Randy ShumwayLabor Market.

Idaho’s unemployment rate continues to drop, declining one-tenth of a percentage point to 3.9 percent.

In November, Idaho claimed the fastest employment growth rate in the nation: 4.2 percent. The greatest job gains occurred in construction, non-durable manufacturing, and real estate. Between November 2014 and November 2015, 27,600 jobs were added to the economy. The United States’ unemployment rate remained flat at 5.0 percent in November.

Job growth in Idaho has been particularly favorable to specific regions, such as Magic Valley. Many companies in that area have announced expansions that will take place during 2016, bringing additional construction jobs to the area. Clif Bar is building a 275,000-square-foot bakery in Twin Falls and is already beginning hiring. Likewise, the expansion of the Hilex Poly plastic bag plant is expected to bring 45 additional jobs to the area.

Housing Market.

Home prices in Idaho remained the same in November, but rose somewhat across the nation. In Idaho, home prices grew 8.5 percent since November 2014. Nationally, home prices increased 0.5 percent month over month and 6.3 percent year over year. National home prices for single-family homes, including distressed sales, are forecasted to rise by 5.4 percent by November 2016.

Millennials’ behavior continues to intrigue the housing industry. According to the Census Bureau’s American Community Survey, the number of homeowners ages 25–34 fell by more than 250,000 in each year between 2007 and 2012, but has declined by less than 100,000 annually since then. The number of homeowners in that age range is still declining, but the trend is slowing and may reverse soon. While millennials are clearly in no hurry to marry, have kids, or buy a house, 94 percent of young renters say they eventually want to buy a home. As income continues to increase, the coming year may be a prime time for many to transition to home ownership.

U.S. Economic Outlook

Short-Term Outlook.

After years of flat interest rates and months of ambiguous hints, the Federal Reserve raised its federal funds rate target from 0.0 percent to 0.25 percent on December 16, 2015. Anticipation had already set market forces in action—strengthening the value of the U.S. dollar, encouraging potential home buyers to make decisions, and so on. Therefore, when the Federal Reserve finally raised rates, the markets hardly reacted—jumping for the first few hours after the announcement and then returning to normal.

A week after the federal funds rate was raised, the Bureau of Economic Analysis released its third estimate of third-quarter annualized GDP growth, which was revised downward from 2.1 to 2.0 percent. The revision included the same general picture of economic growth, but private inventory investment had decreased more than previously estimated. The increase in real GDP in the third quarter was driven by increases in nonresidential fixed investment, state and local government spending, residential fixed investment, and exports. Imports rose in the third quarter, influenced in part by the rising value of the dollar. While GDP growth in the third quarter was respectable, many economists are forecasting fourth-quarter growth to be a mere 0.7 percent.

In November, personal income increased $44.4 billion, or 0.3 percent, and disposable personal income increased $34.5 billion, or 0.3 percent. Personal consumption expenditures increased $40.1 billion, or 0.3 percent. While personal consumption expenditures didn’t increase as much as originally estimated, personal spending plays a major role in the health of the economy and contributed significantly to third-quarter GDP growth. Consumer spending accounts for more than two-thirds of U.S. economic activity. Personal saving went down in November to $747.6 billion from $757.0 billion in October. The personal saving rate was 5.5 percent.

Long-Term Outlook

The New Year started out with a very strong U.S. dollar, with emerging markets, in particular, losing ground. The Turkish lira lost 2.5 percent against the dollar the first few business days of 2016, and the South African rand and Brazilian real both lost 1.1 percent. Each of these currencies is down about 20 percent or more against the dollar from a year ago. Part of the dollar’s early success in 2016 stemmed from turmoil in China’s economy, which announced that its manufacturing sector shrank in December. Additionally, Europe continues to experience weak growth. The Eurozone economy only grew 0.3 percent in the third quarter of 2015, facing high unemployment and possible deflation. The strong U.S. dollar is essentially a two-edged sword: it makes American goods more expensive overseas and negatively impacts exports and manufacturing.

While many indicators register positive signs for the U.S. economy in 2016, the global economy remains the wild card. For instance, Eurozone stagnation creates drag on the U.S. economy. In addition, volatility in China continues to have unanticipated effects on markets around the world. In January, China reported its tenth-straight month of weak manufacturing data, causing drops in both the Shanghai Composite Index and the Dow Jones Industrial Average on the first full trading day of the year. China’s slowdown is of concern because economies around the world, including ours, are increasingly reliant on exports to China for GDP growth.

U.S. Consumer Price Index.

The national Consumer Price Index (CPI) decreased 0.2 percent from October to November on a non-seasonally adjusted basis and has increased 0.5 percent over the last year, which is lower than the Federal Reserve’s annual inflation target of 2 percent.

The decline in the CPI was driven by decreases in prices for energy and food. The energy index fell 1.3 percent from October to November, with all major components declining except electricity. The food index declined 0.1 percent, and five of six major grocery store food group indexes contributed to the drop.

The index for all items less food and energy—a less-volatile measurement of prices—rose 0.2 percent in November, similar to its increases in September and October. The increase was driven by higher prices for shelter, medical care, airline fares, new vehicles, and tobacco. The following indexes declined in price in November: recreation, apparel, household furnishings and operations, and used cars and trucks.

U.S. Consumer Confidence Index.

The Conference Board’s Consumer Confidence Index®, which had decreased in November, improved in December. The Index now stands at 96.5, up 3.9 points from November. The Present Situation Index increased from 110.9 last month to 115.3 in December, while the Expectations Index improved to 83.9 from 80.4 in November.

Consumers’ assessment of current economic conditions in December was mixed. Those saying business conditions are “good” increased 2.3 points to 27.3 percent. However, those saying business conditions are “bad” also increased 2.9 points to 19.8 percent. Consumers were more positive about the labor market, however. The proportion claiming jobs are “plentiful” increased from 21.0 percent to 24.1 percent.

More than two-thirds of consumers said they expected interest rates to rise over the next year, which was the highest share since August 2013. As if on cue, the Federal Reserve raised the federal funds rate on December 16 for the first time since 2006.