NKBA Consulting Economist Manuel Gutierrez Foresees Modest Growth for 2017

U.S. Labor Market

Since the bottom of the recession almost eight years ago, the U.S. economy has seen the creation of slightly over 14 million jobs — a pace of nearly two million jobs a year. However, since many of these “newly created” jobs simply replaced jobs that were lost during the downturn, the real net gain since 2009 is closer to 6.9 million new jobs. Additionally, during the last three years, the pace of job growth has been slowing. From a monthly average of 251,000 in 2014, new jobs grew by 229,000 in 2015 and last year by 180,000.

The unemployment rate fell to a 4.9% average last year after having peaked at 10% in October 2009. But that’s not the only figure to consider. There is also the labor participation rate, the percentage of the population 16 and older who are active in the labor market (either employed or looking for a job). This number has been steadily declining since its peak in January 2000. However, the main reason for the falling labor participation rate is demographic not economic, specifically the aging population in the U.S.

U.S. Residential Construction Markets

The chart to the left shows the path of single family starts — from the peak of 1.8 million homes built 10 years ago, we have recovered to finally reach around 775,000 starts last year. Single family starts are not expected to exceed 850,000 this year.

Why aren’t we seeing more single family construction? One reason is that the number of households has been increasing modestly over the last few years. In the third quarter of last year, households increased by 1.2 million, lower than the 1.5 million we saw prior to the recession. The second reason is that many of those households are renting. This move to rental units is partly due to the recession, when millions of homeowners lost their homes and any equity they may have accumulated. Many millennial’s have also been choosing rental housing due to finances. A survey done a couple of years ago showed that 42% of 18 to 29 year olds are burdened with student debt. Worse, many young people who took a student loan didn’t graduate, making it more difficult to qualify for a mortgage. About 30% of people who go to college do not complete their degree, and therefore, have lower earnings and still have student debt to pay.

Gross Domestic Product (GDP)

Moving to a macro view of the economy, the best and most common measurement is Gross Domestic Product, or GDP. Keep in mind that even though GDP is said to represent the volume of economic activity in the U.S., it doesn’t. GDP reflects the value of products and services sold to the final user.

Historically, the U.S. has had average GDP growth of more than 3% annually, but over the last few years we’ve seen more modest 2% growth.

All in all, the moderate growth we have seen over the last ten years or so looks to continue into the near future.