Economic Indicators: 10/12/17

Last week’s employment report provided a first glimpse at the impact of the two major hurricanes that hit the Southeastern U.S. in September. The report showed total employment declined by 33,000 jobs, which was the first reduction in the number of workers since 2010 — the tail of the 2007–2009 Great Recession.

The decline in employment contrasts the pattern of the last few years. In fact, since the beginning of 2017, employment has risen at a monthly average of 170,000 workers.

The hurricanes’ impact on individual states won’t be known until the beginning of next month, when September’s state employment data is released. Significantly, however, the combined employment of Texas and Florida represents 14% of the U.S. workforce. Or, put another way, one out of every seven American workers is employed either in Texas or Florida.

Similarly, the full impact of the hurricanes on the remodeling industry won’t be known until November, since such data is also released one month after the national-level data.

Employment in remodeling businesses rose by 1,200 jobs in August, to a total of 334,600 employees. As shown in the chart below, employment has recovered modestly since April. Although we are still below February’s peak remodeling employment of nearly 339,000 workers, compared to the same month last year, employment is up by 10,000 workers.

The increase in remodeling firms’ employment is in line with the gains in spending on remodeling projects by consumers. The chart below displays the trend in homeowners’ spending on remodeling over the last year, reaching an annual rate of nearly $195 billion in August. The rate of spending has increased by $26.5 billion since August 2016, a 16% gain.

This means that the portion of our members’ businesses that depends on this market segment should have improved over the last year. In fact, the 16% gain in overall remodeling spending can be used as a general gauge of the gain we should expect.

On the negative side, mortgage rates continue to edge up. The average mortgage rate rose by two basis points (0.2%) last week, to 3.85%. Still, mortgage rates are nearly half a percentage point below their level at the beginning of this year, when they averaged 4.3%.

Nonetheless, the outlook for mortgage rates is that they will rise over the next few months. Monetary policy guided by the Federal Reserve Bank is likely to be more restrictive when a new chairman is appointed by President Trump next February. The “easy money” stance maintained by the Fed over the last few years, which has resulted in very low interest rates generally, will replaced by a “tight money” regime — although we won’t know how tight until the new chairman takes over.

Manuel Gutierrez, Consulting Economist to NKBA

Explanation of NKBA’s Economic Indicators Dashboard

The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.

Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.

Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.

Single-Family Starts. This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.

Existing-Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.

High-End Home Sales. This series are sales of new homes priced at $750,000 and higher. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.

Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.

Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.

Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.

Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers, for instance.

We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.