Analysts have used many adjectives to describe the labor market, but consistent isn't one of them. Over the past year, the Department of Labor's monthly employment report has surprised, disappointed, delighted, dismayed and in recent months, relieved, with a series of 200,000 plus monthly job gains.
April, on the other hand, proved disappointing as employers added only 160,000 workers to their payrolls, the smallest gain in the past seven months. Previously reported gains for February and March were adjusted downward by a combined total of 19,000. The unemployment rate remained unchanged at around 5 percent, but that was because workers dropped out of the market; the labor participation rate fell to 62.8 percent ? the first decline in this indicator since last fall. There was good news too: Average hourly wages, which have been stagnant for most of the recovery, increased to $25.33 - a tiny but still welcome 0.3 percent gain, pushing hourly pay up by 2.5 percent over the past 12 months. Economists were divided on whether the weak April report indicated underlying weakness in the economy - reflected in the anemic 0.3 percent first quarter growth rate - or was just a "blip" in an otherwise improving employment pattern. How the Federal Reserve answers that question will determine whether its policy-making arm, the Federal Open Market Committee, increases interest rates in June, or decides again to delay that move, as it did in April. Most analysts are predicting another delay, assuming that the Fed will want to see less ambivalent signs that the economy is strong enough to absorb the increase. The statement FOMC issued in April after deciding not to increase rates reflected continuing concerns about global economic weakness, noting that the committee continues to "closely monitor inflation indicators and global economic and financial developments." In a speech a few weeks before the meeting, Fed Chair Janet Yellen said she expects global economic developments to have only a "limited" impact on the U.S. Economy. But she also noted, "This assessment is subject to considerable uncertainty."
Consumer Confidence
Uncertainty - about the presidential election as well as the economic outlook - appears to be undermining consumer confidence as well. The University of Michigan's preliminary confidence index fell to 89.7 in April from 91 in March - far short of the consensus forecast of 92 and the fourth consecutive monthly decline for this benchmark. More than 20 percent of respondents said they expect the election will have a negative impact on the economy. Fannie Mae's monthly survey found consumers equally unsettled. Respondents turned more negative about the economy as a whole, their economic prospects and the condition of the housing market, pushing the Home Purchase Sentiment Index down 2.5 points in March from the February reading. "Growing pessimism over the last three months about the direction of the economy seems to be spilling over into home purchase sentiment," Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a press statement.
Housing Ups and Downs
Up-and-down existing home sales were up again in March, rebounding somewhat from a February swoon. A 5.5 percent gain for the month made up much but not all of the ground lost in February's 7.1 percent decline. That left sales for the month up only 1.5 percent year over year, but it produced the best first quarter sales total since 2007. Most of the March strength was in the middle of the market, with scant inventories creating affordability pressures at the bottom and limiting choices at the top. Pending sales increased more than predicted, however, suggesting at least a measure of relief from the inventory pains. The National Association of Realtors' (NAR's) pending sales index reached its highest level since last May (110.5) on a 1.4 percent gain that more than doubled analysts' expectations. "Surprisingly" low mortgage rates helped offset affordability concerns, NAR Chief Economist Lawrence Yun said in a press statement. But the inventory shortage will continue to push prices higher, he noted, creating challenges for buyers - especially at the entry level. First-time buyers represented just 30 percent of the market in March, unchanged from February, as this crucial component of the market struggles to find a foothold on a ladder made slippery for them by rising prices. Although the March rebound was encouraging, Svenja Gudell, chief economist for Zillow noted that sales reports have been erratic this year, "failing to string together more than a couple months in a row of increases before stumbling again. We'll need to see a few more months like this before fully declaring a breakthrough in existing sales volume and shaking the two-steps forward, one-step back routine the market has been stuck in for a while," she told Forbes. While the existing home market seemed to regain its footing in March, new home sales declined for the third consecutive month. The 1.5 percent dip (to an annualized pace of 511,000 units) disappointed analysts, who had predicted a small gain. Sales were still up year-over- year by about 6 percent, but construction starts and permits (an indicator of future activity) both declined. The 8.8 percent decline in starts reduced the annualized rate to 1.09 million units, which, though 14 percent above the year-ago level, was the lowest rate since October of last year, leading some analysts to question the market's underlying strength. Although the monthly new home statistics are notoriously volatile, Scott Brown, chief economist at Raymond James Financial, Inc. in St. Petersburg, FL, told National Mortgage News, "there's going to be a little more nervousness" about the recent report, given weakness in consumer spending, manufacturing and retail sales. Home builders themselves remain "cautiously optimistic" about the housing outlook for this year, anticipating that continued employment gains and low mortgage rates will fuel buyer demand for new homes. But they are increasingly concerned about the impact of a labor shortage they say is the worst in the past seven years. The National Association of Home Builders calculated a total of 193,000 job openings in the construction sector in February compared with 157,000 in March - continuing an upward trend in place since the recession ended.
Prices Still Rising
Home prices continued to rise in February, a positive indicator to analysts who see strong appreciation as a sign of health, but a serious negative to those who see housing affordability as an increasing concern. The closely-watched S&P/Case-Shiller Composite Home Price Index for 20 cities increased by 5.4 percent in February. The appreciation rate was a bit slower in most markets, though still twice the inflation rate. "While one month does not make a trend, this is a sign that the US housing market may be stabilizing in the wake of strong price appreciation between 2012 and 2014," Ralph McLaughlin, chief economist for Trulia, told Forbes. Some segments of the market are stabilizing more or less than others, and Zillow's Svenja Gudell finds that troubling. With inventories at the higher end of the market less constrained, prices are rising more slowly there, she notes; but strong demand and limited supplies at the lower end continue to push prices higher. "Heading into spring, buyers looking for the most expensive homes will find somewhat softening prices, a larger selection of homes to choose from and more limited competition," she notes in the Forbes article. "But entry-level and mid-market buyers - typically the housing market's bread and butter - are likely to face stiff competition, rapidly rising prices and very limited inventory. The patience of many buyers will be tested in coming months," she predicts.
WORTH REPEATING
"With the stroke of a single pen by one person, the CFPB seeks to replace arbitration agreements with class action lawsuits." - Rob Berger, a financial blogger, in a Forbes commentary on the CFPB's proposed rule prohibiting mandatory arbitration provisions in consumer financial contracts.
