- Today’s national employment report from the U.S. Bureau of Labor Statistics reported an increase of 164,000 jobs in April, which continues tight labor market conditions. The unemployment rate fell to 3.9 percent, the lowest level since December 2000.
- The positive indicators in the report are continued job growth across various sectors and diminishing labor-market slack among workers employed part-time who report wanting full-time work.
- Wage growth was somewhat disappointing, though some sectors are seeing solid gains, particularly financial services, information, and construction. Nevertheless, some industries that have added relatively more jobs each month — such as education and health services, retail, and professional and business services — are seeing relatively slower wage growth. Overall, average hourly wages increased by 2.6 percent from a year ago.
- Importantly, the manufacturing and construction sectors continued with robust job growth, adding a combined 41,000 positions despite concerns over trade wars and tariffs on steel and aluminum. However, the motor vehicles and parts industries posted job losses, which could be an area of concern resulting from trade discussions.
- The sectors that added the most jobs in April included professional and business services, up by 54,000 jobs; health care, up by 29,300 jobs; manufacturing, up by 24,000 jobs; leisure and hospitality, up by 18,000 jobs; and construction, up by 17,000 jobs. Three sectors lost jobs in April: wholesale trade, government, and motor vehicles and parts — down a combined 900 jobs.
- The financial services and information sectors showed respective wage growth of 4.4 percent and 3.6 percent, which is an important measure for California, the Bay Area, and Los Angeles. In a report published this week, analysts from Beacon Economics showed that Southern California is losing middle-to-high wage jobs, while the Bay Area continues to gain high-wage jobs and attract well-compensated workers. These varying income trends cause varying migration trends. High-wage jobs in the Bay Area are leading to more people to come than leave, while the increase of lower-wage jobs in Southern California is causing people to leave in search of more affordable places to live.
- The cost of housing seems to be the underlying thread behind Californians leaving the state. However, there are no signs that the high costs of housing will abate. At its meeting this week, the Federal Reserve left interest rates unchanged, though it suggested that more increases are on the horizon. The main driver behind an anticipated increase in June is rising inflation, which finally moved close to the targeted 2 percent rate. The lack of inflation pressure has been one of the main reasons holding the federal funds target rate low.
- In addition, continued strong economic growth, coupled with inflation pressures and wage growth, suggest that the Fed may raise rates more than the previously expected three times in 2018, with the expectation moving to four. As a result, mortgage rates are now expected to increase at a faster rate than previously thought.
Selma Hepp is Pacific Union’s Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.