Monday, January 11, 2016

Question #2 for 2016: How many payroll jobs will be added in 2016?

by Bill McBride on 1/11/2016 11:29:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2016. I'm adding some thoughts, and a few predictions for each question.

Here is a review of the Ten Economic Questions for 2015.

2) Employment:2) Employment: Through November, the economy has added 2,308,000 jobs this year, or 210,000 per month. As expected, this was down from the 260 thousand per month in 2014. Will job creation in 2016 be as strong as in 2015? Or will job creation be even stronger, like in 2014? Or will job creation slow further in 2016?

For review, here is a table of the annual change in total nonfarm, private and public sector payrolls jobs since 1997.  For total and private employment gains, 2015 was the second best year since the '90s (only trailing the previous year, 2014).

Change in Payroll Jobs per Year (000s)
Total, NonfarmPrivatePublic
19973,4083,213195
19983,0472,734313
19993,1772,716461
20001,9451,681264
2001-1,735-2,286551
2002-507-740233
2003105147-42
20042,0321,885147
20052,5062,320186
20062,0871,878209
20071,139851288
2008-3,577-3,757180
2009-5,088-5,014-74
20101,0661,282-216
20112,0802,396-316
20122,2572,315-58
20132,3882,452-64
20143,1163,04274
20152,6502,55199

The good news is the economy still has solid momentum heading into the new year. The further decline in oil prices will give a boost to many sectors, construction activity (non-energy related) should continue to increase, and the pace of public hiring will probably increase further in 2016.

Also the drag on manufacturing due to the strong dollar will probably lessen in 2016.

There are also some negatives. The decline in oil prices will lead to further layoffs in the energy sector and have a ripple effect in some communities (like Houston). And the lower unemployment rate will mean some companies will have difficulty finding qualified candidates.

Note: Too many people compare to the '80s and '90s, without thinking about changing demographics. The prime working age population (25 to 54 years old) was growing 2.2% per year in the '80s, and 1.3% per year in the '90s. The prime working age population has actually declined slightly this decade. Note: The prime working age population is now growing slowly again, and growth will pick up the '20s.

In 2015, public employment added to total employment for the second consecutive year, but still at a fairly low level. Public hiring will probably pick up to 150,000+ in 2016.

The second table shows the change in construction and manufacturing payrolls starting in 2006.

Construction Jobs (000s)Manufacturing (000s)
2006152-178
2007-195-269
2008-789-896
2009-1,047-1,375
2010-187120
2011145204
2012112162
2013213125
2014338215
201526330

Energy related construction hiring will decline in 2015, but I expect other areas of construction to be solid.  For manufacturing, growth in the auto sector will probably slow this year, but the drag on manufacturing employment from the strong dollar should be less in 2016.

As I mentioned above, in addition to layoffs in the energy sector, exporters will have a difficult year - but probably not the severe contraction as in 2015, and more companies will have difficulty finding qualified candidates.  Even with some boost from lower oil prices - and some additional public hiring, I expect total jobs added to be lower in 2016 than in 2015.

So my forecast is for gains of around 200,000 payroll jobs per month in 2015.  Lower than in 2015, but another solid year for employment gains given current demographics.

Here are the Ten Economic Questions for 2016 and a few predictions:

Question #1 for 2016: How much will the economy grow in 2016?
Question #2 for 2016: How many payroll jobs will be added in 2016?
Question #3 for 2016: What will the unemployment rate be in December 2016?
Question #4 for 2016: Will the core inflation rate rise in 2016? Will too much inflation be a concern in 2016?
Question #5 for 2016: Will the Fed raise rates in 2016, and if so, by how much?
Question #6 for 2016: Will real wages increase in 2016?
Question #7 for 2016: What about oil prices in 2016?
Question #8 for 2016: How much will Residential Investment increase?
Question #9 for 2016: What will happen with house prices in 2016?
Question #10 for 2016: How much will housing inventory increase in 2016?