Popular Economics Weekly
Calculated Risk’s Bill McBride has just come out with a noteworthy prediction. This could be the best year for private employment since 1999.
“The consensus is the economy will add another 220 thousand jobs in November (215 thousand private sector jobs). If that happens, 2014 will be the best year for private employment since 1999.”
Well, that benchmark has already been broken with the November payrolls increase of 321,000 just out, making 2014 already the best jobs year since the 1990s. The best news was that hourly wages rose 0.9 percent and the part time, looking for work crowd shrank to 11.4 million, a big number but declining at last, as more workers found full time work.
The change in total nonfarm payroll employment for September was revised upwards to 271,000, and the change for October was revised to 243,000, so that employment gains in September and October combined were 44,000 more than previously reported.
Why such a jump in payrolls? It could be the looming rise in interest rates. The Fed has said they will begin to raise their record low interest rates sometime next year, given that wages and salaries show more life than the current 2.1 percent per annum increases that just keep up with inflation.
That means there will be a rush to invest and build more housing and some public infrastructure before higher interest rates kick in. And it’s already starting. Construction spending just surged 1.1 percent.
The U.S. Census Bureau of the Department of Commerce announced today that construction spending during October 2014 was estimated at a seasonally adjusted annual rate of $971.0 billion, 1.1 percent above the revised September estimate of $960.3 billion. And more public construction projects are kicking in, which has been a drag on construction until now. But state and the federal government revenue coffers are filling again, which gives them the latitude to fix what hasn’t been fixed since 1009, the end of the Great Recession.
Spending on private construction was a seasonally adjusted 0.6 percent above the revised September estimate of $688.0 billion. Residential construction was 1.3 percent above the revised September estimate of $349.1 billion when seasonally adjusted. Nonresidential construction sank 0.1 percent below the revised September estimate of $338.9 billion, but that should be temporary, as businesses get the message that interest rates will be up next year.
And look at public construction. In October, the estimated seasonally adjusted annual rate of public construction spending was $278.6 billion, 2.3 percent above the revised September estimate of $272.3 billion.
And Bill McBride’s prediction was right on. “At the current pace (through November), the economy will add 2.89 million jobs this year (2.80 million private sector jobs),” he says. “This is the best year since 1999 (and, for private employment, this might be the best year since 1997).”
The year 1997 was the best year with 3,408,000 jobs created, but the top 4 years were all in President Clinton’s last term, 1996 to 1999, when he also created 4 consecutive years of budget surpluses.
We therefore see the looming interest rate rises pushing more job formation (and wage rises), which will continue to boost GDP growth. This is when GDP has already risen an average 4.25 percent over the last 2 quarters. Therefore economic growth could be climbing to dizzying heights the next few quarters, so stay tuned!
Harlan Green © 2014
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