Young adults’ participation in the labor force has caused some confusion. Employment for 20-to-34-year-olds has grown by 2.5 percent from last January and is the strongest since June 2015. In fact, young adults are contributing to a higher share of overall employment growth, which bodes well for household formation and housing demand. In some more affordable markets across the country, the impact of higher demand for housing and homeownership among young adults has already been noted. Younger buyers in the Bay Area have been hampered by a lack of affordable inventory.
- A separate report from CompTIA on IT sector jobs shows that employers added 9,000 new jobs in January. The majority of these jobs were in the software and technology service categories, which added about 12,500 new positions. In 2016, there were about 73,900 IT services jobs added. Tech occupations across other industries saw a notable decline of 50,000 jobs in January, but that number is subject to great monthly volatility. According to CompTIA’s analysis, the majority of separations are due to individuals’ decisions to leave their jobs rather than layoffs.
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.