The employment situation in the United States has slowly, but steadily, been improving since the 2008 recession. The below graph shows initial jobless claims numbers from 1967 through October 2016. As you can see, current initial jobless claims are at the lowest level seen since 1973.The U.S. economy added 156,000 new jobs in September.2 Larger employers (those employing 500+ workers) recently outpaced smaller firms in job creation. Individual sectors do differ in their employment outlook. For example, energy has seen a contraction in employment over the past year while trucking companies note difficulty filling positions even while offering signing bonuses of $5,000 or more. The overall unemployment rate did rise slightly to 5%. However, that rise has largely been attributed to previously discouraged workers reentering the labor market and is not an indicator of a softening job market.
Some workers are still struggling despite current job growth rates. Figures noting people who gave up looking for work or who can only find part-time jobs remain flat at 9.7%.3 Much of this can be attributed to the “skills gap”, meaning workers without advanced skills do still have difficulty finding full employment. This figure is not expected to change meaningfully as employers having difficulties filling job vacancies have noted the need for skilled workers within their industries.
A tighter labor market for skilled workers is driving wage inflation. Hourly wages have grown by 2.6% over the past year to $25.79/hour, just below the post-recession high.3 The numbers of hours worked per person has also increased. An improvement in both average hourly wages and hours worked is encouraging. Several economists think we may begin to see worker shortages by next spring. Pay increases are expected to continue as companies seek to either fill vacancies or retain skilled workers. This trend is being watched carefully as it may spur an increase in overall inflation, leading to interest rate increases by the Federal Reserve. A ¼ point rate hike is likely in December given these employment trends. The employment trends noted above have been gradual, meaning the upward inflationary pressure and need for the Fed to respond have also been slowly growing. A continuance of current labor market trends is likely to make the Fed more comfortable with future rate increases. However, while these are positive trends with steady momentum, they are still slow moving. While this does make future rate hikes more likely, it is not overwhelming pressure on the Fed to raise rates. While we do expect to see interest rates rise in 2017, we do not expect to see large increases.
In summary, the U.S. job market has basically recovered to pre-recession levels. Workers can expect raises as their skills are more in demand and valued greater. The economy is likely to see some upward inflationary pressure due to the tightening job market. We can expect the Fed to respond with measured interest rate increases. Unskilled workers still face employment challenges and are likely to continue to do so.
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