Labor Market. The labor market continues to show strength both in Idaho and throughout the nation.
Idaho’s unemployment fell 0.2 percentage points from 4.1 percent in January to 3.9 percent in February, and the national unemployment rate decreased by the same amount—falling from 5.7 percent to 5.5 percent. Total employment in Idaho exceeded 750,000 for the first time as 5,000 additional workers found jobs in the month of February. Goods production jobs slipped slightly, but service sector employers added more than 7,000 jobs. Service jobs now account for 84.3 percent of all jobs in Idaho—an all-time high.
Nationally, The current 5.5 percent is a much-improved unemployment rate for the United States, but the Fed sees room for growth. The NAIRU measurement (non-accelerating inflation rate of unemployment) released by the Fed indicates the unemployment rate which they believe represents full employment. While 5.5 percent had been the previous NAIRU level, the Fed recently lowered it to 5.2 percent. The good news is that, for the first time in a long time, the U.S. is close to the NAIRU and is likely to reach that level in the coming months.
Short-Term U.S. Economic Outlook. Overall, the United States economy is growing, but based on a number of key indicators, there remains significant room for improvement. Federal Reserve Chair Janet Yellen noted at the end of March, “If underlying conditions had truly returned to normal, the economy should be booming.” She pointed to several issues that must be considered when evaluating the strength of the economy, including the job market and the health of all economic sectors.
The Federal Reserve wants to see the unemployment rate drop to about 5 percent before it will consider the job market healthy. Currently, the unemployment rate sits at 5.5 percent, and jobless claims have fallen below 300,000 in recent weeks. However, many people are still working part-time jobs, and wage growth has been slow. Lower oil prices have led to decreased drilling in the United States, and the recovery in housing construction has been subdued. According to Yellen, much of the increase in hiring has been due to the Fed’s accommodative monetary policy that makes it inexpensive for businesses to expand, rather than because actual demand is pushing business growth. Looking ahead, most experts believe the Fed is not likely to raise interest rates before September.
U.S. GDP grew at a 2.2-percent annualized rate in the fourth quarter of 2014 according to the Commerce Department’s third revised estimate released at the end of March. In the fourth quarter, businesses actually decreased inventory and equipment investment, but strong consumer spending negated the decline. Businesses accumulated $80 billion of inventory in the fourth quarter, in contrast to $88.4 billion in the previous estimate.
After-tax corporate profits declined 1.6 percent last quarter after increasing at a 4.7-percent pace in the third quarter. Corporate profits from outside the U.S. fell at an 8.8-percent rate, which represents the steepest decline since the 2007–2009 recession. Economists had expected fourth-quarter after-tax corporate profits to be revised upward to a gain of 1 percent. For all of 2014, after-tax corporate profits fell 8.3 percent.
The dollar gained 7.8 percent against the currencies of the U.S.’s main trading partners between June and December last year. Export growth was actually higher in the fourth quarter despite slower global demand, but strong consumer spending meant more imports, which led to a trade deficit that negatively impacted GDP growth.
Long-Term U.S. Outlook. The U.S. economy continues to grow at a healthy pace. The Conference Board estimates that U.S. GDP growth in 2015 will average 2.9 percent. Meanwhile, Chinese authorities recently reduced their growth target for 2015 to 7 percent. China grew 7.4 percent last year, and the International Monetary Fund (IMF) has forecast this year’s growth to be 6.8 percent.
China is still projected to grow more quickly than almost every other nation in the world, but its momentum is clearly declining. In comparison, Russia and Brazil—economies that are oriented toward exporting commodities—are in or near recession. Confidence in Europe’s economic forecast is improving, however: it was revised upward at the end of March to 2 percent annual growth by 2017 by the European Central Bank.