Proceed with Caution: Utah's three-percent economy won't last forever.

• Author: Gochnour, Natalie
• Position: Economic Insight

Utah's most recent job report includes an unusual statistic. Utah's job growth of 3.3 percent is higher than Utah's unemployment rate of 3.1 percent. I'm calling this Utah's three-percent economy.

Think about this for a moment. Unemployment rates typically range from 4 percent in good times to 8 percent or higher in difficult times. Utah job growth rates typically range from 4 percent in good times to 1 percent or lower during recessions. There are numerous exceptions, but typically unemployment rates are higher than job growth rates. That's not the case in Utah today.

What's going on and what does it mean for the Utah economy?

The big picture

First, the Utah economy, though likely late in the economic cycle, is humming. Year-over job growth has remained above 3 percent for 26 consecutive months. Unemployment has been below 4 percent in Utah for 37 consecutive months. I also calculate that Utah's job growth rate has been higher than our unemployment rate in 20 of the last 24 months. So the current "three-percent economy" is characterized by relatively low unemployment and high job growth. That's a great combination.

Second, wages are rising. With rapid job growth and low unemployment, businesses are paying more for labor. Many industries face a labor shortage. The Utah Department of Workforce Services Chief Economist Carrie Mayne says Utah's economy is "operating at or near full employment." I agree. Utah's average annual pay grew by 3.2 percent in 2015, 3.7 percent in 2016, and is forecast to grow by 5.3 percent in 2017. Households have more income and consumer spending is strong.

Third, labor is not the only commodity becoming more expensive. Housing prices are also on the rise. The median sales prices of a single-family home along the Wasatch Front has increased in inflation-adjusted terms by 36 percent since bottoming out in 2011. In Salt Lake County, the increase is even greater, standing at 39 percent. With wages and housing values rising, you can also count on interest rates to climb.

This brings me to my fourth point: Federal Reserve policies. I expect the Fed to steadily raise interest rates over the next three years. The U.S. economy will likely see three or four 25-basis point rate hikes a year, cresting at or near 4 percent. This normalization is necessary to keep a check on inflation and return the economy to a new normal.

Interest rate increases will correspond with other changes at the Fed as the voting makeup of the Federal...