Wednesday, January 11, 2017

Question #3 for 2017: Will job creation slow further in 2017?

by Bill McBride on 1/11/2017 10:27:00 AM

Late last year I posted some questions for 2017: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.

3) Employment: Through November1, the economy has added almost 2,000,000 jobs this year, or 180,000 per month. As expected, this was down from the 230 thousand per month in 2015. Will job creation in 2017 be as strong as in 2016? Or will job creation be even stronger, like in 2014 or 2015? Or will job creation slow further in 2017?

1Note: The December jobs report was released after I wrote this question. For 2017, the economy added 2.157 million jobs, or 180,000 per month.

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, 2014 and 2015 were the best years since the '90s, however it appears job growth peaked in 2014.

Change in Payroll Jobs per Year (000s)
Total, NonfarmPrivatePublic
19973,4073,212195
19983,0472,734313
19993,1792,718461
20001,9511,687264
2001-1,726-2,277551
2002-500-733233
2003113155-42
20042,0421,895147
20052,5142,328186
20062,0921,883209
20071,147859288
2008-3,569-3,749180
2009-5,070-4,996-74
20101,0661,282-216
20112,0872,399-312
20122,1492,219-70
20132,3112,378-67
20143,0152,885130
20152,7442,65193
20162,1571,974183

The good news is the economy still has solid momentum heading into the new year.

The bad news - for job growth - is that a combination of demographics and a labor market nearing full employment suggests fewer jobs will be added in 2017.  Of course that should be good news for wages.

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 2016, public employment added to total employment for the third consecutive year, but still at a fairly low level. Public hiring in 2017 will probably be similar to 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
2011144207
2012117158
2013211126
2014362208
201529626
2016102-45

Energy related construction hiring declined in 2016, but will probably rebound a little in 2017 since oil prices have increased.  For manufacturing, there will probably be little or no growth in the auto sector in 2017, and there will be an additional drag on manufacturing employment from the strong dollar.

So my forecast is for gains of 125,000 to 150,000 payroll jobs per month in 2017.  Lower than in 2016, but another solid year for employment gains given current demographics.

Here are the Ten Economic Questions for 2017 and a few predictions:

Question #1 for 2017: What about fiscal and regulatory policy in 2017?
Question #2 for 2017: How much will the economy grow in 2017?
Question #3 for 2017: Will job creation slow further in 2017?
Question #4 for 2017: What will the unemployment rate be in December 2017?
Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?
Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?
Question #7 for 2017: How much will wages increase in 2017?
Question #8 for 2017: How much will Residential Investment increase?
Question #9 for 2017: What will happen with house prices in 2017?
Question #10 for 2017: Will housing inventory increase or decrease in 2017?