By Joe Higgins, Quest 4 Quality
- Non-farm payrolls were up by 943,000, beating the prior month and July estimates of 845,000, although retail worker ranks declined.
- The unemployment rate dropped to a pandemic low of 5.4 percent, coming in below expectations of 5.7 percent.
- Due to affordability, housing has cooled slightly in both prices and sales after a torrid year.
The July employment numbers came in better than most economists anticipated, given the rise of the Delta mutation in every state across the U.S.
Non-farm jobs increased by 943,000 last month and beat consensus expectations of 850,000. The overall unemployment rate fell from 5.7 percent to 5.4 percent, and while this is great news, there are still 8.8 million Americans still out of work.
As expected, the industries where jobs returned most in July were in leisure and hospitality, business services, and education. Consumers moved from buying durable goods like furniture and appliances to dining out, booking hotel stays and boarding airplanes.
Next month’s report could swing back the other way as the new edition of the coronavirus may again change consumer behavior.
Here’s where the jobs were in July: Business services added 60,000 employees while transportation hires increased by 50,000.
Retail, in contrast, lost 6,000 workers.
Perhaps not surprising amid a labor shortage, wages beat expectations, rising 0.4 percent — and that’s up 4.1 percent from 2020. Some of our biggest corporations are now competing for a hesitant group of workers, which is driving up wages. This is happening at all levels, from tech giants to farmers, and from fast-food restaurants to financial institutions. Hotels, airlines, retailers and many more are now offering hiring bonuses just to attract employees who are willing to work.
One serious concern is that rising payrolls across the country could continue to fuel inflation.
Still, keep the good news in mind: Unemployment has dropped from a high of nearly 15 percent during the height of the pandemic to 5.4 percent today. Fed Chairman Jerome Powell said last week that the Federal Reserve would continue quantitative easing until we see employment levels similar to pre-pandemic levels.
I believe the Fed’s response will keep interest rates low, move the stock market to new heights, and keep consumers spending.
COVID-19 and the Delta Variant
I was hoping to eliminate the virus as a leading economic indicator after the successful vaccine rollout and the positivity rate reaching pre-pandemic lows. That was a bad assumption.
The spread of the Delta variant in America has led to an extraordinary rise in COVID-19, now surpassing 120,000 cases a day. There are two economic concerns here: The first is whether Americans decide, as they did last year, that the risk of contracting this new, more contagious form of the virus discourages them from participating in our economy. Consumer spending is 73 percent of GDP (gross domestic product) and any pullback will have serious consequences.
The second concern is the possibility that communities might decide to close schools, put limits on indoor events or, even worse, return to lockdowns of certain economic activities. This will impact jobs, confidence, consumer spending and ultimately GDP. I will watch very closely the next report from the Conference Board on consumer confidence, which will give a strong indication of where America is headed.
Housing is such an important sector for our dealers, as the sale of new and existing homes helps drive additional volume in home goods. The severe shortage of homes this past year has had a huge impact on both sales and prices. Over the last six months housing has seen record sales and higher prices, with 68 percent of home sales topping the asking price in July. The national average for home prices in 10 key markets is up 24.6 percent this year.
However, I can now report that the times they are a-changing — or at least modifying. The inventory of existing homes has risen for two consecutive months, with listings on Zillow up 3.3 percent in May and 9.1 percent in June. However, there is still an extraordinary shortage of homes and I think this will be a persistent problem for next two or three years. Prices are out of reach for many Americans, and even with interest rates at historic lows, many consumers cannot afford to buy in this market.
But this uptick in housing inventory doesn’t mean we will be seeing prices drop. In fact, Zillow forecasts home prices rising almost 4 percent for the balance of this year and continuing this upward trajectory into 2022. If you have a home to sell, then celebrate because this will remain a seller’s market. In fact, homes are moving nearly as fast as before; it’s just that we are seeing a very slight slowdown in bidding wars, some price reductions, and buyers unable to meet bank retirements for purchase.
The Bottom Line
Last month our economy was on fire. GDP came in at 6.4 percent, consumer spending was up over 11 percent, consumer confidence was near record levels and the Dow hit an all-time high. The June and July job numbers were extraordinary, coming in at 938,000 and 945,000 new hires, respectively.
We have vaccinated roughly half of all Americans and that should be sufficient, hopefully, to keep the Delta variant from wreaking havoc. Even with the surge in recent weeks in both cases and hospitalizations, I do not anticipate a lockdown of our schools or economy.
I know in early June it felt like we’d won the war against the coronavirus. We started to travel, dine out in restaurants, attend ball games, and attend business conventions. Don’t lose hope; in India, a much poorer nation where the vaccination rate is 10 percent, the spike from Delta was fast and furious but short lived.
That is probably what we will see here in America but stay tuned. We will find out in about a month whether that scenario plays out here as well.
Joe Higgins is a 42-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant, public speaker, AVB keynoter and YourSource News contributor. Visit his website, Quest 4 Quality with Joe, at www.q4qwithjoe.com.