Another unemployment report confirms the US economy is returning to normal, and Americans can breathe easier about the danger of a recession.
By that I mean adding a more normal 187,000 new jobs in July is a sign the economy is cooling enough to drive inflation lower and maybe keep the Fed from further interest rate increases.
Employment growth has fallen below 200,000 two months in a row for the first time since the onset of the pandemic in 2020, although the unemployment rate rose to 3.8 percent from 3.5 percent, the government said Friday.
June and July payroll hires were revised down 110,000 jobs as well in the report and the number of unemployed persons increased by 514,000 to 6.4 million.
Wall Street jumped on the news, as the financial markets had been fretting for most of August that Fed officials would remain hawkish if businesses kept up their hiring pace.
But there aren’t enough available workers to produce more, so both industrial and service sector growth has slowed. The Transportation/warehousing and Information sectors lost jobs, Education & health added the most jobs (+102,000).
Interest rates are still too high for sectors such as manufacturing and real estate that are the holdouts in this recovery. Longer term bond prices have fallen sharply (ergo, yields rising) in tandem with inflation because bonds with fixed rates lose value with rising inflation.
Mortgage rates are putting 30-year conforming fixed rate mortgages above 7 percent, which is keeping many home buyers on the sidelines and holding down a key part of economic activity. Though construction is booming because of the rise in new home starts.
This is important because housing has almost always been a leading indicator that signals expansion or decline of the overall economy even though it is a small part of overall GDP.
The 30-year fixed rate mortgage average is currently 7.18 percent per FRED in the graph below. It was last this high in March 2002 at the start of the housing bubble that ultimately led to the Great Recession.
However, US pending home sales ticked up again in July by 0.9 percent, rising for the second month in a row despite elevated prices and rising mortgage rates, according to a report released Wednesday by the National Association of Realtors.
“Jobs are being added, thereby enlarging the pool of prospective home buyers,” NAR chief economist Lawrence Yun said. “However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.”
So, a healthy housing market, as well as steady job creation, is an important part of our return to more normal times.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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