Although the headline employment news last week focused on lower-than-expected growth of 156,000 new jobs in August, the report failed to highlight that a 9,000-job reduction in government employment was behind the performance. Employment in private businesses actually rose by 165,000 workers. In fact, year-to-date through August, private employers have added slightly over 1.4 million jobs — 50,000 more than the number added during the same period last year.
Note that last month’s private employment growth of 165,000 is just slightly below the previous 12-month average of 172,000, depicted by the red line in the chart above.
A key difference between private and government jobs is that the former are funded by private investment, obviously, while government jobs are financed by funds transferred from the private sector through taxes.
Also last week, the Bureau of Economic Analysis released an update to second-quarter GDP growth. The new estimate calls for 3% growth in the second quarter, up from 2.6% previously estimated. This revision was achieved by higher gains in consumer spending and fixed investment, as well as by greater declines in government spending.
Yet while the 3% growth rate is closer to historical averages, it may be premature to claim a return to long-term U.S. economic growth patterns. For that to occur, significant policy changes may be required, such as the much-talked-about tax reform.
And closer to home, we find that homeowners continue to invest in home improvements. Expenditures for remodeling to residential properties rose 1.4% in July to an annual rate of $192 billion. These expenditures have increased virtually every month over the last year, for a total gain of 17% since July 2016, when spending was running at an annual rate of $165 billion.
But other areas of the construction markets did not fare as well, particularly on the commercial side. Construction spending for virtually all types fell in July. The only exceptions were Educational and Recreational buildings, for which spending actually rose for the month.
However, compared to a year ago, the table clearly shows that spending in all major non-residential groups is down from July 2016 levels.
Mortgage rates fell again last week, to 3.82%. For all practical purposes, mortgage rates have fallen since the beginning of the year, following a surge after the Presidential election in November.
The decline in mortgage rates is partly due, no doubt, to weakening demand for mortgage loans. Additionally, as we have pointed out before, the Federal Reserve Board is maintaining a neutral stance relative to interest rates. This means that we shouldn’t expect moves in either direction in interest rates over the next few weeks. Any such moves could impact adversely mortgage rates.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal indicating that the latest value is improving; “Yellow,” as it’s commonly understood denotes caution because the variable might be changing direction; and “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single Family Starts. It is the number of single family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $750,000 and over. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus a valid comparison is made to the same quarter of the prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building Materials Sales. These data, released monthly by the Department of Commerce, capture the total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as Home Centers, for instance.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
