Economic Influences

August 2018

Unemployment indicators continue to trend down. Labor supply problems persist and participation in the labor force continues to hold steady at 64%.  We continue to point to labor issues as a supply side problem and one that will take some time to work through.

Employment growth continues across all major segments, as do underlying issues of labor supply. Home building and industrial sectors continue to struggle to find the right employees.  Labor costs for both sectors continue to rise and continues to add upward pressure on prices.

Our outlook is for durable sectors to slow their rates of growth as supply factors and pricing headwinds gain strength and hold back potential.

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Implication

Not much change in the story with July economic indicators.  Rate of decline in the unemployment percentage slowing as pressures mount. Commodity prices increasing, labor supply issues continue unabated, tariffs doing what they do – raise prices.  Durable manufacturing, housing, consumer-related goods all are being impacted.

Implication

Unemployment hit its lowest point of the 2000’s with a drop to 3.4% in July.   Seems that the sky must be falling in the new housing sector if you read the popular financial prognosticators, but builders are telling us they can’t keep up and are seeing time frames stretch because of so much demand.  Yet, their struggles continue.  Lack of quality labor is driving wages up, as well as delaying orders, resulting in time frames for completions stretching out.

Implication

Unemployment continues to decline in those cohorts most severely hit by poor economic conditions.  Rate at 4.0% in this category is the lowest its been since the 2008-2009 collapse.

Implication

Market for college graduates continues to remain strong.  At 2%, unemployment is virtually non-existent for this segment.  Trend in this rate will continue to be low as more jobs pull college educated people into categories where college education hasn’t traditionally been needed.   Building sector is a prime example of opportunities where what used to be considered blue-collar workers are resembling white-collar workers.

Number not in the Labor ForceLabor Force Participation

Implication

Despite all the draw from jobs, only 63% of the civilian labor force are participating.  Changing U.S. demographics driving this as 55+ segment becomes a larger percentage overall.  Younger age cohorts are experiencing increasing participation rates as more opportunities present themselves and wages also increasing.  However, the overall rate will continue to be dominated by the older age segment and will keep participation rates hover in the low 60%’s.

Implication

Dovish remarks by the FED chief may indicate a steady-as-she-goes policy for a while.  Any more increases in interest rates continue and the central planners at the FED will ruin a good party.

Let’s hope they keep the rate at 2.0% or below for the rest of the year.  Fueling their fears of inflation are rising prices and wages, which means rate increases likely follow.  With July’s releases, it’s too early to see what they might be thinking but more upward pressure on prices, Public Enemy #1 to the FED, will make them feel they need to drive rates up.

Implication

Despite rising prices and other issues related to housing, consumer and builder sentiment are at some of their highest points since 2000.  Builders continue to tell us this past year is the best they have ever had, even better than the mid-2000’s and in some areas, they are saying it’s at an unsustainable pace of growth.

2018-09-18T17:09:24+00:00