Employment Up, Interest Rates Falling Again

Popular Economics Weekly

We are still in the Goldilocks economy—it’s not too hot or too cold. In fact, there is enough geopolitical unrest (now it’s the Hong Kong youth protests against China’s hardliners) to drive down interest rates, and boost U.S. growth. We seem to be the island of calm in a world of storms, where investors are looking for safe havens.

The Automatic Data Processing (ADP) report just out showed private sector payroll employment increased by 213,000 jobs from August to September according to the August ADP National Employment Report. This is the precursor to this Friday’s Bureau of Labor Statistics ‘official’ September unemployment report for both private and public employment, which is expected to be in the same range.

Mark Zandi, chief economist of Moody’s Analytics that puts out the report, said, “Job gains remain strong and steady. The pace of job growth has been remarkably similar for the past several years. Especially encouraging most recently is the increasingly broad base nature of those gains. Nearly all industries and companies of all sizes are adding consistently to payrolls.”

And initial jobless claims continue downward, another sign that the unemployment rate should fall further tomorrow. There are fewer and fewer workers drawing unemployment benefits which points solidly at improvement underway in the labor market. Initial claims fell 8,000 in the September 27 week to 287,000, pulling down the 4-week average by a sizable 4,250 to 294,750 which is nearly 10,000 below the month-ago comparison.

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Graph: Econoday

This is while interest rates are plunging due to investor flight-to-quality from the worldwide unrest. Conforming 30-year fixed rates are back down to 3.625 percent for a 1 pt. origination fee, 3.75 percent for 0 pts. in origination fees.

It may bring more of the record millennial generation of echo boomers (i.e., children of baby boomers) that outnumber their baby boomer parents into the housing market.

Marketwatch’s Amy Hoak, for one, believes this will happen sooner. Reporting on a National Association of Business Economist conference, she said,“In August 2014, only 29 percent of all buyers of existing homes were first-timers, according to National Association of Realtors data. For comparison, between October 2008 and October 2010, an average 41 percent of all buyers of existing homes were first-timers, David Crowe, chief economist for the National Association of Home Builders, pointed out during the panel discussion.

Still, the purchase activity of home buyers younger than 30 who bought with a mortgage (with the intent to live in the home) rose 8 percent, year over year, in 2012, according to a Zelman & Associates analysis. Purchase activity for this group rose 10 percent, year over year, in 2013. And purchase activity rose 19 percent, year over year, in both 2012 and 2013 for those between the ages of 30 and 39.

The key will be an improving rate of household formation for the millennials.

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Graph: Business Insider

The improving labor market is helping U.S. household formation among young adults, according to Michael Gapen at Barclays. The employment-to-population ratio for 16-24-year-olds has climbed to 47.7 percent in May, from an average of 46.5 percent in 2013.

In particular, data from the Current Population Survey, which includes extensive information on both the number and characteristics of US households over time, suggest that more young adults are now finding it feasible to move out, said Gapen.

While the employment-to-population ratio for those in the 25-34 bracket has also ticked up, they are already less likely to live at home with their parents. “Only 18.8 percent and 8.9 percent of 25-29 year olds and 30-34 year olds, respectively, live with parents,” writes Gapen.

In 2013, 55.3 percent of 18-24-year-olds lived at home, compared with 56.2 percent in 2012. Since there were estimated to be 30 million 18-24-year-olds in the U.S. last year, according to Current Population Survey estimates, the one percentage point decline suggests that 300,000 young adults were looking to move out.

Tomorrow’s BLS unemployment report should tell us more, but the youngest adults look like they are ready to be on their own.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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