Increase despite tight labor force

The economy is generally considered at full employment with the unemployment rate hits 4.7%, Steve Rick, CUNA Mutual Group chief economist, told HousingWire.

“Overall it’s a pretty a solid report,” Rick said. “What’s surprising is the unemployment rate, that was a big drop.”

The drop, as it turns out, brings the unemployment rate to its lowest point since August 2007.

“The November jobs report shows an economy running largely at full steam, with the unemployment rate – already low – falling to its lowest level since August 2007,” Zillow Chief Economist Svenja Gudell said. “Given this strength, if there were any lingering doubts that Federal Reserve officials would opt to raise rates at this month’s board meeting, today’s report should toss them out the window.”

Here is where some of the more significant increases occurred:

Professional and business services: increased 63,000

Health care: increased 28,000

Construction: increased 19,000

Employment in other major industries, including mining, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, financial activities, leisure and hospitality and government, changed little over the month.

On average in 2016, employment growth averaged 181,000 per month, compared with an average monthly increase of 229,000 in 2015.

“Employers are getting their labor force geared up for 2017,” Rick said. “The demand for labor is there, but there’s not enough skilled people to fill those jobs. When you have an employment rate at 4.6% it’s really hard to find the right person to fill that position.”

And it could get even tighter if President-elect Donald Trump focusses on infrastructure during his administration, Rick said. An already tight construction labor market could become even tighter as the government takes workers from private home builders.

This could in turn cause wages to go up, and inflation to increase. If that happens, the Federal Reserve could become less conservative about raising interest rates.

“I’m actually thinking they’re going to raise rates three more times in 2017,” Rick said.

But not all experts agree that the jobs report was solid. One expert explains that the report wasn’t great, but that it was good enough for a December rate hike.

“Today’s November jobs report can be summed up as: not bad, but not great,” said Lawrence Yun, National Association of Realtors chief economist. “The good news is that 178,000 new job additions are positive enough for the Federal Reserve to raise the fed funds rate by a quarter point in a few weeks. It’s likely there will be two to three more rate hikes in 2017.”

Another expert, Curt Long, the National Association of Federal Credit Unions chief economist, pointed out that labor force participation and wage growth both declined.

“Still, the report provided no impediments for a rate hike from the Fed later this month, and a quarter-point increase is now a certainty,” Long said.

In fact, Fannie Mae chief economist Doug Duncan said that this decrease in labor force participation is the reason for the drop in unemployment rate, and is not exactly a positive sign.

“Today’s Labor Department employment report was unremarkable, suggesting a small Federal Reserve rate hike will occur – as the market expected – in December,” Duncan said. “Some attention will be paid to the drop in the unemployment rate to 4.6%, but that is driven by the combination of jobs added and a decline in workforce participation, the latter of which was disappointing.”