Monday, January 01, 2018

Question #2 for 2018: Will job creation slow further in 2018?

by Bill McBride on 1/01/2018 01:01:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2018. I'm adding some thoughts, and maybe some predictions for each question.

2) Employment: Through November, the economy has added just over 1,900,000 jobs this year, or 174,000 per month. As expected, this was down from the 187 thousand per month in 2016.  Will job creation in 2018 be as strong as in 2017?  Or will job creation be even stronger, like in 2014 or 2015?  Or will job creation slow further in 2018?

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
19973,4083,213195
19983,0472,734313
19993,1802,719461
20001,9501,686264
2001-1,727-2,278551
2002-500-733233
2003115157-42
20042,0401,893147
20052,5152,329186
20062,0921,883209
20071,147859288
2008-3,567-3,747180
2009-5,068-4,994-74
20101,0611,277-216
20112,0912,403-312
20122,1422,209-67
20132,3022,370-68
20142,9982,871127
20152,7132,561152
20162,2402,039201
201712,0712,02447
12017 is Year-over-year job gains through November

The good news is the economy still has solid momentum heading into 2018.

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 2018.  Hopefully that will be good news for wages. 

Note: There has been a large migration of families and workers from Puerto Rico to the mainland U.S., and that has increased the U.S. labor force.

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 2020s.

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
2012113158
2013209126
2014359208
201533668
2016155-16
20171184189
12017 is Year-over-year job gains through November

Energy related construction and manufacturing hiring increased in 2017, and will probably increase further in 2018 since oil prices have increased.  However, for manufacturing, there will probably be little or no growth in the auto sector in 2018.

So my forecast is for gains of around 150,000 to 167,000 payroll jobs per month in 2018 (about 1.8 million to 2.0 million year-over-year) .  Lower than in 2017, but another solid year for employment gains given current demographics.

Here are the Ten Economic Questions for 2018 and a few predictions:

Question #1 for 2018: How much will the economy grow in 2018?
Question #2 for 2018: Will job creation slow further in 2018?
Question #3 for 2018: What will the unemployment rate be in December 2018?
Question #4 for 2018: Will the core inflation rate rise in 2018? Will too much inflation be a concern in 2018?
Question #5 for 2018: Will the Fed raise rates in 2018, and if so, by how much?
Question #6 for 2018: How much will wages increase in 2018?
Question #7 for 2018: How much will Residential Investment increase?
Question #8 for 2018: What will happen with house prices in 2018?
Question #9 for 2018: Will housing inventory increase or decrease in 2018?
Question #10 for 2018: Will the New Tax Law impact Home Sales, Inventory, and Price Growth in Certain States?