January Employment Is Robust
January produced another auspicious employment report, showing that the economy grew by 200,000 new jobs. This is higher than the 160,000 gained in December, and also surpassing the previous 12-month average.
Construction added 36,000 jobs for the month, accounting for 18% of the job growth in January. For 2017 as a whole, construction contributed one of every 10 jobs.
In terms of the total number of people employed, the private sector generally accounts for 85% of all jobs. Over the past 12 months, however, the private sector was responsible for virtually all new-job growth, as government employment has in fact fallen in the last year.
This is primarily due to a 12,000-job reduction in employment at the Federal level, that was offset partially by increases both at state and county levels, indicating that government employment is growing locally, not in far-away D.C.
The unemployment rate remains at historical low levels — it was 4.1% again in January, a level maintained since October. At the same time, there are more than 6 million job openings in the U.S. But many of these jobs can’t be filled because employers claim they have a hard time finding qualified people.
GDP Growth Remains Strong
Fourth-quarter GDP data was released last week, hitting 2.6%, revealing that growth again exceeded the 2.1% quarterly growth trend evident since 2010.
All the major components making up the Gross Domestic Product figure increased in the fourth quarter. However, a decline in business inventories lowered the growth rate by more than half a percentage point. The way GDP is calculated is that when businesses increase inventories, since they reflect production added, they increase the value of GDP. Conversely, when business inventories decline (i.e. they sell their inventory) GDP declines in value. This is because GDP measures, or attempts to measure, the value of domestic production or output in a given period.
Consumer spending rose by 3.8% in the fourth quarter and total business investment increased by 3.6%.
Imports and exports each rose, although imports increased nearly twice as fast. Imports jumped 13.9%, while exports were up 6.9%.
Remodeling activity eased in December
Spending by homeowners on residential improvement remained virtually unchanged in December, falling a negligible 0.2% to an annualized rate of $186.5 billion. Spending has fluctuated around $188 billion since mid-2016.
Despite the flat end-of-year results, remodeling expenditures in 2017 registered a robust 15% increase over 2016. This increase, illustrated in the chart below, is clearly the best in the last eight years. Incidentally, the 15% increase translates into an additional $25 billion in remodeling spending.
Mortgage Rates Continue To Rise
Interest rates shot higher last week, and along with them, mortgage rates. The latter hit 4.22% last week, a jump of seven basis points from the prior week.
The increases might be partly due to the expectation that the Treasury will be raising funds to cover the deficit. As a result of the tax law passed in December, there is an immediate reduction in Federal government revenue receipts — and the government has no plans to cut spending. The gap will be filled by the Treasury borrowing funds — which is already driving interest rates higher.
Rising mortgage rates will have a greater impact on home sales and new housing construction, which depends heavily on borrowing funds to finance the project.
For remodeling projects, however, the impact will be much less since most consumers finance remodeling projects with their own savings.
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 may be changing direction; “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. This 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 higher. 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 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 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.
