Weekly Economic Update - Jobs, Wages & the FOMC

The Employment Situation report was a bit of a double-edged sword. Lots of jobs created, unemployment unchanged at its nearly non-existent level, and a very strong uptick in wages. All good so far. However, at least one source thinks the report will prompt the Fed to raise interest rates later this month.

That piggy bank many people have been living in grew fatter in the 2nd Quarter as tappable equity increased to record levels. That growth may be slowing however, as the rate of price increases dropped substantially during the quarter.

August brought another solid Employment Situation report. There were 201,000 new jobs created, higher than many economists expected, although revisions to the previous two months stripped 50,000 out of the year-to-date total. Twenty-three thousand of those jobs were in construction, good news indeed in light of a National Association of Home Builders report of acute shortages of labor in most of the building trades.

Unemployment held steady at 3.9%, very near full employment, and that tight job market finally seems to be manifesting itself in wage growth. Average hourly earnings were up by 0.4% during the month, the largest increase since last December, a 2.9% year-over-year gain.

There is a downside to those last numbers. In the words of Econoday, “Wages popping higher like this and hitting long-term highs will make policy makers at the FOMC (Federal Open Market Committee) impatient. Full employment, or something very near to it, has been in the cards for the past couple of years and has many anticipating an inevitable acceleration in wages--and with that the risk that overall inflation may overshoot the Fed's 2%.” Econoday goes on to say the report “is certain to firm expectations for a rate hike at the month-end FOMC.”

Tappable Homeowners’  Equity Continues to Rise

Black Knight’s September Mortgage Monitor announced that homeowners’ “tappable equity,” the amount that can be withdrawn through refinancing or a home equity loan while leaving 20% equity in place, exceeded $6 trillion in the second quarter for the first time in history. This is nearly three times the tappable equity that existed at the 2012 market bottom and 21% more than at the last market peak in 2006.

But that growth is slowing as housing appreciation ratchets down. Black Knight says home price growth has slowed from 6.7% in February to 6.2% in June and Quarter 2 saw the lowest second quarter gain in five years, 2.7%. Consequently, equity growth also dropped, especially in the housing markets that have appreciated the fastest. The top 10 markets accounted for 60% of equity growth in Q1 and only 33% in Q2. In California home price gains were down 43% statewide in what is typically the best quarter of the year. In high-flying San Jose equity growth decelerated quarter-over-quarter by 80%.

Given recent concerns over shrinking levels of affordability this news is probably more positive than not, especially in light of the wage gains noted in the employment report. Maybe now potential buyers who have been chasing homes that always seem just out of reach will be able to catch up. That would be good for everyone.



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