U.S. payrolls added 321,000 employees in November, and 2014 has now seen the most jobs in any single year since 1999. The results came pleasantly above the analyst expectation between 140,000 and 275,000. The unemployment rate of 5.8% remained unchanged.
Even as the United States has turned in positive job numbers for an entire year, it is still common to hear that the economy hasn’t totally recovered, or isn’t running as fast as it could be. The oft-cited “Hamilton Project” estimates that the economy is still missing 4.9 million jobs from peak pre-recession employment. Given the previous 12-month average pace of growth (228,000), it would take until February of 2018 to close the gap.
Another statistic you might hear: a smaller portion of the population is employed. The employment-population ratio was 59.2% in November. The workforce participation rate was unchanged at 62.8%, which is just 0.1% higher than the lowest level since 1978 (set in September 2014).
Bill McBride creator the well-respected economics blog Calculated Risk thinks that the reason for the shift is structural, rather than cyclical (in other words: the “jobs gap” discussion misses the point). The U.S. economy has changed.
In a recent post about labor force participation, McBride writes, “The bottom line is that the participation rate was declining for prime working age workers before the recession, there are several reasons for this decline (not just “economic weakness”) and many estimates of “missing workers” are probably way too high.”
The post is worth a read. Demographics are changing. For one, a large population has recently moved within range of “retirement” age. Another significant population, aged between 16 and 24, are staying in school longer. Digging deeper, McBride points out that another trend is the decline in the participation rate for prime working age men (25 to 54). McBride lists speculation for these reasons here.
His primary factor is “cultural change”:
As a larger percentage of women entered the work force, this allowed men some more options, such as: a) take some time off between jobs, b) go back to school to improve skills or be able to change careers, c) be a “Mr. Mom”.
Moving forward, McBride offers a dose of optimism with your morning coffee (especially for the housing market).
The percent of Americans who own their home fell to 64.4% in the third quarter of 2014, which is the lowest level since 1995. This is partially due to the large young population, who are staying in school longer and then renting homes (especially as they waited for the economy to improve). Indeed, the largest age cohort in the United States is now between 20 and 24, and as they age, graduate, marry, grow families, and move up in the workforce, they will need housing… which is good for the economy.
Demographics and household formation suggests [housing] starts will increase to around 1.5 million over the next few years… residential investment are housing starts are usually the best leading indicator for the economy, so this suggests the economy will continue to grow over the next couple of years.
Is it that simple? Last week in our post, we included a thought from Central Coast Lending co-owner Daniel Podesto:
Things are pretty solid,” said Dan Podesto, co-owner of Central Coast Lending. “But there is a lack of a driver. For the longest time it was the dot-coms, and then it was technology. There is a sense that we are waiting for the next big thing.
Is it simple enough to say that the “next big thing” will be our young “growing up”?
Recall that student debt is a major concern. Over the past 10 years, student debt has jumped from $0.38 trillion to 1.13 trillion. Wage growth, meanwhile, has been notoriously slow for recent graduates. To pay off their rising debts, students will need solid, well-paying jobs. Will these exist?
On the bright side, as McBride points out “these young workers are educated and tech savvy”, so maybe they will be able to drive the economy, push wage growth, and reaccelerate the housing market. The speculation is very interesting, to say the least.
Not much movement to report so far this week. The 10-year Treasury yield ticked up to 2.31% on Friday after the jobs report, up from 2.22% to begin the week. The yield dipped to 2.26% this Monday. Recall that the 10-year yield offers a quick shorthand correlation for the anticipating mortgage rate movement. Falling oil prices seem to be something of a concern (although lower prices will mean more consumer spending money during the holiday season).
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