The employment report increased more than experts expected with an increase of 222,000 in June, and experts say the economy is now running at full employment.
One expert explained that historically, June sees higher employment gains due to new college graduates.
“June has historically seen relatively strong employment gains, as recent college grads land their first jobs,” Zillow Chief Economist Svenja Gudell said. “In contrast to many of their older siblings who graduated into the Great Recession a decade ago, much of the class of 2017 likely already had jobs lined up well before graduation, and are starting to collect their first paychecks.”
“Although the unemployment rate edged up, the combination of a very tight labor market and still historically low mortgage rates has contributed to an extraordinarily competitive home buying market this summer,” Gudell said. “Never before have mortgage rates been so low when the US labor market is at full employment.”
Another expert agreed the economy rests at full employment, and pointed out the report’s data shows the chances of a recession on the horizon are slim.
“Today’s numbers signal that we continue at full employment, which is good news for the housing market in many ways, since people have jobs and income and there is little chance of inflation or slipping into another recession in the near future,” realtor.com Senior Economist Joseph Kirchner said.
Wages grew just four cents in June, but despite this small increase, one expert explains the Federal Reserve is likely to continue on its current path on its interest rate hikes.
“We will find out what Fed Chair Janet Yellen thinks of this next week, during her semi-annual congressional testimony,” Capital Economics Chief Economist Paul Ashworth said. “Our view is that, despite the lack of a pick-up in wage growth and core inflation, the Fed will nevertheless push ahead with hiking interest rates.”
“The unemployment rate is already unusually low and is likely to fall further over the coming months,” Ashworth said.
But Ashworth wasn’t the only economist saying the report signals the Fed will stay its course. Other economist agreed with his opinion, saying the Fed will raise rates once more this year.
“All in all, the report signals no sense of urgency for the Fed and should give the Fed every reason to stay the course of a gradual monetary policy normalization as it has been telegraphing to the markets,” Fannie Mae Chief Economist Doug Duncan said. “We now expect the Fed to announce its policy to taper the balance sheet in September and hike the fed funds rate once more this year in December.”
The small increase in wages is not enough to keep up with the rapidly increasing home prices, one expert said in response to the report.
“Continued labor market health and additional spending power for workers is good news for the housing market, but even with the higher weekly earnings growth seen in June, home prices continue to outpace income growth,” said Danielle Hale, National Association of Realtors director of housing research.
But despite the overall increase in new jobs, the construction market saw a slight drop in a market already seeing a labor shortage.
“Specifically for the housing market, residential construction employment, which is a non-substitutable input necessary to increase the pace of housing starts and increase the housing stock, is an important metric to monitor,” said Mark Fleming, First American Financial Corp. chief economist. “Building a home does not readily lend itself to outsourcing and automation.”
“Home building still requires manual labor as a key input into the production process,” Fleming said. “This month’s decline by 1,500 jobs, compared with May is becoming a significant impediment to more housing starts. It’s very hard to have an increase in housing starts without an increase in residential construction employment.”