Labor Market Improves at a Slow Pace

Washington - For housing demand and construction to recover to normal levels, employment must continue to grow. While job prospects are increasing, the pace of hiring has slowed according to recently published government data.

March payroll employment data from the Bureau of Labor Statistics indicate that the unemployment rate dropped to 8.2 percent: a marginal decline. However, the fall was due to 164,000 discouraged individuals dropping out of the labor market. In March, net payroll employment grew by only 120,000, which fell short of market expectations given the recent improving trend.

Additional labor market data reveal that hiring in the construction market slowed in early 2012. The hiring rate for the sector fell to 5.6 percent of total employment, with net sector job creation for the year to date at only 11,000 positions.

Nonetheless, the job openings rate for the overall economy continues its upward post-Great Recession trend. The openings rate now stands at 2.6 percent of total employment, which is the highest rate since the middle of 2008.

Housing data are also consistent with a slight pause amid a number of positive indicators. Private residential construction spending in February was essentially unchanged. Spending on single-family homes was down 1.5% from upwardly revised January numbers. Nonetheless, single-family construction expenditures are up 22.4 percent since the market bottom in 2009.

Multifamily expenditures continued to grow in February, up 2 percent as the sector continues to lead the industry. Remodeling spending was down for the second straight month, but home improvement expenditures were larger than single-family construction totals for the 16th time in the last 17 months.

The Case-Shiller house price data indicated a small monthly decline for the January reading, but the data continue to tell a varied story depending on the metropolitan area. Among the 20 component cities, three cities posted positive gains in January. Most of the declines were embedded in strong seasonal patterns, while 12 cities remained above earlier troughs.

The NAHB/First American Improving Markets Index grew again in April, rising from 99 to 101. The index now classifies a quarter of all metropolitan areas as improving. However, the rate of growth of the index has recently slowed. And future readings of the measure may not be steady as local house price and employment variables reflect recent trends.

April is New Homes Month, so Eye on Housing has also presented a number of analytical articles concerning new construction. Data from the American Housing Survey confirm that new home are less expensive to maintain that older homes. Moreover, the data indicate that new homeowners prefer their neighborhoods than other homeowners.

NAHB also examined what to expect from pent-up housing demand. As labor markets improve, data from the American Housing Survey suggest that about 70 percent of new household formations will be renters, which in turn will affect rental vacancy rates and rents, and encourage some existing renters to become homeowners.