The job market continues to improve. In June 223,000 net new jobs were added. The total comes to 2.9 million over the past 12 months. These gains will provide a solid support for home sales and commercial real estate leasing activity. The unemployment rate fell to 5.3 percent, the lowest since 2008.
Interestingly though the construction industry added zero jobs. That is inconsistent with rising housing starts and rising construction spending. Perhaps, it is a one-month fluke arising from data noises and sampling errors.
The professional business service sector (accounting, law, management consulting, and similar occupations) has been expanding solidly. A total of 64,000 net new jobs in the sector over the month and 672,000 over the past year. At the initial phase of hiring, workers were squeezed into existing office spaces. Now, companies will need new office spaces and hence office leasing activity should meaningfully pick up in the upcoming months.
Not all is right with the labor market. Due to low oil prices, the jobs in the oil extraction industry fell for the sixth time in the past seven months. More sadly, more people have left the labor force – no jobs and not even searching for one. It is the fewer people looking for jobs as the principle reason for the latest fall in the unemployment rate.
The average hourly wage rose to $20.99, which is a gain of just 1.9 percent from one year ago. Both home prices and rents are rising much faster. Workers are getting the benefit of lower gasoline prices but they are having to fork over more for shelter. Construction workers are paid better with $25.26 per hour and with faster pay gain of 2.4 percent.
A little historical note to mark 1776 and the day of independence and freedom. While America was focused on “the shot heard around the world“ from Concord/Lexington and freedom from the tyranny of George III, in Scotland a book was quietly published also to commemorate freedom of a different kind. Adam Smith wrote that economies and the Wealth of Nations can rise faster from freedom from government regulations. Of course, with the benefits of 200+ years of experience since then, some government regulation can improve the overall economic condition of a country, but Adam Smith’s work laid out the broad economic principles of what can work well. That is why the English-speaking countries have economically outperformed other language speaking countries from 1776.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.