Total non-farm payroll employment increased by 559,000 in May, below the rate forecast by economists of 675,000 new jobs. According to US Bureau of Labor StatisticsUnemployment now stands at 5.8%, about 30 basis points lower than in April and now at its lowest rate since the start of the pandemic. So what does this mean for the housing industry and the likelihood of the Fed changing course on monetary policy?
According to government statistics, job gains were again concentrated in the service industry, which posted an increase of 489,000 jobs in May. Within this sector, the leisure and hospitality components posted the strongest job gains, posting an increase of 292,000 jobs, indicating a return to normal in American life.
The real estate sector has also seen disappointments. The entire construction sector in fact lost 20,000 jobs in May, although they are mainly concentrated among non-residential specialty contractors. The construction sector remains an economic weak point in many ways – it has lost 225,000 jobs compared to before the pandemic.
While commercial entrepreneurs are really hurting, residential construction employment is moving in the right direction at least, although the gains there are meager at best for the housing industry. According to BLS statistics, employment in residential construction, including trade contractors, increased by only 1,900 jobs in May.
That’s a slower pace than in previous months, and certainly not good enough to ease the 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 appeared to be slower than recent output growth would suggest, implying that firms have recently generated productivity gains with their workforce.” Duncan said. “Whether these productivity gains are permanent or transitory remains a question. “
For now, housing economists Fannie Mae don’t think the pace of job creation shown in Friday’s report is big enough to push the Fed to tighten monetary policy sooner than expected.
The number of jobs missing the mark in April and May likely reduced the pressure on the Federal Reserve reduce its current bond purchase program. The Fed has remained steadfast in helping unemployment and keeping inflation close to 2%. Despite subtle increases in inflation, the Fed has called the current rebound “transient” – a sleepy economy waking up from a nap caused by a pandemic.
If the unemployment numbers rose to match the occasion, the Fed may have felt the pressure to end the emergency measures sooner than initially expected. The lackluster jobs report virtually guarantees that the Fed will continue to print money, even with louder voices expressing concern about inflation.
Another positive sign for the housing industry is that long-term unemployment fell from 431,000 to 3.8 million in May. The fact that Americans who have been unemployed for more than six months are now finding jobs is encouraging, said Mike Fratantoni, senior vice president and chief economist of the Mortgage Bankers Association.
“The decrease in initial unemployment insurance claims in recent weeks, the continued strong demand for workers, as evidenced by the high level of job vacancies, and other data showing an increase in economic activity, indicate an increase in hiring over the summer, ”said Fratantoni. “The MBA is sticking to our forecast of an unemployment rate of 4.5% by the end of the year.”
The prime-age labor force participation rate (the percentage of Americans aged 25 to 54 who are either working or actively looking for work) has remained stable. However, Odetta Kushi, deputy chief economist of American Premier noted that the prime LFPR fell in the wake of the Great Recession and that it took a decade to return to the pre-Great Recession average of 83%.
“Now he’s struggling to pass 81.3%,” Kushi said. “An increase in the LFPR in the prime of life will indicate that the supply of available workers has increased and that a larger active labor force means more labor resources available for the production of goods.” and services and therefore a higher participation rate will benefit the economic recovery. “