Labor Market. Unemployment in Idaho continued to drop in late fall, declining two-tenths of a percent to 4.0 percent in October.
The state’s year-over-year growth in total employment for October was the strongest it has been in a decade. Nonfarm jobs increased by 1.2 percent as 8,000 additional jobs were created. Over the past five years, October has averaged an employment growth rate of 0.3 percent. The United States’ unemployment rate dropped from 5.1 percent in September to 5.0 percent in October.
Idaho is growing fastest in construction, retail, and leisure and hospitality. Tracking construction gives us a good snapshot of the health of the economy because construction is tied to many aspects of the economy. Construction indicates that other industries are growing as well—the number of cranes in a city gives us a good idea about whether or not the economy is growing. Another convenient aspect of construction is that we can gauge it by looking out our windows. The more construction we see, the more industries and jobs we can expect to come to the community.
Housing Market. October home prices ticked upward again in Idaho and across the nation. In Idaho, home prices remained flat from September and grew 6.9 percent compared to October 2014. Nationally, home prices increased 1.0 percent month over month and 6.8 percent compared to October of last year. Including distressed sales, the U.S. has experienced 44 consecutive months of year-over-year increases, although those increased have now fallen to single digits.
October marked the seventh straight month that housing starts remained above 1 million units, despite dropping to their lowest pace during that stretch. This seven-month stretch marks the longest stretch of more than 1 million housing units since 2007, which suggests a sustainable housing market recovery. The drop in October derived from a steep decline in the construction of multi-family homes. Contrary to the drop in housing starts, building permits surged.
Household formation is rising, driven primarily by young adults leaving the nest of their parents. The strengthening labor market has also supported the housing sector as more people are able to afford purchasing their own homes. Many markets throughout the U.S. are experiencing high demand and low supply of homes, pushing prices upward.
U.S. Economic Outlook
Short-Term Outlook. Strong economic data at the end of November increased confidence that the U.S. economy is continuing its recovery. Third-quarter GDP growth was revised upward from a preliminary estimate of 1.5 percent to 2.1 percent annualized growth. Consumer spending remained strong but was revised down slightly from 3.2 percent to 3.0 percent. Consumer spending accounts for more than two-thirds of U.S. economic activity, so sustained growth indicates that the economy is indeed getting stronger.
The downward revisions to GDP growth reflect weak outlays on communication services and utilities. Preliminary signs indicate that consumer spending slowed at the beginning of the fourth quarter, but third-quarter income gains were 3.9 percent. Energy firms cut spending deeply as oil prices continued to fall—spending on mining exploration, wells, and shafts tumbled at a rate of 47.1 percent. Corporate profits were down 8.1 percent from a year earlier, undercut by the dollar’s strength and low oil prices.
The U.S. dollar gained more than 10 percent in 2015 against a basket of currencies, reaching a peak in late November. In fact, the dollar soared immediately following the release of the Commerce Department’s beige book, which measures economic growth and consumer spending in 12 Federal Reserve districts. Unfortunately, as the dollar climbs, exports continue to fall. American goods are becoming more expensive for consumers outside the U.S., and global demand has slackened.
Economic growth is becoming increasingly regional, which means it is more industry-specific. The U.S. manufacturing industry contracted in November for the first time in three years, buckling under the weight of a strong dollar and deep spending cuts by energy firms. However, robust automobile sales suggest that other aspects of the economy remain on solid ground.
The U.S. job market is strong and the unemployment rate is low. However, the labor force participation is also low. As of October 2015, labor force participation was only 62.4 percent—the smallest it has been since October 1977. A low labor force participation rate indicates that some Americans are giving up the job hunt rather than continuing to search for employment.
Long-Term Outlook. The economic outlook for 2016 remains positive. According to Kiplinger’s Economic Outlooks, unemployment is expected to continue dropping for an average rate of 4.6 percent. Inflation is expected to tick upward to about 2.3 percent in 2016 from 1.1 percent in 2015.
Business spending will experience slight gains in 2016, and crude oil trading will likely increase a few dollars per barrel. Construction—including sales of single-family homes—is expected to increase 20 percent in 2016, and retail and gasoline sales will rise 4.7 percent in 2016.
The damper in the outlook is the trade deficit: exports will likely continue to drop as the dollar strengthens, widening the trade deficit by 5 percent.