Jobs Report and the FOMC Statement

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the Jobs Report and the Federal Open Market Committee statement.

• The Current Employment Situation, perhaps the biggest leading economic indicator in today’s market environment, showed that hiring in July was somewhat less than expected, but in spite of slower than expected growth in employer payrolls, the unemployment rate edged down 0.2 percentage point to 7.4 percent, the lowest level since the December 2008 reading of 7.3 percent.
• The stock market eased a bit in reaction to this news and bond rates eased slightly as investors try to interpret the data, specifically with regards to its impact on decision making at the Fed.  A weaker number suggests the possibility of delayed Federal Reserve tapering (generally perceived as a net positive), but also means a weaker than expected economy (a net negative).
• In Bernanke’s public statements and testimony to Congress, he has generally focused on a threshold of 7 percent unemployment rate before the asset purchase program is scaled back and a 6.5 percent unemployment rate threshold for the beginning of Federal Funds rate increases—both of which are actions that will lead to higher mortgage rates and the anticipation of which is largely to blame for the recent surge in rates.
• In the FOMC statement released Wednesday following the latest meeting, the FOMC specifically observed that “mortgage rates have risen somewhat” in reviewing the potential risks to a strengthening economy.  Additionally, one of the FOMC members who voted against the June statement fearing that it was not strong enough on inflation, voted for the July statement, suggesting that the consensus for tapering this year that some believed was beginning to form in June may not be as solid as once believed.
• Looking more closely at the employment report, growth in the number of private jobs was 161,000 compared to 162,000 net jobs added overall.  The 1,000 growth in government payrolls was due to an increase in local government workers.  States and the federal government both reported shedding employees.
• The bulk of employment gains were in service providing industries where gains were broadly spread across sectors.  The top jobs-adding sectors in July were retail trade, professional and business services, and leisure and hospitality.  The construction sector shed jobs on net, but there were gains in residential and non-residential building construction and in residential specialty trade contractors.  There was also growth of 3,000 net jobs in the real estate sector though it is worth noting that since these jobs are payroll jobs, many of them are not real estate  agents, but others working in the industry.
• In addition to slower than expected growth in July, data from May and June were revised down for a combined 26,000 fewer jobs than initially reported (roughly 7 percent), but revisions in this data are not uncommon, and last month’s release showed an additional 70,000 jobs in revisions.
• While average hourly earnings slipped down $0.02 in the month, they are up by 1.9 percent for the year.  The average workweek also slipped by 0.1 hour in July.