Strong Job Creations and Home Price Appreciation

Despite some ongoing challenges in the labor sector, May proved to be a strong month for job creations. Home prices also soared in April, while Fed members made headlines last week.

May Job Creations Strong But Slightly Below Estimates

The Bureau of Labor Statistics (BLS) reported that there were 559,000 jobs created in May. Though this was slightly beneath estimates and weaker than the ADP report, it was still a strong number. In addition, there were slight positive revisions to March and April in the amount of 27,000 more jobs in those months combined.

Putting these numbers in perspective, however, we are still 7.6 million jobs below where we were pre-pandemic.

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 444,000 jobs created. On a positive note, the Unemployment Rate decreased from 6.1% to 5.8%. While there were 444,000 job creations, the labor force decreased by 53,000. The number of unemployed people also decreased by 496,000, causing the unemployment rate to drop.

However, 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 2.5 million people. When we add this into the calculations, the real Unemployment Rate is 7.2%.

In addition, there has been a 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. Without this error, the headline Unemployment Rate would have been 0.3% higher or 6.1%, while the real Unemployment Rate counting those unable to look for work due to pandemic reasons would be closer to 7.5%.

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, improved from 10.4% to 10.2%.

Wages were on the rise, as average hourly earnings were up 0.5% in May after rising 0.7% in April. Average weekly earnings, which we focus on more because it measures what people actually take home, rose 0.5% in May after rising 1% in April. If we extrapolate the last three month’s numbers over the course of the year, weekly earnings would show an increase of close to 7.5%.

And of note, leisure and hospitality wages increased by 1.3% in May, as businesses in those sectors raised wages in the hopes of attracting much needed help.

Private Payrolls Much Higher Than Expected

The ADP Employment Report, which measures private sector payrolls, showed that there were 978,000 jobs created in May, which was higher than the 600,000 new jobs expected. However, April's report was revised lower, bringing the total number of jobs created in April from 742,000 down to 654,000.

Leisure and hospitality again led the way with 440,000 new jobs. In total, the service-providing sector added 850,000 new jobs. The goods-producing sector added 128,000 jobs, with manufacturing adding 52,000 and construction adding 65,000.

Job gains were present across all sizes of businesses. Small businesses (1-49 employees) gained 333,000 jobs, mid-sized businesses (50-499 employees) gained 338,000 jobs, and large businesses (500 or more employees) gained 308,000 jobs.

Initial Jobless Claims Fall Below 400,000

The number of people filing for unemployment benefits for the first time decreased by 20,000 in the latest week, as Initial Jobless Claims totaled 385,000. This is the lowest number since the pandemic began and finally under 400,000. California (+75K), Pennsylvania (+31K) and Georgia (+24K) reported the largest number of claims.

However, the number of people continuing to receive regular benefits did increase by 169,000 to 3.77 million.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extends benefits after regular benefits expire) decreased by roughly 45,000 people combined.

All in all, 15.4 million people are still receiving benefits throughout all programs, which is down 366,000 from the previous week. While it's nice to see the improvements we're seeing, real challenges remain for many families, especially parents who have lost access to important after-school programs and other childcare options. As the economy and more schools continue to re-open, and as extended unemployment benefits expire, hopefully further improvements in unemployment will follow.

Home Prices Feeling the Heat

CoreLogic released their Home Price Index report for April, showing that home prices increased 2.1% from March. Prices also rose 13% year over year, which is up from the 11.3% annual gain reported for March.

Within the report, the hottest markets once again were Phoenix (+21%), San Diego (+16%) and Denver (14%).

CoreLogic forecasts that home prices will rise 1.1% in May, which is the same level they forecasted for April. On an annual basis, they're predicting that home prices will rise 2.8% in the year going forward. This is surprising considering they're forecasting a 1.1% rise in the next month alone and their figures are still lower than most forecasts out there.

Also of note, CoreLogic says that Baby Boomers are staying in their homes for a median of 13 years, which is 50% longer than the previous generation. This is another factor impacting inventory along with the high labor and material costs builders are facing.

Fed Keeping On With Purchases

Last Thursday, New York Fed President John Williams made headlines when he said that he felt the economy has improved and is on a good trajectory, but that we are still a ways off from reaching the “substantial further progress” that would be needed to adjust the Fed's purchases of Mortgage Bonds and Treasuries. And, as we noted above, we likely won't see meaningful improvement in the labor sector until after schools and childcare facilities open back up fully and until after extended benefits expire.

While other Fed members have expressed differing opinions, Williams is one of the Fed's most powerful members. As a result, Mortgage Bonds responded positively on Friday to his comments from Thursday that the Fed is still a way off from tapering their purchases.