Government Lending

May jobs report a mixed bag for housing industry

It's now been two straight months of lower than expected jobs numbers

Total nonfarm payroll employment rose by 559,000 in May, below economists’ predicted rate of 675,000 new jobs. According to the U.S Bureau of Labor Statistics, unemployment now stands at 5.8% – around 30 basis points lower than April and now at its lowest rate since the pandemic began. So what does that mean for the housing industry, and the likelihood the Fed will change course on monetary policy?

According to the government’s statistics, job gains were again concentrated in the service industry, which showed an increase of 489,000 jobs in May. Within this sector, the leisure and hospitality components sported the most robust job gains, posting an increase of 292,000 jobs, indicators that American life is creeping back to normal.

There were disappointments for the real estate sector, too. The overall construction sector actually lost 20,000 jobs in May, though it was mostly concentrated among nonresidential specialty trade contractors. The construction sector remains an economic weak spot in many respects – it’s down 225,000 jobs from prior to the pandemic.

While commercial contractors are truly suffering, residential construction employment is at least moving in the right direction, even if gains there are tepid at best for the housing industry. According to the BLS statistics, residential construction employment, including specialty trade contractors, rose by just 1,900 jobs in May.

It’s a slower pace than in previous months, and definitely not good enough to ease supply constraints the market is currently grappling with, noted Fannie Mae chief economist, Doug Duncan.

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“Overall, the pace of job creation has appeared slower than what recent output growth would suggest, implying firms have been generating productivity gains with their workforce recently,” said Duncan. “Whether these productivity gains are permanent or transitory remains a question.”

For now, Fannie Mae’s housing industry economists don’t believe the pace of job creation shown in Friday’s report is significant enough to push the Fed to tighten monetary policy any earlier than previously signaled.

Jobs numbers missing the mark in both April and May’s likely took a great deal of pressure off the Federal Reserve to taper its ongoing bond buying program. The Fed has remained unwavering in assisting unemployment and keeping inflation near 2%. Despite subtle increases in inflation, the Fed has cited the current rebound as “transitory” – a sleepy economy waking up from a pandemic driven nap.

If unemployment numbers did rise to the occasion, the Fed may have felt the pressure to end emergency measures sooner than initially intended. The lackluster jobs report virtually guarantees that the Fed will continue to print money, even with louder voices expressing concern with inflation.

Another positive sign for the housing industry is that long-term unemployment decreased by 431,000 to 3.8 million in May. That Americans who have been out of work for more than six months are now finding employment is encouraging, said Mike Fratantoni, senior vice president and chief economist for the Mortgage Banker’s Association.

“The decrease in initial claims for unemployment insurance in recent weeks, the continued robust demand for workers as shown by the high level of job openings, and other data showing increasing economic activity, point to more hiring over the summer,” Fratantoni said. “MBA is sticking with our forecast of a 4.5% unemployment rate by the end of the year.”

The prime-age labor force participation rate (the percentage of 25-54 year-old Americans that are working or actively looking for work) stayed flat. However, Odetta Kushi, deputy chief economist for First American noted the prime-age LFPR fell in the aftermath of the Great Recession and it took a decade to return to the pre-Great Recession average of 83%.

“Now, it’s struggling to break 81.3%,” Kushi said. “An increase in the prime-age LFPR will indicate that the supply of available workers has increased and a larger active workforce means more labor resources available for the production of goods and services and, therefore, a higher participation rate will benefit the economic recovery.”

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