SUMMARY
Based on the latest economic data, the US labor market appears to be gradually slowing down, with the job count declining from the prior month. However, the March report was still considered strong overall. Although wage growth inched up, it did so at the slowest pace in 20 months, and consumer confidence in the housing market remains near historic lows. Despite mortgage rates trending lower, mortgage applications have dipped, and construction spending continues to be dragged down by weak residential sectors. Nevertheless, the labor market is not collapsing, and hiring remains solid.
US Economy Shows Signs of Slowing, But Labor Market Still Strong: March Jobs Report Analysis
Labor market shows signs of slowing down: Despite a slight decline in job count from the previous month, the March jobs report still had some good news. Wages increased slightly, labor force participation rose to the highest level since March 2020, and unemployment dropped to 3.5%. This news may prompt the Fed to raise the fed funds rate by an additional 25bps in their next meeting in May. However, consumer confidence in the housing market remains low, which suggests that the market will likely see a more gradual recovery as it enters the spring homebuying season.
Consumer confidence in housing market remains low: Although the Fannie Mae Home Purchase Sentiment Index bounced back in March after a dip in February, consumer confidence in buying homes remains low. While some components of the index improved, most consumers still believe it’s a bad time to buy a home. This could result in home sales remaining subdued in the coming months.
Mortgage applications dip despite lower mortgage rates: Mortgage application volume decreased in late March despite lower mortgage rates. Applications for both home purchases and refinancing dipped after increasing for four consecutive weeks. This could be due to the low inventory of homes for sale, which continues to be a challenge as we enter the traditional spring homebuying season.
“Low inventory of homes for sale, however, will continue to be a challenge as we enter the traditional spring homebuying season.”
Construction spending dragged down by single-family construction: While total construction spending in February remained above last year’s level, it fell month-to-month from January. Residential spending declined for the ninth consecutive month, with single-family construction spending declining year-over-year for the tenth consecutive month. This decline in single-family construction spending offset the growth in multifamily construction and home improvement. Spending on single-family construction was 21.4% lower than a year ago due to high interest rates weighing down on the housing market.
Hiring in the U.S. economy is slowing but not collapsing: While the labor market continued to advance in March, it did so at a slower pace than the previous two months. The gain in net new jobs was the smallest in over two years. Wage growth continued to cool, with average hourly earnings growing the smallest amount since July 2021. However, with roughly 4.1 million more job openings than workers seeking employment, the path toward improving prices remains gradual.
Construction job openings trend lower as backlog is reduced: Although open construction jobs increased from January to February, they remained below the series high in December 2022. While this increase reflects developers’ optimism in the housing market, weak home sales in the coming months could slow the momentum and cool down the construction job market further.
Housing Market Analysis – April 8, 2023 (PDF)
