New Jobs Spike in February
The surprisingly big jump in employment in February overwhelmed most other economic news. While the expectation of most economists was that the month would produce around 200,000 new positions — which is a realistic number, as seen in the chart below – the actual number of new jobs exceeded that by more than 50%.
Increases of this magnitude occur infrequently, however, and it’s unrealistic to expect this robust performance to continue in the next few months.
Jobs increased across all industries, but, as seen in the chart below, the gains were concentrated in a few areas, including construction, retail and professional business services.
Construction employment accounts for roughly 5% of all jobs, but in February, employment in construction represented almost one of five — 19% — new jobs.
February data on remodeling employment has not yet been reported; this figure is typically released one month later. But in January, 2,700 jobs were added to the rolls of residential remodeling firms, raising total employment to slightly over 335,000 jobs.
Over the last 12 months, residential remodeling firms have increased employment by 7,500 workers, which is a clear sign that homeowners continue to engage in home-improvement activities.
Foreign Trade Worsens
The U.S. balance of trade deteriorated further in January. For the month, the trade deficit was $56.6 billion.
The deficit has been worsening over the last six months. This is a natural result of the improving American economy, which for the past few decades has been importing more goods and services than it has been exporting.
But what is typically ignored in commentary about foreign trade is that the other side of a deficit in trading goods and services is an increase in foreign investment into the U.S. When Americans purchase products from a foreign country, they do so in dollars. Some of those dollars come back into the U.S. as foreign countries purchase materials and services from us. However, some of that comes back into the U.S. in the form of investment (as in financial instruments like government Treasury bills), or as foreign entities establish companies or subsidiaries or build factories in the U.S.
Mortgage Rates
Mortgage rates continue on their upward trajectory, as has been expected for quite some time. The strong economy gives more confidence to monetary authorities (like the Federal Reserve Bank) to push for higher interest rates.
But like most things in the economic world, higher interest rates have two somewhat contradictory effects. One is the often-discussed impact on housing markets, as higher interest rates naturally make it more expensive to buy a house, since monthly mortgage payments will be higher.
The other issue — one that is hardly mentioned — is that higher interest rates mean a greater return on savings. Consumers who have a lower appetite for risk, who would rather place their money on stable instruments such as simple savings accounts, have seen their income collapse over the last few years when the Fed pushed for a policy of near-zero interest rates. Now, as interest rates climb, those consumers should see higher interest rates on their savings accounts.
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 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.
