The much-anticipated October jobs report provided promising data as far as overall economic recovery is concerned, but only furthered the general sentiment of uncertainty surrounding the housing finance market.
Released Nov. 6, the U.S. Department of Labor's October Employment Situation Summary revealed that nonfarm payroll employment increased by 204,000 jobs, while the rate of unemployment held steady at 7.3 percent. Those figures were surprisingly positive given the partial government shutdown that lasted more than two weeks at the start of the month and furloughed thousands of non-essential agency employees. The 0.1 percent increase in joblessness is directly attributable to the 12,000-job decline in federal employment - something of a statistical asterisk - and was the only blemish on a jobs report that exhibited greater growth than was seen in September.
Does job growth prompt the Fed to reconsider?
After revision, the Bureau of Labor calculated that the job increase in September totaled 163,000, following a revised gain of 238,000 for August. Considering that the debt default debate dominated October's headlines and consumer confidence in regards to homebuying fell to new lows, according to HousingWire, the continued resurgence serves as a pleasant surprise for housing industry analysts.
The national employment rate has long been highlighted as the one mitigating factor for when the Federal Reserve ultimately tapers its $85 billion-per-month bond-buying program. On multiple occasions, Fed Chairman Ben Bernanke has publicly cited 6.5 percent as the threshold under which the rate of joblessness must fall before the central bank's purchasing pace is reduced. Recently, other Fed officials indicated that there is no hurry to slow bond-buying, while openly acknowledging that the timetable for such action is "necessarily uncertain."
Still, the continued gradual improvement in employment figures to trigger more speculation that tapering might occur shortly after the new year. Combined with a 2.8 percent third-quarter gain in Gross Domestic Product, the jobs report might be enough to move the needle. But, as Paul Ashworth, chief U.S. economist for Capital Economics, explains, predicting the Fed's plan of action is anything but easy.
"Given all the flip-flopping, it's hard to know exactly what evidence would satisfy the majority of Fed officials," Ashworth told HousingWire.
Can construction keep up?
Adding to the uncertainty is the rather plodding rate of growth in employment seen in the residential construction sector. Homebuilding work opportunity increased by 4,800 jobs from September to October, and the sector has added 14,000 jobs since the end of July. While growth of any sort is positive, that three-month figure represents the smallest increase displayed over any such period in the last 12 months. With property values especially high in metro areas on the coasts - Boston, New York, San Francisco and San Diego have seen home prices reach pre-recession levels or higher - the question is whether the rate of progress in residential construction is enough to keep up with demand levels that continue to be influenced by dwindling inventory.
"Construction continued to add jobs, though at a slower pace than in September and construction wages were flat," said Doug Duncan, chief economist at Fannie Mae. "Thus, while the growth path for housing supply is on firm footing, it is not robust yet."
Trulia chief economist Jed Kolko offered some perspective, comparing the rate of growth within the homebuilding sector to the last time demand was comparably high.
"Taking the longer view, residential construction employment remains low," Kolko said. "2.16 million in October 2013, slightly down from 2.60 million in January 2001."
Given the level of uncertainty that persisted throughout the month, there were plenty of individual data points from the October report that support economic growth on a broader scale. Employment rose substantially in the leisure and hospitality and retail trade sectors by 53,000 and 44,000 jobs, respectively. The manufacturing sector added 19,000 jobs and healthcare jobs increased by 15,000. Professional technical services employment continued to exhibit consistent growth, having added some 213,000 jobs over the past 12 months. Only the federal government experienced a decrease in employment, a figure clearly skewed by extenuating circumstances.
Although the unemployment rate has been singled out, Bernanke and other Fed officials have also referenced overall economic growth as the type of progress necessary before any changes to the levels of federal infusion into the mortgage market are made. The housing industry continues to brace for those changes because, whenever bond-buying is reduced, mortgage interest rates will likely climb from the relatively low levels where they've remained for most of 2013.
Between the Fed's tapering - unclear as the timetable may be - and the continued push to transfer more capital from government-sponsored enterprises Fannie Mae and Freddie Mac into the private mortgage market, plenty remains up in the air for the housing industry as the year enters its homestretch.