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Lull in employment may extend Fed tapering until 2014

Poor employment prospects sideline young adult buyers

The unemployment rate fell a bit from August to September, but not enough to make economists confident in the Fed's willingness to taper monthly asset purchases by the end of this year.

Instead, Capital Economics predicts no tapering before 2014.

Unemployment did fall to a five-year low in September, but it's unlikely to reach the 6.5% benchmark that's considered a trigger for a substantive pullback in Fed intervention.

The nation's unemployment rate dropped slightly to 7.2% in September, down from 7.3% in August. Job gains were unimpressive, with non-farm payrolls increasing by only 148,000 jobs. 

"The unemployment rate keeps edging lower, but the Fed seems to be more focused on the drop-off in the pace of monthly payroll gains," explained Paul Ashworth, chief U.S. economist for Capital Economics.

He added, "Given the government shutdown, October’s payrolls are likely to be week too. That means unless November’s gain turns out to be over 250,000 jobs, it now looks like the Fed could delay tapering until early next year."

Although residential construction jobs are outpacing overall jobs growth, the most recent quarters posted lower construction job gains.

What’s worse, the job market isn’t improving in areas where it would most help housing demand: young adults and within clobbered metropolitan areas, explained Trulia (TRLA) chief economist Jed Kolko.

Residential construction employment was up 5% year-over-year – ahead of overall national employment growth of 1.7%.

Furthermore, construction employment is growing at a slower pace even when compared against construction activity growth. The number of housing units under construction grew 32% year-over-year in August, Trulia reported this week.

"That’s because construction employment is higher than normal relative to the level of construction activity," Kolko said. "There are now 3.3 employed residential construction workers for every unit under construction, as of August, compared with 2.6 before the bubble."

Gen Y is still not working. Employment among 25-to 34-year-olds is still well below pre-bubble levels.

For instance, only 75% of millennials are employed, no change from a year ago.

"Without a job, young people are much more likely to live with their parents instead of becoming renters or homebuyers," Kolko stated.

Meanwhile, job growth in the hardest-hit metros dropped 1.6% year-over-year in August, which compares to national job growth of 1.7% for the same period.

The ‘clobbered metros’ are the areas that experienced the biggest price declines during the housing bust. They also have the highest vacancy rates right now, given the fact that job growth is critically important to producing housing demand.

Cities in Florida posted impressive year-over-year job growth, especially in Tampa and Fort Lauderdale, but employment remained flat in Miami, Kolko concluded. 

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