U.S. unemployment drops to six-month low of 7.9%

Residential construction is a bright spot

The U.S. unemployment rate in September hit a six-month low of 7.9%, down half a percentage point from August’s 8.4%, the Labor Department said on Friday. With 1 million people making up that half percentage drop, the department estimates that now 12.6 million Americans are still unemployed, according to the Household Survey Data.

Though unemployment has continued to decline since April’s 14.7% record spike, the decline has begun to slow. August dropped a full 2 percentage points from July’s 10.2% rate, while July dropped nearly one percentage point from June’s 11.1% number.

Total nonfarm payroll employment rose by 661,000, but remains 7% below February’s peak.

Private employment increased by 877,000, while government employment fell by 216,000 – a stat that Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, chocks up to drops in local education employees as many schools did not bring their workforces back in September.

“Job growth is going to be more difficult in the coming months. Workers on temporary layoff continue to be called back to work, but the number of permanent job losses have increased by 2.5 million since February. More businesses are struggling to stay afloat,” said Fratantoni.

According to the survey, 19.4 million people reported that they had been unable to work because their employer closed or loss business due to the pandemic, down from 24.2 million in August. However, as businesses attempt to safely reopen, leisure and hospitality as well as retail trade saw employment gains of 318,000 and 142,000 in September, respectively.

Residential construction employment (including specialty trade contractors) posted another large increase this month, with job gains of 22,000, which Doug Duncan, chief economist at Fannie Mae, said is a welcome sign for a sector dealing with supply constraints.

“The number of persons working part time but who would prefer full-time employment fell by 1.3 million, a positive signal of labor demand. This group is an important indicator of under-employment (i.e., persons who are officially employed but are working and earning less than they would like),” Duncan said.

More concerning than the headline unemployment rate is the long-term economic scarring from workers dropping out of the labor force altogether, Odeta Kushi, deputy chief economist at First American, said.

“A lower labor force participation rate tends to go hand-in-hand with slower wage growth,” said Kushi. “For the housing market, slower wage growth could chip away at house-buying power, while the ongoing supply shortage continues to put upward pressure on house price appreciation, with repercussions for affordability.”

According to Kushi, if one of the three main tenants of house-buying power – household income – falls behind, against a backdrop of limited inventory of homes for sale, the industry can expect affordability to decline.

One important note is that response rates for the Bureau of Labor Statistics household and payroll surveys were below recent averages. According to Duncan, this potentially adds volatility to the results – reflecting the challenges of data collection in the current environment.

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