Friday, the Bureau of Labor Statistics reported that the unemployment rate in April fell to 3.9 percent, its lowest in 18 years. However, the job growth itself was lukewarm and below expectations at 164,000, coming off an average monthly gain of 191,000 over the prior 12 months.
“The labor market remains strong, but losing momentum,” said Tendayi Kapfidze, Lending Tree Chief Economist, and hourly earnings increasing by just 2.6 percent year over year suggests that “inflation pressures are not building up in the economy,” though “classic economic theory would suggest that wage inflation should accelerate.”
There were, however, some positive takeaways related to housing. From a building perspective, Kapfidze stated that “More construction is on the way. Residential construction jobs had another good month and are the highest since 2008 as builders work to add supply given the tight inventory and rising home prices.” A sentiment echoed by Fannie Mae Chief Economist Doug Duncan in that “for housing, the rebound in construction employment suggests that building will continue its upward grind.”
As for household income and home-buyer power, the slight increase in raises “will help potential homeowners,” though “they still lag significantly behind the pace of today’s listing price increases—currently at 8 percent year over year. Either record-setting income growth or more homes for sale is needed to help bring home price growth in line with income fundamentals,” stated Danielle Hale, Realtor.com Chief Economist.
First American Chief Economist Mark Fleming was more positive in his assertion that “As economic conditions remain strong and the labor force continues to tighten, it’s reasonable to expect wages to rise faster, which translates to higher household income and house-buying power.”
“Overall, our takeaway from the report is that recent economic conditions support a gradual pace of monetary tightening. We are comfortable with our calls of three rate hikes this year amid ongoing shrinking of the Fed’s balance sheet,” concluded Duncan.