Many in the mortgage industry were anxiously waiting to view the results of the final jobs report of 2015 to see if the Federal Reserve was on track with the timing of its long-awaited December rate hike or if the central bank acted too quickly.
The Bureau of Labor Statistics (BLS) reported better-than-expected job gains of 292,000 for December in the Employment Summary for December 2015. Adding to December’s positive growth is the upward revisions of 50,000 jobs in October (298,000 to 307,000) November (211,000 to 252,000) to raise average job gains for the last three months up to 284,000.
According to the BLS, employment gains in October and November are 50,000 higher than previously reported numbers. “Today’s labor market report was strong across the board. This will likely firm the market’s expectation that the Fed will proceed with their gradual increase in the Fed Funds target—most likely with the next step in March. Of interest to the housing market was the 45,000 construction jobs added,” said Doug Duncan, Chief Economist, Fannie Mae. “This makes the third consecutive very strong month of construction employment additions. The warmer than usual fall weather undoubtedly helped and this probably allowed the settings of foundations in the colder climes, which should allow work to advance over the winter. If this plays out, it will be good news on the housing supply side as the slow ramp-up of supply in the presence of increased employment and housing demand has led to strong price appreciation and rising affordability constraints. Paired with modest interest rate increases, there have been concerns of a slower pace of sales growth in 2016 compared to 2015.”
“The 292,000 surge in non-farm payroll employment, together with the 50,000 upward revision to the gains in preceding months should put paid to any fears that the US recovery is in serious difficulty, even if fourth-quarter GDP growth ends up being fairly lackluster,” said Paul Ashworth, Chief US Economist at Capital Economics.
The report also found that the number of unemployed persons was mostly flat in December at 7.9 million, while the unemployment rate was 5.0 percent for the third consecutive month. The BLS says that the stagnant unemployment number are due to the large 485,000 increase in the household survey measure of employment, nearly matched by a 466,000 jump in the size of the active labor force.
For the entire year, the unemployment rate is down 0.6 percent and the number of unemployed persons is down by 800,000, the data showed.
National Association of Federal Credit Unions (NAFCU) Chief Economist Curt Long responded to the jobs report with cautious praise.
“The December jobs report showed another strong month of job gains, along with upward revisions to prior months,” Long said. “Most sectors grew, although mining continued to show weakness as a result of falling oil prices. The labor force participation rate ticked up as 466,000 entered the labor market, but wage growth disappointed in sliding by one cent per hour.”
Long added, “While it is a strong report overall, it is not so positive as to overshadow the troubling developments in China recently, and the Fed will likely need more ammunition before it goes authorizes another rate hike.”
The BLS reported that wage growth still fails to dazzle, with average hourly earnings for all employees on private nonfarm payrolls in December down by 1 cent at $25.24. This comes after a 5 cent increase in November. For the entire year, average hourly earnings have risen by 2.5 percent.
Ashworth says that wage growth remains the only disappointment in the BLS report, and “a meaningful pick-up in wage growth is still the missing piece of the puzzle in this recovery, but the survey evidence suggests it will arrive soon.”
“Job creation is the most important leading indicator of steady demand for housing,” said Realtor.com Chief Economist Jonathan Smoke. “The healthy employment results for the last two years have created an uptick in household formation, which drives demand for home purchases and rentals. We now have had three strong months above 250,000, reflecting a true return back to a strong growth trend. Our positive forecast for 2016 assumed growth of 208,333 per month.”
Smoke continued, “However, global concerns and related stock market declines have not started the year on a good note. If we do not see a strong rebound in financial markets, consumer confidence is likely to be impacted in the near term. But if we continue to see robust job creation, confidence should recover just in time for the spring, when home sales traditionally jump. The upside to the recent financial market weakness is that consumers received yet another reprieve from higher mortgage rates. The average fixed 30-year is now back under 4 percent. Such low rates likely won’t last, as it was the labor market that influenced the Fed to raise rates in December, and today’s report just increased the odds for another move in March.”
“These figures obviously support a March rate hike from the Fed, but as the FOMC statement last month stressed, it is developments in inflation rather than the labour market that will determine the pace of future rate hikes,” Ashworth concluded. “With oil prices close to $30 a barrel now, this latest labor market improvement doesn’t necessarily guarantee a March rate hike, although we do think that is the most likely outcome.”