Eye on the Economy: Labor Market Gains and Rising Consumer Confidence


Rising consumer confidence and recent labor market gains are positive developments for rental and owner-occupied housing demand going into 2015.

The Thomson Reuters/University of Michigan Consumer Sentiment Index December reading rose to the most favorable level since its last cyclical peak in January 2007. The survey indicated consumers anticipated a significant income increases in 2015. The separate Conference Board Consumer Confidence Index increased to 92.6 in December from an upwardly revised 91.0 in November, with the Present Situation Index increasing to its highest level since February 2008.

December’s labor market report marked a strong end for 2014. The Bureau of Labor Statistics (BLS) reported that payroll employment expanded by 252,000 in December and the unemployment rate declined to 5.6% from 5.8% for the prior month. Job gains in October and November were also revised upward by a total of 50,000. Job growth brought the average monthly employment gain for 2014 to 246,000, up from 194,000 in 2013. At 5.6%, the unemployment rate is 1.1 percentage points below the December 2013 level.

Other labor market measures were mixed for the month but better for the year. The labor force participation rate ticked down to 62.7% in December. Average hourly earnings were down 5 cents for the month but up 1.7% for the year. And the number of long-term unemployed and part-time workers were flat in December, but down over the year.

For the construction sector, labor shortages continue to be a challenge as hiring expands. In December, home builders and remodelers added 13,500 jobs. According to data from the BLS Job Openings and Labor Turnover Survey, the number of open construction sector jobs for November (on a seasonally adjusted basis) rose to 145,000. The November level marks the third highest total of unfilled jobs in construction during the post-recession period.

These labor market numbers represent steady progress, which will shift the focus at the Federal Reserve from labor market improvement to inflation targeting.

Housing can be an important job creator going forward. While multifamily construction has staged impressive gains in recent years, single-family construction remains about halfway to normal levels. As a result, housing’s share of GDP remains below historic norms. As of the third quarter of 2014, housing’s share was 15.24%, with home building and remodeling yielding 3.08 percentage points of that total. Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP.

In other labor market analysis news, NAHB just published new research examining the flow of immigrant labor into the construction and how it varies with home construction activity. The results show that more than 135,000 immigrant workers entered the U.S. construction industry at the height of the housing boom in 2005. By 2011, the construction immigrant flow plummeted to a low of 23,000, highlighting the role of new immigrant workers as an extremely variable labor pool that moves in sync with the single-family construction business cycle.

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