Spike in COVID Cases Brought Job Losses in December
January 1, 2023
5 min read
The spike in COVID cases continues to impact people and businesses around the country, causing job losses nationwide in December. Yet, home prices around the country continue to show strong appreciation gains.
Also of note, the minutes from the Fed's December meeting were released. The Fed left open the possibility of additional Mortgage Bond and Treasury purchases. They also noted that whenever they do cut back on their purchases, they would follow what they did in 2013 and 2014 and taper them slowly to not shock the market.
December Saw Job Losses Versus Expected Gains
The Bureau of Labor Statistics (BLS) reported a loss of 140,000 jobs in December, below expectations of 65,000 job gains. Understandably, the leisure and hospitality sector was hit hard due to closures and tightening pandemic restrictions.
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. It showed that the Unemployment Rate remained unchanged at 6.7%, but there has been a lingering misclassification error where people were classified as absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. Without this error, the unemployment rate would have been 0.6% higher or 7.3%.
The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, decreased from 12% to 11.7%.
Average hourly earnings increased from 4.4% to 5.1% year over year. Average weekly earnings, which we focus on more, rose from 5.9% to 6.3%.
Why do we focus on weekly earnings more?
Weekly earnings measure what people actually take home. The current data shows that this level of income can support much greater levels of appreciation than we are currently seeing without homes being unaffordable. Think of it this way. People don't use their entire income for their mortgage payment, so the weekly earnings figure does not have to rise at the same pace as appreciation, which is currently around 8% nationwide as noted below.
Private Payrolls Decline in December
The ADP Employment Report, which measures private sector payrolls, showed that there was a loss of 123,000 jobs in December, which was below expectations. In addition, November's report was revised slightly lower by 3,000 jobs, decreasing November's job gains from 307,000 to 304,000.
Breaking down the numbers, small businesses (1-49 employees) lost 13,000 jobs, mid-sized businesses (50-499 employees) gained 37,000 jobs, and large businesses (500 or more employees) lost 147,000 jobs.
Jobless Claims Decline For Wrong Reason
Another 787,000 people filed for unemployment benefits for the first time during the week ending January 2, which is a decline of 3,000 claims from the previous week. However, it's important to note that this data encompasses New Year's week, so many people may not have been filing for claims.
Continuing Claims, which are delayed a week and which measure people continuing to receive benefits, declined by 126,000 to 5.072 million. Pandemic Unemployment Assistance Claims (which gives individuals benefits who would not usually qualify for them) also dropped by 70,553 to 8.383 million while Pandemic Emergency Claims (which extends claims by 13 weeks after regular benefits expire) decreased by 293,000.
Unfortunately, these declines are most likely due to benefits expiring rather than people finding work, as the spike in COVID cases continues to impact businesses and people across the country.
Strong Home Price Gains Continue
CoreLogic's Home Price Index report showed that home prices increased 1.1% from October to November and 8.2% compared to November of last year. This is a significant gain from the 7.3% annual number reported for October. Within the report, the hottest markets were Phoenix (+12.6%), San Diego (+9.5%), and Washington DC (+8.2%).
In addition, lower-priced home values increased by about one and a half times faster than higher-priced home values, as that’s where the greatest level of demand is.
CoreLogic forecasts that home prices will rise 0.2% in December and 2.5% in the year going forward, which is better than the 1.9% annual forecast in the previous report. Remember, not that long ago they were expecting a 6.6% decline in home prices.