Is the Federal Reserve’s success in slowing down the labor market providing the necessary confidence that inflation is sustainably decreasing, thereby opening the path for a reduction in the federal funds rate? Despite a historically strong labor market, U.S. job creation in June moderated, with May and April data being revised sharply downward according to the Labor Department This Week in Real Estate. Friday’s job report highlighted slowing job growth, increased unemployment and cooling wage growth. The three-month average job growth from April to June is the lowest since January 2021. In June, the unemployment rate reached 4.1%, the highest level since November 2021, marking the second consecutive month of rising unemployment. Wage growth also saw its slowest annual rate since May 2021. While most economists anticipate the Fed will start cutting the benchmark rate in September, last week’s report did not alter that expectation. Below are a few newsworthy events from the first week of July that influence our business: KEY TAKEAWAYS FROM THE JUNE JOBS REPORT. Welcome to the “steady-as-she-goes” US labor market: Halfway through 2024, job gains are cooling slightly but overall employment activity remains solidly stable. The US economy added 206,000 jobs in June, the Bureau of Labor Statistics reported Friday, easing from a downwardly revised May tally of 215,000 jobs. Through the first half of the year, the US has added 1.3 million jobs at an average pace of 222,000 per month, BLS data shows. The unemployment rate moved a little higher, up 0.1 percentage points to 4.1%, marking the first time since November 2021 that the jobless rate was above 4%. “We’re seeing job growth slow a bit; we’ve seen the unemployment rate tick up a little bit; we’ve seen wage growth slow a bit,” said Gus Faucher, chief economist for the PNC Financial Services Group. “But those are all good news from the Fed’s perspective, should help reduce inflationary pressures coming from the labor market, and should support Fed rate cuts toward the end of this year.” Hiring activity is milder than this point last year – and job growth has retreated from the blockbuster pace of 2021 and 2022, during the pandemic recovery. Much of the recent employment expansion has been marked by historically low unemployment: 30 months’ worth at or below 4%. However, that streak broke in June, when the jobless rate moved higher to 4.1%. It’s the third month in a row that the unemployment rate increased. Read the full story here.PRIVATE RESIDENTIAL CONSTRUCTION SPENDING DIPS IN MAY. Private residential construction spending was down 0.2% in May according to the construction spending data by the U.S. Census Bureau. Nevertheless, spending remained 6.5% higher compared to a year ago. The monthly decline in total private construction spending for May is largely due to reduced spending on single-family construction. Spending on single-family construction fell by 0.7% in May, following a dip of 0.2% in April. Elevated mortgage interest rates have cooled the housing market, dampening home builder confidence and new home starts. Despite this, spending on single-family construction was still 13.8% higher than it was a year earlier. Read the full story here.WHAT TO EXPECT IN THE REAL ESTATE MARKET THE REST OF THE YEAR. There are now 646,000 single-family homes unsold on the market around the U.S. That’s up 1.8% for the week, and 39% greater than last year. In the years before the pandemic, inventory would have peaked in August, but it seems like that seasonality has shifted later in the year now. This is especially true if mortgage rates keep pushing higher, which it looks like they are now. Higher rates create more inventory. As we look at inventory for the rest of the year, expect that the market will peak in October with roughly 700,000 single-family homes in unsold inventory. We may end the year with roughly 20% more homes on the market than at the end of 2023. There were just under 71,000 new listings of single-family homes unsold this week. That’s down 1.5% from a week ago. Plus, it’s not climbing. There haven’t been any signs of sellers accelerating. If this market is going to get fully out of whack, it would need more sellers hitting each week, and we just don’t see it. Inventory is building because of demand weakness. There were 67,000 new contracts started for single-family home sales this week. That’s a fraction fewer than last week and basically unchanged from a year ago. So, even as new listings volume isn’t growing, neither is the sales volume. What’s this mean for the rest of the year? It means that home sales levels will stay around this 4 million annualized rated. Read the full story here.
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