Economical Updates February 10, 2017

Crushed it!

In the words of several media reports, the January Employment Situation Report “crushed it.” There were 227,000 new jobs created during the month, up from a revised 157,000 in December and the best report since last September. The number was way above expectations; analysts had been looking for a number in the range of 155,000 to 195,000.

But into every bright economic report, a little rain must fall; in this case the data on wages. The estimated increase of 0.4% reported for December was revised down to 0.2% and January’s gain was a meager 0.1%. But another set of employment stats offers hope. The Job Openings and Labor Turnover report or JOLTs (rumored to be one of Janet Yellen’s favorite indicators) shows a tightening labor market, with 5.50 million job openings at the end of December and 5.252M hires. Econoday calls the 249,000 job gap an indication that “employers are having a hard time finding people with the right job skills.” That’s usually a precursor to higher salaries.

Back on the “home” front. One of the possible reasons behind the tight inventories of homes for sale is the number of homes that were converted from owner-occupied to rentals during the Great Recession; some analysts put the figure at 3 million. A new study this week from the Research Institute for Housing American (RIHA) points out both that this is nothing new and that it may be exacerbating new home shortages as well.

The report, written by Stuart S. Rosenthal, calls the shift from owned homes to rentals both cyclical and a two-way street. There are both short term and long term transitions from owned to rented and back again. Short-term shifts are often prompted by changes in home prices–falling prices tend to push owned homes into rentals only to see them shift back when prices rise. Over time a net of about 2% of the housing stock becomes rentals. Longer term shifts tend to be related to age. Older homes are more likely to become rentals and to stay that way than are younger properties.

Rosenthal says rising home prices may be shifting rentals back to owner homes and this has the potential to undercut the demand for new construction. In addition, the current low homeownership rate suggests that a large buffer stock of potential owner-occupied homes may now sit in the rental segment of the market.

After some pretty wild swings in November, December, and January, interest rates have gone a little squishy. Per Freddie Mac, average rates moved within a two basis point range for the third straight week.