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Jobs Report Surprise – Market Update

Kevin Graham9-Minute Read
October 19, 2021

I’m forever disappointed by the team I choose to root for, but that’s not a surprise anymore. The Federal Reserve may have gotten quite the shock when they saw the employment report numbers for September. Let’s get into that and everything else you need to know.

Headline News

As always, the analysis in this report is put together with a little assistance from our friends at Econoday.1

Producer Price Index (PPI)

On the production side, inflation was up 0.7% in August. It’s risen 8.3% overall on the year. When food and energy were taken out, the increase was 0.6% and 6.7% since last August. When further removing trade services – retail and wholesale sales – prices increased 0.3% for the month and 6.3% over the last 12 months.

Taking a brief look at some individual categories, food prices were up 2.9% in August. Cost to transport goods was also up 0.7%. However, the big increase was the cost of passenger transport, which was up 8.7% for the month and 27.2% over a year ago. This may be the result of companies starting to bring back business travel.

Consumer Price Index (CPI)

This is a bit of a surprise, at least if you follow the theory that businesses pass on the cost of inflation on the production side through to consumers. In August, prices did rise, but they were only up 0.3% and 5.3% over a 12-month time frame. When taking out food and energy from the equation, prices only ticked up 0.1%, although they’ve gone up 4% for the last year.

Food prices were up 0.4% on the month and 3.7% annually. Energy prices were up 2% and 25% over the same time a year ago. A big reason for this is a 2.8% monthly uptick in gasoline costs, up 42.7% over last year. Other areas seeing price increases were motor vehicles, up 1.2% with the shortage still rearing its ugly head. The prices for used cars and trucks were down 1.5%, so that’s good.

Airline fares were also down 9.1%, while retail prices were down 1.1%. The latter is attributed in part to sales tax holidays in some states and in part to discounts on school supplies.

Industrial Production

Production is up 0.4% for August and it’s risen 0.2% specifically in the manufacturing sector. In factories, capacity utilization was up 0.2% to settle at 76.4%. The report could have been even better: The Federal Reserve cites shutdowns related to Hurricane Ida as pushing down the overall number by 0.3% because of decreases in oil and gas production.

Retail Sales

In the retail sector, sales were up 0.7% in August and the increased 1.8% when taking out vehicles. Finally, when gas was further removed, sales were up 2%. All three had been expected to drop in August. The only downside was that July numbers were revised deeper in the red. Sales are 15.1% compared to a year ago.

General merchandise spending was up 3.5%, while furniture and home furnishings saw an increase of 3.7%. Food and beverage sales were up 1.8%, with more modest increases for health and personal care as well as clothing and accessories.

A broad category that encompasses a variety of hobbies was down 2.7%, to go along with a 3.1% decrease at electronics and appliance stores. People were doing more eating at home, but purchases at restaurants were flat month-over-month.

Housing Market Index

Builder confidence in the housing market was up a single point to come in at 76 in September. Taking a look at individual components, present sales were up 1 point to 82. Meanwhile, expected sales in the next 6 months was unchanged at 81. Traffic of prospective home buyers walking through homes was up a couple of points to 61.

New Residential Construction

Completions for houses were down 4.5% on the month at 1.33 million on a seasonally adjusted annual basis in August. The good news is that the rate of single-family construction was up 2.8% at 971,000. Single-family housing accounts for most units in the U.S. Multifamily housing with five units or more settled at 356,000.

Starts came in at 3.9% at 1.615 million annually. This is 17.4% higher than the same time a year ago. On the single-family side, starts were down 2.8% at 1.107 million. Multifamily starts came in at 530,000 annually in August.

Building permits are 6% higher than they were a year ago, coming in at 1.728 million – 13.5% higher than a year ago. Single-family permits were 0.6% higher than August at 1.054 million. Meanwhile, there were 632,000 multifamily permits pulled.

It’s worth noting that for both this and the new home sales data that we’ll talk about below, the Census Bureau has a note that the reporting was affected by the hurricanes hitting certain areas of the South. Because of this, there may be a little more margin for error in the data.

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Existing Home Sales

Existing home sales were down 2% at 5.88 million in August. They are now down 1.5% compared to this time a year ago. It’s worth noting that this time a year ago, the U.S. was in a major home sales boom as people were spending so much time in their houses that they were realizing the flaws in their current homes.

The pattern of lower sales compared to July and to last August held true for all regions. The median sales price was down 0.8% on the month at 356,700, but this is still 14.9% higher than a year ago. Unsold inventory was down 1.5% in August to 1.29 million units. Supply relative to sales in the market was at 2.6 months, unmoved compared to July.

New Home Sales

New home sales were up 1.5% from July at 740,000 on a seasonally adjusted annual basis. This is 24.3% lower than they were a year ago. The median sale price was unchanged at $390,900.

Meanwhile, compared to the current pace of sales, supply is at 6.2 months compared to 5.7 in July. This is important because a supply of about 6 months means that the market is in balance between buyers and builders.

Durable Goods Orders

Durable goods orders were up 1.8%. Taking out transportation, the numbers were only up 0.2%. When it came to core capital goods, these were up 0.5%. Unfilled orders were up 1% while shipments fell 0.5%. Finally, inventories were up 0.8%.

The biggest thing contributing to the growth was an increase in transportation orders. These were up 5.5% after falling 0.4% in the month of July.

Case-Shiller Home Price Index

On a seasonally adjusted basis, home prices were up 1.5% in July and 1.6% without taking out the seasonal adjustment. However, the even more shocking number is that they’re up 19.7% compared to last July. At some point, there’s bound to be a market correction, but things are red-hot right now.

Analysts hypothesize that this may have to do with both shifting demographics in the housing market as well as a combination of the stimulus, lower interest rates and direct government payments that occurred as a result of the pandemic.

FHFA House Price Index

The Case-Shiller Home Price Index is a 3-month average of all home sales. The FHFA index works only at transactions backed by conventional loans. However, the results are extremely similar trend-wise. Prices were up 1.4% for the month and 19.2% for the course of the year.

Consumer Confidence

Consumer confidence was down 4.5 points to come in at 109.3. This was below consensus expectations for an uptick to 114.8. Many of the worries centered around business conditions, both now and in the near future. These concerns went along with a smaller drop in optimism about jobs and future incomes. Inflation is also playing a role.

Pending Home Sales Index

Pending home sales are up 8.1% to come in at 119.5. This is a welcome uptick after this number declined 2% range of the last 2 months. It’s a key indicator because the number of homes under contract for sale indicates future existing home sales. They’re still down 8.3% compared to a year ago.

Gross Domestic Product (GDP)

The final gross domestic product reading of the second quarter showed 6.7% growth in the economy. Included in that was a 12% rise in personal consumption expenditures. Both are 0.1% better than prior estimates.

In other key highlights, net exports and inventories were still lower than last quarter, but less so, so that helped. Residential investment was also down 11.7% quarter to quarter and government spending was down 2%, but business investment was up 9.2%.

Personal Income And Outlays

Personal income was up 0.2%, outpaced by expenses, which were up 0.8%. Meanwhile, prices were up 0.4% for the month of August and 4.3% on the year. There was a 0.3% uptick in prices in core categories. Prices in those categories have gone up 3.6% since last August.

Digging deeper into the categories, a 3.7% downtick in unemployment insurance benefits break down overall income a bit, but wages and salaries were up 3.7%.

ISM Manufacturing Index

The manufacturing sector grew at a faster rate in September, coming in at 61.1, up 1.2 points from the prior rate. Things were good for areas like oil refinery, electronics makers, chemical firms and food and beverage manufacturers. Demand is high, but there are higher material costs and hiring struggles holding things back.

The new orders index came in at 66.7. Production dipped slightly to 59.4 from 60. Meanwhile, the backlog also shrank. However, there is employment growth, going above 50 after dropping below that number last month. Manufacturing businesses are hiring again.

International Trade

In August, the trade deficit the United States has deepened by $3.2 billion to $73.3 billion. Services exports were down 0.1%. However, imports on the services side were up 2.8% and have risen 32.7% on the year. By contrast, services export growth is 15.8% since last August.

When looking at goods, imports were down 5.2% in the auto industry to go along with an 8% export drop in the same sector. Those chip shortages are real. Of bigger consequence was the fact that consumer goods imports were up 4.9% while exports of the same were only up 1.6%.

Employment Situation

In a very underwhelming number, only 194,000 jobs were added to nonfarm payrolls in September. This did bring the overall unemployment rate down from 5.2% to 4.8%, but even here the news is mixed. A drop in labor force participation from 61.7% to 61.6% shows that part of the reason for the unemployment decrease is people leaving the workforce.

The good news is that average hourly earnings were up 0.6% for the month and 4.6% since last September. People were also getting more hours as the length of the average workweek increased by 12 minutes to 34 hours, 48 minutes.

Looking at individual sectors, 26,000 jobs were added in manufacturing. There were also 74,000 jobs added in leisure and hospitality, a sector that’s been particularly hard hit by COVID-19 restrictions. Construction added 22,000 jobs. There were more than 56,000 jobs added in retail, close to 17,000 added in wholesale and better than 47,000 jobs added in transport and warehousing.

There was a decline in government payrolls as local government education workers saw 144,200 jobs. There is a possibility this has to do with district shutdowns in areas with high incidences of infection.

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Mortgage Rates

Mortgage rates were lower last month. If you’re in the market, it’s not a bad time to take advantage. The Federal Reserve has said it’s looking to slow down its bond buying program in coming months. Because the Fed is the biggest player in the mortgage-backed securities market at the moment, when that happens, rates may begin to push up.

The bottom line here is that if you’re ready and you see a rate you like, don’t hesitate to apply now.

The average rate on a 30-year fixed was down a couple of basis points last week to again break the 3% barrier at 2.99% for 0.7 points paid in fees, according to Freddie Mac. This is up from 2.7% this time a year ago.

Meanwhile, the average rate on a 15-year fixed mortgage with the same number of points paid was down 5 basis points at 2.23%. This has fallen from 2.37% last year at this time.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable-rate mortgage with 0.3 points paid was up 4 basis points to settle at 2.52%, this has fallen from 2.89% a year ago.

If all of this data feels like a bit much to handle, we get it. The good news is we have plenty of other home and lifestyle content to share with you. Do you want to do your decor like the pros? Avoid these 10 major interior design mistakes. Have a great week!

1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2021 Econoday, Inc. All rights reserved.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.