There are lots of reports on the U.S. economy worth mentioning this morning. First, data from the Department of Labor showed that the number of Americans making first-time claims for unemployment benefits totaled 252K in the week ending September 17th. That was a decrease of 8K from the prior week’s figure, better than economists had expected, and the lowest headline reading since mid-April. Initial jobless claims have been surprisingly stable this year, confirming that any recent slowdown in the pace of nonfarm payrolls growth has been due more to a decline in hiring than an uptick in firing. Moreover, this was the 81st weekly print below 300K in a row, the longest such streak since 1973 and a pattern believed to be consistent with an overall healthy labor market. With claims near multi-decade lows, though, there is probably not much room left for further declines, and a slight rise could even be expected as the economy inches closer to full-employment. Combine this with the number of job openings in America climbing to a new all-time high this summer and it seems clear that the labor market is one area of the economy that likely will not help officials at the Federal Reserve justify keeping interest rates at historically low levels.
Next, a report from the National Association of Realtors (NAR) showed that total existing home sales in America, which account for a much larger portion of the overall U.S. housing market than new home sales (released next week), slid by 0.9 percent in August to a seasonally adjusted annual rate of 5.33 million units. That was worse than expected, the 2nd-slowest sales pace of 2016, and the prior month’s figure was revised lower. Over the past year existing home sales have risen by 0.8 percent, an improvement from July but still one of the weakest rates of annual growth recorded this year. NAR chief economist Lawrence Yun added that “Healthy labor markets in most the country should be creating a sustained demand for home purchases. However, there's no question that after peaking in June, sales in a majority of the country have inched backwards because inventory isn't picking up to tame price growth and replace what's being quickly sold.” Regionally, home sales in August rose in the Northeast (+6.1 percent) but fell in the Midwest (-0.8 percent), the West (-1.6 percent), and the South (-2.7 percent). Total housing inventory declined last month to 2.04 million existing homes available for sale, 10.1 percent lower than in August of 2015. Further, months’ supply slid to 4.6 at the current sales pace, and the median selling price was $240,200 in August, a 5.1 percent gain compared to this same period last year and therefore the 54th consecutive month of annual growth.
Speaking of home valuations, the U.S. Federal Housing Finance Agency’s (FHFA’s) national home price index (HPI) rose by 0.5 percent in July (lagged release). That was slightly above the 0.4 percent monthly gain economists had expected and enough to lift the annual pace of growth to 5.8 percent. The latter helps show that the rise in shelter costs continues to easily outpace both headline consumer inflation and wage growth in this country. Some economists like to compare the HPI to the owners' equivalent rent section of the monthly consumer price index (CPI) report from the U.S. Bureau of Labor Statistics to help spot price bubbles. As the second chart below shows, home values have increased significantly in recent years but remain below the extremes seen prior to the last recession. Regardless, low mortgage rates, tight supplies, and continued improvement in the labor market should all be supportive of higher home prices going forward.
Elsewhere, the manufacturing purchasing managers' index (PMI) from IHS Markit slid to 51.4 in the first half of September. That was the second monthly decline in a row and slightly worse than economists had expected. Under the hood, measures of new business growth, output volumes, and export orders all deteriorated this month but there was a moderate upturn in employment. Tim Moore, senior economist at IHS Markit, added that “Despite the growth setback in September, manufacturers appear reasonably upbeat about their longer-term prospects.” More encouraging was the Federal Reserve Bank of Kansas City’s composite manufacturing index, also released this week, which jumped from -4.0 to +6.0 in September. That was the first positive (expansionary) print since June and the highest headline reading in nearly two years. Under the hood, measures of production, shipments, new orders, and employment all improved this month, and most gauges of future factory activity remained positive. Comments from surveyed managers in the 10th Fed district also hinted at continued labor market tightening:
- “Wages are rising - employees are starting to look around for better paying jobs or jobs that pay the same but are closer to home.”
- “Unemployment is extremely low and just attracting applicants is very difficult. Manufacturing jobs for younger workers are not appealing and retaining newly hired employees has been tough. Offering an attractive wage while still trying to maintain an acceptable margin is becoming more and more difficult.”
- “Our biggest challenge is finding the skilled labor force that will work consistently. Everyone always has an eye out for the next best job.”
- “We have initiated a performance bonus program and are trying to give people more flexibility in time off away from the office/plant to attract and retain workers.”
Sources: Econoday, Twitter, Bloomberg, ZH, U.S. DoL, BLS, NAR, U.S. FHFA, IHS Markit, FRBKC, FRBSLPost author: Charles Couch