There were plenty of fireworks ahead of the Independence Day holiday, as key labor and housing reports showed strong job creations and sizzling home appreciation.
June Job Creations Beat Expectations Yet Unemployment Rate Increases
The Bureau of Labor Statistics (BLS) reported that there were 850,000 jobs created in June, which was stronger than expectations of 700,000 new jobs. In addition, there were slight positive revisions to April and May in the amount of 15,000 more jobs in those months combined.
Note that there are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it's based predominately on modeling.
The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, and it showed there were 18,000 job losses while the labor force increased by 151,000. The number of unemployed people also increased by 168,000, causing the Unemployment Rate to rise from 5.8% to 5.9%.
June’s data is a perfect example of how the Jobs Report can be a tale of two reports, where we can see disparity in job creations between both surveys.
In addition, it's important to further analyze these numbers, as the true Unemployment Rate is actually higher than the headline figure. That's because people who are not able to look for work due to pandemic reasons, and who are still unemployed, are not counted. And that number equates to 1.6 million people. When we add this into the calculations, along with the lingering misclassification error (where people were classified absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been), the real Unemployment Rate is around 7%.
Wages were on the rise, as average hourly earnings were up 0.3% in June after rising 0.5% and 0.7% in May and April, respectively. Year over year, these figures were up by 3.6%.
Average weekly earnings, which we focus on more because it measures what people actually take home, were basically unchanged after rising 0.5% and 1% in the previous two months. Average weekly earnings were unchanged due to the drop in hours, likely due to the manufacturing sector where there are not enough parts to keep people working. Year over year weekly earnings are up 4%, but if you extrapolate the last 3 months’ numbers over the course of the year, weekly earnings would increase by 6%.
And of note, leisure and hospitality wages increased by 1% month over month after rising more than 1% in May as businesses in those sectors ponied up to try to get much needed staff to return to work.
June Private Payrolls Higher Than Expected
The ADP Employment Report, which measures private sector payrolls, showed that there were 692,000 jobs created in June, which was almost 100,000 more jobs than expected. However, May's report was revised lower by nearly that same amount, bringing the total number of jobs created in May from 978,000 down to 886,000.
Leisure and hospitality again led the way with 332,000 new jobs, while education/healthcare and trade/transportation/utilities added 123,000 and 62,000 jobs respectively. In total, the service-providing sector added 624,000 new jobs. The goods-producing sector added 68,000 jobs, with manufacturing adding 19,000 and construction adding 47,000.
Job gains were present across all sizes of businesses. Small businesses (1-49 employees) gained 215,000 jobs, mid-sized businesses (50-499 employees) gained 236,000 jobs, and large businesses (500 or more employees) gained 240,000 jobs.
After losing almost 20 million jobs during the pandemic, we have recovered back almost 13 million. However, there are still 7 million jobs that are unrecovered while there are 9.3 million job openings.
Initial Jobless Claims Tick Lower But Remain Elevated
The number of people filing for unemployment benefits fell by 51,000 in the latest week, as Initial Jobless Claims were reported at 364,000, which is a post-pandemic low. California (+57K), Pennsylvania (+26K) and Illinois (+20K) reported the largest number of claims.
However, the number of people continuing to receive regular benefits increased by 56,000 to 3.5 million.
Pandemic Unemployment Assistance Claims (which provide benefits to individuals who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) fell by 28,000 combined.
All in all, 14.7 million individuals are still receiving benefits throughout all programs, which is down 180,000 from the previous week. In addition, 22 states have opted out of additional state unemployment benefits, and these states are seeing people return to work at a better than 2-to-1 margin.
Extended benefits are supposed to fully expire after Labor Day and assuming they’re not extended again, we will likely see claims drop further. But the situation does remain complicated, especially for many families who need schools and childcare to fully reopen.
Pending Home Sales Soar Above Expectations
Pending Home Sales, which measure signed contracts on existing homes, increased by 8% in May, which was well above the 1% decline expected. Year over year, Pending Home Sales are up 13%.
Buyers are still lining up at a feverish pace, according to the National Association of Realtors chief economist, Lawrence Yun, who said, “While these hurdles have contributed to pricing out some would-be buyers, the record-high aggregate wealth in the country from the elevated stock market and rising home prices are evidently providing funds for home purchases.”
Appreciation Hits 30-Year High
The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 14.6% year over year in April. This is a 30-year high and even stronger than the already hot 13.3% annual appreciation reported in March.
The 20-city index rose from 13.4% to 14.9% year over year, with almost all the cities showing strong gains. Phoenix (+22.3%), San Diego (+21.6%), and Seattle (+20.2%) continued to report the highest annual gains among the 20 cities.