Unemployment reached 3.8 percent its lowest level since April 2000 and the latest addition of 223,000 jobs in May marked the ninety-second consecutive month of job growths according to the latest data released by the U.S. Bureau of Labor Statistics on Friday. The data indicated that employment in the construction sector is on the rise, increasing by 25,000 during May and by 286,000 on a year-over-year basis.
However, the largest number of jobs were added in retail with 31,000 new jobs, of which 6,000 were jobs in building material and garden supply stores. When it came to earnings, the data indicated that wages had trended up, rising 2.7 percent on an annual basis.
“The May jobs report portrayed a solid labor market, with strong, broad-based job gains and upward revisions,” said Doug Duncan, Chief Economist at Fannie Mae. “Wage growth also posted the biggest monthly gain since January. However, the annual increase showed no signs of breaking out, staying within the tight range between 2.6 percent and 2.8 percent seen since December.”
According to Mark Fleming, Chief Economist at First American the rise in wages needs to be looked at in tandem with prime-age labor force participation to get a clearer picture. “In today’s economy, you can’t have stronger wage growth without further increases in the prime-age labor force participation rate,” Fleming said. “The prime-age labor force participation rate hit a post-recession low in September 2015. Since then, it has been rising steadily to its current level of 81.8 percent, as reported in today’s employment situation report, and it is much closer to its pre-recession level of 83 percent.”
Despite the marginal increases in wages, the current numbers bode well for the housing market especially for the construction of new homes. “Sustained job growth has inspired consumer confidence and interest in home buying, especially among first-time buyers. Would-be homeowners will find that raises help, but still lag behind the pace of home price increases,” said Danielle Hale, Chief Economist at Realtor.com.
From a supply point of view, Duncan said, “The ramp-up in construction workers is a positive for housing supply, but with such strong total job growth, we expect new supply to struggle to keep up with strengthening demand.”
“Over the past year, 286,000 total construction jobs have been added as builders work to add supply given the tight inventory and rising home prices,” said Tendayi Kapfidze, Chief Economist at LendingTree.
When it came to the economy as a whole Hale, Duncan, and Kapfidze were of the opinion that the future results would depend on a number of factors including the Fed rate hikes and potential trade wars.
“Brewing trade wars could lead to U.S. job losses as trading partners retaliate with tariffs on U.S. goods and hamper demand for U.S. exports,” Hale said. “A strong labor market is fundamental to the housing market, and if trade wars have a large, sustained impact on job creation, we could eventually see an effect on housing demand.”
Duncan said that he didn’t expect the Fed to ring any alarm bells after the report. “We continue to expect the Fed to raise the fed funds rate one more time this year after this month’s hike,” he said.
“The outlook for rates is heavily dependent on expectations for inflation which in turn are influenced by wages,” said Kapfidze. “The improvement in wages suggests that mortgages will once again come under upward pressure after a reprieve this week due to geopolitical risk.”
How do May's job numbers compare with April? Click here to learn more.