Employment: Beginning the Long Crawl Back

Allowing businesses to operate again has had the expected result of seeing the number of workers called back or hired increase for the second month in a row. In June, employment rose by 4.8 million workers, bringing total employment to 137.8 million. Even combined with the 2.7 million jobs added in May, the number is still 14.7 million positions short of the 152 million who were employed in February, right before the reaction to COVID-19 hit the economy.

The chart below illustrates the ground yet to recover to get back to February’s employment level. Today’s employment number matches that last seen six years ago, in early 2014, highlighted by the dashed red line.

Even though most economic sectors enjoyed employment growth in both May and June, their gains are still not sufficient to overcome the losses of the preceding two months, i.e. March and April, when the shutdown was more drastic across all states.

But in two relatively small private-sector industries, employment has not improved after the phased reopenings. They are Mining, which lost another 9,800 jobs, and Utilities, which was down by 8,600 jobs. These two industries combined, however, account for less than 1% of U.S. employment.

Also, we find that at the government level, State employment fell by 25,000 workers in June, for the fourth consecutive month of job losses. But state governments, which are enforcing the business shutdowns, are now realizing that they are also shutting down their revenue streams. The shutdown has reduced retail sales over the three months ending in May to be 13% lower than the previous three-month period, i.e. December through February. This means that state revenues from retail sales taxes, a primary source of state revenue, have all shrunk by a similar magnitude.

Construction Markets Continue Slide

Total private construction fell in May for the third consecutive month, to just over $1 trillion, a 3.3% drop from the previous month. Total private construction is also 1.2% lower than the same month of 2019.

Compared to April, both Residential and Non-residential construction spending contributed to the overall May decline.  Residential fell by 4% in May to an annual rate of $536 billion, while Non-residential fell by 2.4% to $465 billion.

Compared to the same month last year, Residential construction is ahead, but just by a slight 0.7%, while Non-residential is running 3.5% behind.

Single-Family Residential Construction Sputters

Within the Residential Construction market segment, the major force driving the overall decline is new single-familyconstruction, which fell 8.5% in May to $262 billion. In fact, as seen in the chart below, it has been in a freefall since February.

In contrast, multifamily construction rebounded by 2.3% in May to $77 billion, following a 7.3% decline the previous month. But multifamily represents only 14% of total residential construction.

The last component of Residential Construction market for which data is available, Homeowners Remodeling spending, remained virtually unchanged in May, rising by 0.1% to $197 billion. But this mild pause follows three consecutive months of declines in spending.

Nonetheless, homeowner remodeling expenditures still remain at fairly high levels, comparable to what it was two years ago.

Non-Residential Construction Dips

Overall, this segment fell by 2.4% in May to $365 billion. This is the fourth consecutive monthly decline in spending. The vast majority of building types retrenched in May; actually, many of them have been in freefall for several months, even before the pandemic shutdown.

Notable exceptions were Drugstores, which increased 14% in May; Amusement buildings, which rose 1.1%, and Transportation buildings, which were 3.9% higher in May. But among these three building types, only Drugstores are above last year spending.

Unemployment Claims Not Budging

Despite 55,000 fewer people filing for unemployment benefits during the last week of June compared to the previous week, the number is still more than 1.4 million for the week. On a cumulative basis, 48.7 million people have filed for benefits since mid-March and, of these, 19.3 million are currently receiving benefits. The remainder are either being processed, had their benefits denied because they didn’t qualify, or the period during which they could receive benefits expired.

Despite the modest improvement last week, the number of persons who have lost their job and filed for unemployment benefits is astronomically high. The total Labor Force is currently 158 million individuals, of which the government officially counts 17.8 million as unemployed, arriving at an 11.1% unemployment rate. This figure is suspiciously low, given the state of the economy, the fact that more than 19 million are receiving benefits, and the various criteria that are needed to consider individuals officially unemployed.

Mortgage Rates Fall Further

The Federal Reserve Bank’s policy of keeping interest rates near zero has the effect of driving mortgage rates further down. Last week, the 30-year fixed mortgage rate fell by another six basis points to 3.07%. This is another historical low since the data began to be collected.

Despite lower rates, the number of mortgage applications for home purchases as well as refinancing has fallen over the last two weeks, according to the Mortgage Bankers’ Association survey. It is unclear whether the low inventory of homes for sale or the pandemic is keeping potential home buyers on the sidelines.

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 $500,000 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.

We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us at Feedback@nkba.org if you would like to see further detail.