Why America’s economic recovery is stumbling as experts badly misjudge the labor market

Now Hiring sign
A customer walks by a now hiring sign at a BevMo store on April 02, 2021 in Larkspur, California.

  • April’s jobs report was a shocking miss, suggesting the hiring rebound many anticipated was an illusion.
  • Virus fears, childcare pressures, and unemployment benefits all likely drove the weak payrolls read.
  • Biden has proposed massive packages focused on jobs, but they likely face months of negotiation before passage.
  • See more stories on Insider’s business page.

Democratic political advisor James Carville became famous in the 1990s for his phrase “it’s the economy, stupid.”

After April’s shockingly disappointing jobs report, it looks more like “it’s not the economy, stupid, it’s the virus.”

March’s strong jobs data – along with widespread projections of a coming economic boom – had raised optimism among economists for a continued recovery in the labor force. It prompted Federal Reserve Chair Jerome Powell to deem March an “inflection point” for the reopening of the economy, and experts saw it kicking off a season of outsize payroll increases. But the drop in April makes clear the virus continues to bite.

Economists had expected payroll gains to reach 1 million, but the country added just 266,000 jobs last month. It was the smallest monthly increase since January and the biggest miss of payroll forecasts in more than two decades. The unemployment rate rose to 6.1%, female employment declined, and, although hard-hit sectors like leisure and hospitality saw healthy gains, most others posted either meager growth or shed jobs entirely.

The Bureau of Labor Statistics’ Friday release underscores just how much the labor market still has to recover, and that the climb won’t be as easy as most economists anticipated. Even if April stands out as a gloomy outlier, the average pace of payroll growth suggests it could take years to fully recoup the millions of jobs lost to the pandemic.

What went wrong?

The jobs report was such a shock that it’s hard to find a single explanation at first glance. It also highlights just how inadequate forecasting tools are for measuring this unique economic moment.

Economists typically use a combination of quantitative and qualitative data to estimate future growth. Indicators like weekly jobless claims and hours worked join anecdotal evidence and broad surveys to create forecasting models. Economists’ calculations, when tallied together and averaged, usually come close to guessing monthly payroll additions.

The April data serves as a wake-up call for the many forecasters who didn’t even come close to guessing correctly. Whether models overlooked details like COVID-19 fears or bullish biases tarnished forecasts, economists need to reconcile how they were so wrong.

The disappointment was likely fueled by several factors instead of one solvable hurdle. Despite President Joe Biden’s overdelivering on vaccinations, the country is far from placing the coronavirus pandemic behind it. Daily case counts still averaged about 50,000 at the end of last month, and highly contagious strains continue to spread across the US.

The coronavirus pandemic has also been notable for the “she-cession,” hurting female employment much more than men. The absence of affordable childcare and lack of in-person schooling around the country likely kept some Americans home instead of working, as born out by the April report, which showed women – who disproportionately take on childcare responsibilities – losing jobs through the month.

How big is the labor shortage?

Last month also saw several businesses across the manufacturing and service sectors reporting difficulties in finding workers. The jury is still out on how widespread worker shortages might be, as about 10 million Americans remain unemployed. On one hand, some economists suggest boosted unemployment benefits cut into the incentive to find work. Strong wage growth in the leisure and hospitality sector also signals businesses may need to lift compensation to attract workers.

“The benefits are due to expire in September but perhaps people think jobs will be just as easy to find then as they are now, so why take a job today?,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said. “If people continue to resist taking the jobs on offer at the pay on offer, then wages will have to rise more quickly.”

The Chamber of Commerce called on lawmakers to withdraw the federal benefit to unemployment insurance following the April report. The supplement results in 25% of recipients earning more from unemployment benefits than by working, Neil Bradley, executive vice president and chief policy officer at the Chamber of Commerce, said in a statement.

“We need a comprehensive approach to dealing with our workforce issues and the very real threat unfilled positions pose to our economic recovery from the pandemic,” he added.

The April data does not quite agree with the chamber’s argument, showing labor demand overshadowing anecdotes of a supply shortage. April job gains were strongest in lower-wage industries and in sectors with in-person jobs. The composition of last month’s job additions “doesn’t scream supply constraints as the problem,” Nick Bunker, an economist at Indeed, wrote on Twitter.

Separately, the number of Americans temporarily laid off ticked slightly higher in April. That also signals labor demand wasn’t as robust as businesses’ anecdotes suggested.

Looking to other labor-market data, the steady decline in weekly jobless claims now looks much less encouraging for the recovery. The April uptick in unemployment comes as filings for unemployment benefits fell throughout the month to numerous pandemic-era lows. The drops initially seemed to signal that more Americans were returning to work, but BLS’ report suggests the downtrend has more to do with Americans dropping out of assistance programs than finding employment.

It could take months for the government to lend a hand

Much of the last few months’ promising job gains were linked to massive stimulus packages. The CARES Act helped a sharp hiring rebound after initial COVID-19 lockdowns in March 2020. And Biden’s $1.9 trillion plan in March 2021 spurred stronger economic activity last month.

The president has since rolled out two new spending proposals, the larger of which would spend $2.3 trillion on job creation. The American Jobs Plan would create millions of jobs by funding traditional infrastructure projects, clean energy initiatives, and nationwide broadband, Biden said in a Thursday speech. Biden’s administration has at other times cited a Moody’s Analytics projection of 2.7 million new jobs from the American Jobs Plan.

The smaller package, named the American Families Plan, could support hiring in its own right by overhauling the care economy, as it seeks to provide paid family and medical leave and childcare support.

Yet such support is likely months away. Republicans have balked at both plans, lambasting their hefty price tags and the tax hikes proposed to offset them. Democrats seem to face a challenge passing the package on a party-line vote via reconciliation, as some moderates in their party have yet to throw their full support behind the follow-up packages as they exist.

To be sure, the April report represents just one month of hiring. May numbers could show a healthy rebound and revive the positive trend. The economy is not even fully reopened from virus-safety considerations yet, so rebounds are likely.

But with additional fiscal support far on the horizon and economists highlighting a number of obstacles hindering job growth, the resurgent spring recovery for jobs that many economists were predicting is gone.

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‘What is everybody else not seeing?’ One top economist details why Friday’s jobs report will double the average forecast – and explains why she’s comfortable being an outlier

Now Hiring man with mask
A man wearing a mask walks past a “now hiring” sign on Melrose Avenue amid the coronavirus pandemic on April 22, 2021 in Los Angeles, California.

  • Jefferies’ estimate for April payroll growth is 2.1 million jobs, double the consensus forecast.
  • Economist Aneta Markowska cited time-sheet data, jobless claims, and surveys for her bullish forecast.
  • Reopening and stimulus will play a bigger role in the April report than in March, she added.
  • See more stories on Insider’s business page.

The Bureau of Labor Statistics’ upcoming jobs report is expected to show strong payroll growth through April as the US reopened. But where most economists see a moderate month-over-month improvement, Aneta Markowska of Jefferies stands out in her bullishness.

The median estimate from economists surveyed by Bloomberg for April payroll growth sits at 1 million payrolls. That would mark a pickup from the 916,000 jobs added in March and the strongest month of job growth since August.

Markowska, Jefferies’ chief economist, forecasts that the economy added 2.1 million jobs last month. Not only is that more than double the median forecast, but also 800,000 payrolls greater than the next highest projection from a top economist. The unemployment rate will fall to 5.2% from 6% and beat the forecast of 5.8%, according to the bank.

While Markowska’s estimates stand leagues away from the consensus, the chief economist told Insider she has a tougher time understanding the median forecast than supporting her own.

“To be honest, I’m sort of asking the same question in reverse. What is everybody else not seeing?” Markowska said. “I run a number of models and the lowest one gives me an estimate of 1.4 million.”

Looking to quantitative data, Markowska highlighted changes in jobless claims as supporting growth of more than 1 million payrolls. Kronos data tracking hours worked correlates well with nonfarm payrolls and signals an April gain of 1.6 million jobs, she added.

BLS’ survey timing also backs up Jefferies’ forecast. The March report had little to do with reopening, as the survey window closed on March 13, Markowska said. The April report, due for release Friday morning, should better capture how reopening and Democrats’ stimulus boosted job growth in the leisure, hospitality, and retail sectors, she added.

Still, the hard data only makes up part of Markowska’s projection. Reports like the Census Bureau’s Household Pulse Survey and The Conference Board’s own survey point to growth as high as 4 million payrolls, the economist said. Although survey responses are volatile and harder to tie to quantitative data, they support Markowska’s argument for a blowout month of job gains.

“Obviously [3 million] sounds excessive, and I wouldn’t rely on any of those individually. But they certainly give me more confidence that we could get something closer to 2 million,” she said.

Aneta Markowska
Jefferies Chief Economist Aneta Markowska.

Looking beyond April growth and into 2022

Robust hiring could last into the summer, and even though Markowska sees the pace tapering off later in the year, she still expects growth to trend above the pre-pandemic norm. Jefferies’ GDP forecast calls for a 7% expansion in 2021, slightly exceeding the Federal Reserve’s estimate for 6.5% growth. That rate implies average monthly payroll additions of about 500,000 payrolls in the final month of 2021, Markowska said.

The chief economist’s optimism isn’t relegated to 2021. Consensus forecasts see the rate of recovery dropping off in 2022 as stimulus expires and easy gains turn into more modest improvements. But where the Fed expects GDP growth to slow to 3.3% next year, Markowska cited a still-elevated savings rate and expectations for stronger production for her 5% growth forecast.

“There’s still a lot of upside for industrial production. I think, by the middle of the year, you’re going to be looking at capacity utilization rates that match the peaks from the last cycle, and they’re going to keep going,” she said.

“That’s where I really differ: the ability of this economy to sustain a lot of that momentum. Whereas a lot of people see a fiscal cliff happening next year, I think that’s more of a story for 2023.”

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Inflation nears decade high as reopening juices price growth across the economy

People shopping
Bolstered by three rounds of stimulus checks, US consumers are spending more.

  • The PCE price index – a popular inflation gauge – rose to 3.5% from 1.7% in the first quarter.
  • The measure signals that reopening and stimulus boosted demand, lifting prices at a nearly decade-high rate.
  • The Fed expects inflation to climb but only temporarily, before fading to normal levels.
  • See more stories on Insider’s business page.

The inflation that economists and the Federal Reserve have been warning of for months has arrived.

The Personal Consumption Expenditures price index – among the most popular measures of nationwide price growth – rose in the first quarter to 3.5% from 1.7%, the Commerce Department said Thursday. The reading marks the second-fastest pace of price growth since 2011, surpassed only by a 3.7% rate in the third quarter of 2020.

Core PCE inflation, which leaves out volatile food and energy prices, rose to 2.3% in the first quarter from 1.3%.

The stronger inflation was largely attributed to the quarter’s economic rebound. US gross domestic product grew at an annualized rate of 6.4% in the first three months of 2021, according to the Commerce Department. That rate signals the second-strongest quarter of expansion since 2003, surpassed only by the record-breaking surge seen in the third quarter of last year.

The quarter ending in March saw stimulus passed by former President Donald Trump and President Joe Biden drive a sharp increase in spending. Widespread vaccination and falling COVID-19 case counts also boosted economic activity as governments eased lockdowns and businesses reopened.

The uptick in price inflation mirrors a similar signal from the Consumer Price Index from earlier in April. The inflation gauge rose 0.6% from February to March, slightly exceeding economist forecasts. More remarkable was a 2.6% year-over-year gain that market the strongest jump in price growth of the pandemic era.

Inflation was at the center of the debate over new stimulus, with Republicans and even moderate Democrats warning that a colossal package could spark rampant price growth and create a new economic crisis.

On the surface, the latest data suggests those warnings were correct. Yet the Fed has long anticipated that any spike in inflation through the recovery would be “transitory” and quickly fade. For one, year-over-year measures of price growth are somewhat skewed by data from the first months of the pandemic, when initial lockdowns saw price growth turn negative. That dynamic, known as base effects, leaves a lower bar for the present-day readings to clear.

The pickup is also unlikely to reverse the decades-long trend of price growth landing below the Fed’s target, according to Fed Chair Jerome Powell.

“An episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation into the future,” the central bank chief said Wednesday. “It is the Fed’s job to make sure that does not happen.”

The Fed adjusted its framework in August to pursue inflation that averages 2% over time, as opposed to targeting steady price growth at a 2% rate. The change signals the central bank will allow inflation to run above the 2% threshold for some time as the country recovers. Powell has said that the low-inflation environment of the late 2010s suggest the Fed can run the economy hot in hopes of reaching maximum employment.

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The housing market is the hottest it’s been since right before the 2008 crash – but there’s far less bubble risk this time around

buying home
  • Home price growth and construction are the hottest they’ve been since 2006 – the peak of a housing bubble.
  • Despite the similarities of some housing data from 15 years ago to today, experts see two very different markets.
  • Conditions driving this market boom are “fundamentally, radically different,” an economist told Insider.
  • See more stories on Insider’s business page.

Housing data is hitting levels unseen since 2006 in at least three different ways, begging the question of whether this is another bubble. Experts say this isn’t that – it’s economics.

Another housing bubble 15 years after the last one would be very bad news, as the epic pop of that market in 2008 threatened the stability of the entire global financial system. But while today’s price inflation is similar to then, the drivers behind this market rally look different.

Nationwide home prices grew 12% year-over-year – their fastest pace since 2006 – this past February, according to the S&P CoreLogic Case-Shiller Index. Gains were broad-based, with all 20 cities tracked by the index experiencing price growth above their respective median levels.

Separately, CoreLogic’s own home-price index also recorded the highest annual leap since 2006 in February. That gauge tracks home prices across the country, while S&P’s index measures prices in 20 metropolitan areas.

Also, for the first time since 2005, the median sale price for previously owned single-family homes is higher than that for new construction. In other words, the premium Americans typically pay to be the first to live in a new house has been completely erased as homebuyers have rushed to buy any home on the market.

“The conditions underlying what happened way back then, during the bubble of ’05 and ’06, and what’s driving price growth today are just fundamentally, radically different,” Frank Nothaft, chief economist for CoreLogic, told Insider.

Where dubious lending and market euphoria powered the mid-2000s surge, today’s boom is almost entirely due to a nationwide supply shortage. The monthly supply of homes sits near record lows of about 3 months, leading sellers to demand increasingly large sums for their properties. That compares to more than 12 months of supply in 2009.

Today’s market is also backed by a strong underwriting process and isn’t engulfed in a subprime mortgage crisis, Nothaft explained. The price growth we are currently experiencing, he continued, “is rooted in economics.”

Record low mortgage rates and the heightened focus on space have sent buyer demand through the roof, but a pullback from prospective sellers and a lack of newbuilds have resulted in a national decline in homes for sale.

“When you put all these pieces together, increase in demand and limited supply, it pushes prices up and that’s what we’re seeing in the marketplace,” Nothaft added.

Learning from post-crisis mistakes

Other gauges aren’t just at their hottest levels since 2006, but their hottest levels full-stop. The median selling price for existing homes touched a record high of $329,100 in March, according to the National Association of Realtors. And though the supply of previously owned homes has edged higher in recent months, it’s still close to February’s all-time low of 1.03 million units.

“We’ve been underbuilding for years,” Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR), told Insider.

The shortage can be traced back to that 2008 housing crash and its long-term fallout. The buying frenzy seen throughout the 2000s had fueled a boom in new construction as builders rushed to meet unprecedented demand. But once the bubble burst, contractors pulled back on building in an effort to prop up demand. Construction rebounded slowly through the last decade, leaving the market with diminished inventories once the pandemic-era boom began.

Daryl Fairweather, chief economist at Redfin, told Insider that the last decade saw a massive drop-off in homebuilding. Fewer homes were built by a factor of 20 going all the way back to the 1960s, she said.

But the latest data suggests contractors are finally heeding the market’s call. Home starts leaped nearly 20% last month to the highest level since, you guessed it, 2006. The reading also marks the largest month-over-month increase since 1990, underscoring the urgency faced by homebuilders.

Americans also seem prepared to keep the market boom alive for at least a while longer. The share of consumers planning to buy a home in the next six months rose to 8.9% in April from 8.1%, according to The Conference Board’s Consumer Confidence Index. That’s the highest proportion since 1987.

With millennials reaching peak homebuying age, supply bouncing back, and mortgage rates expected to move up slightly, economists don’t expect the housing rally to pop, but instead settle into more sustainable growth.

“I think we will return more to the trend that we were seeing pre-pandemic,” Nothaft said, which showed steady national price growth in the single digits. In February 2020, home prices increased by 4.1% year-over-year.

For millennials, who are entering or at peak homebuying age, that would represent a return to a pre-pandemic dynamic of record low mortgage rates but a housing market that still felt out of reach. It may not be a bubble, but it isn’t exactly attainable, either.

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Here’s how fast homebuilding is catching up to the record-low number of houses for sale

UBS STARTS
Source: UBS.

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

“We may have overestimated the immediate storm-rebound by a little, and so expected more rebound to come in starts in April,” UBS economists led by Samuel Coffin said in a note. “But with permits on target in March, we continue to see the underlying trend in single-family activity at about a 1.2 million unit annual rate.”

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

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Housing starts soar to 15-year high as builders sprint to fill market shortage

home house construction
Workers are shown building luxury single family homes in Carlsbad, California,

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

Read the original article on Business Insider

US futures and the dollar rise ahead of what traders expect to be a bumper employment report

Stock market
  • US stock futures and the dollar edged up ahead of key March payrolls report.
  • Trading was thinned out due to public holidays in most major markets.
  • Economists expect non-farm payrolls to have risen by the most in six months in March.
  • See more stories on Insider’s business page.

US stock futures and the dollar rose on Friday, ahead of a key report on unemployment that will shed further light on the resilience of the economic recovery, although trading volumes were light on account of the swathe of public holidays around the world.

Futures on the S&P 500, the Dow Jones and the Nasdaq 100 rose between 0.1 and 0.4%, suggesting the benchmark indices could see more record highs when they reopen on Monday.

On Thursday, the S&P 500 scorched past 4,000 points for the first time after data showed a sharp rebound in manufacturing activity in March and following President Joe Biden’s unveiling of an infrastructure spending plan worth $2 trillion.

The Bureau of Labor Statistics will publish its nonfarm payrolls report for March on Friday at 8:30 a.m. ET, providing the most detailed look at how hiring fared throughout last month. The backdrop is promising. March had warmer weather, and a faster rate of vaccinations led some states to partially reopen for the first time since the winter’s dire surge in cases. Coronavirus case counts started to swing higher at the end of the month but largely stayed at lower levels.

Democrats’ $1.9 trillion stimulus plan was also approved early last month and unleashed a wave of consumer demand and aid for small businesses. Sentiment gauges surged to one-year highs, and Americans strapped in for a return to pre-pandemic norms.

Consensus estimates suggest March had the strongest payroll gains in six months. Economists surveyed by Bloomberg said they expected nonfarm payrolls to climb by 660,000, which would be nearly double the 379,000 gain seen in February. The unemployment rate is forecast to dip to 6% from 6.2%.

“We believe a vaccine- and reopening-related rebound in labor force participation is likely to start this month, and this could limit the magnitude of the decline in the jobless rate,” Goldman Sachs led by Jay Hatzuis said in a note.

US 10-year Treasury yields held steady around 1.67%, having hit 1.776% last week, their highest in almost 15 months. Bond yields have risen steadily this year, as prices have fallen, in line with a growing conviction among investors that economic recovery is picking up, which will reignite inflation.

The combination of accelerating growth and inflation makes it less attractive to own government bonds.

The dollar meanwhile traded fairly steadily against a basket of major currencies. The dollar index was last down 0.1% on the day, but still holding close to its highest in five months.

“Friday’s highly-anticipated non-farm payrolls report comes out at a bit of an awkward time; for the first time in six years, the April jobs report falls on the Good Friday holiday, meaning that many major markets will be closed,” CityIndex strategist Matt Weller said in a note on Thursday.

“As a result, readers who are at their desks trading the FX or bond markets may see less liquidity than usual and the post-release move may peter out sooner than usual as traders who are watching the markets look to duck out early to enjoy a long holiday weekend,” Weller said.

Bitcoin nudged at $60,000 for the first time in two weeks, as risk appetite pushed investors into more volatile assets. It was last up 1.2% around $59,540, having gained over 8% in the last week.

Read the original article on Business Insider

US mortgage rates hit a 9-month high – and they’ve been climbing since January as inflation fears rise

Model homes and for sale signs line the streets as construction continues at a housing plan in Zelienople, Pa., Wednesday, March 18, 2020.  U.S. new home sales fell 4.4% in February with bigger declines expected in coming months as the coronavirus puts a major crimp on home sales. (AP Photo/Keith Srakocic)
Model homes and for sale signs line the streets as construction continues at a housing plan in Zelienople, Pa., Wednesday, March 18, 2020. (AP Photo/Keith Srakocic)

  • The average 30-year fixed mortgage rate rose to 3.09% this week, its highest level since June.
  • Rates have been rising since January as markets gird for economic reopening and stronger inflation.
  • Still, demand for homes is handily outstripping supply as new construction fails to accelerate.
  • See more stories on Insider’s business page.

Mortgage rates continue to climb in the US as concerns of rising inflation counter past months’ historically low borrowing costs.

The average 30-year fixed mortgage rate rose to 3.09% this week, according to data from Freddie Mac. That’s the highest level since late June and compares to a reading of 3.05% one week prior. Still, the 30-year rate average sits well below its year-ago level of 3.65%.

The average 15-year fixed mortgage rate rose to 2.4% from 2.38% last week to hit, hitting its highest point since September.

Mortgage rates have steadily risen since January as investors position for stronger inflation as the economy rebounds. Treasury yields underpin a wide range of borrowing rates including those for home loans, and the recent sell-off in government bonds placed upward pressure on mortgage rates. The 10-year yield rose to a 14-month high following the Federal Reserve’s March policy meeting on Wednesday, signaling rates will trend higher in the coming weeks.

The trend hasn’t yet pushed potential buyers out of the market, Sam Khater, chief economist at Freddie Mac, said in a statement. While the 30-year average rate now sits well above its January floor of 2.65%, borrowing costs are still relatively low. Robust demand for new homes also signals the housing market boom has plenty of staying power, the economists said.

“Residential construction has declined for two consecutive months and given the very low inventory environment, competition among potential homebuyers is a challenging reality, especially for first-time homebuyers,” Khater added.

More barriers than just higher mortgage rates

The housing market was one of the few pockets of the economy to see activity surge through the pandemic. The Federal Reserve’s decision to cut interest rates to record lows one year ago dragged mortgage rates to historically low levels and spurred fresh demand.

But while interest rates remain near zero, mortgage rates have been more closely tracking Treasury yields. The near-zero rates that sparked the housing boom are no longer its primary driver.

New hurdles have emerged from the strained relationship between buyers and builders. Home prices shot higher as demand handily outstripped supply. And though rates have risen through the spring, contractors are still unable to keep up with the market.

That supply-demand imbalance is now forcing potential homebuyers to pay above listing prices just to secure a purchase. The sale-to-list price ratio tracked by Redfin rose to 100.1% for the week that ended March 7, its highest level since data collection began in 2016. The firm also found median sales prices for newly listed homes reached a record high and that new listings were down 17% year-over-year.

Even pricier materials are contributing to soaring home costs. The National Association of Homebuilders said last month that factory shutdowns last March slammed lumber supply chains and led to a spike in the commodity’s price. Elevated lumber costs now add roughly $24,000 to the price of a new home, NAHB Chairman Chuck Fowke told HousingWire.

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The February jobs report shows Americans are eager for a full reopening

NYC coronavirus tables restaurant
Empty tables stand at a restaurant in Manhattan on March 1, 2021.

  • The February jobs report exceeded expectations and hints at how reopening can accelerate job growth.
  • The bulk of the job gains came from industries hit the hardest by the pandemic.
  • Stronger hiring is coming, it’s just a matter of “how long it takes to get there,” BlackRock said.
  • Visit the Business section of Insider for more stories.

The February jobs report shows the labor market in reopening rehearsal. 

The US added 379,000 nonfarm payrolls last month, handily exceeding the median economist estimate of 200,000 additions. The unemployment rate fell to 6.2% from 6.3%, labor force participation held steady, and the number of Americans citing COVID-19 for not seeking employment fell by 500,000.

The drivers behind the gains are also encouraging.

While the drop in unemployment seen in January was largely tied to more Americans dropping out of the labor force, last month’s dip was tied to increased hiring across a broad set of sectors. The payroll increase would’ve “easily” topped 500,000 had adverse weather not contributed to construction jobs falling by 61,000, Morgan Stanley economists led by Robert Rosener said.

For all intents and purposes, the report came in more positive than expected. Investors overwhelmingly thought so, too. Treasurys declined sharply as traders bet on a faster-than-expected economic rebound, bringing the 10-year yield to its highest level since February 2020. The Dow Jones industrial average and S&P 500 gained, led by cyclical and value stocks.

Fanning February’s flames

A deeper dive into the data shows a recovery that’s found its footing. The leisure and hospitality industries – among those hit hardest by the pandemic and resulting restrictions – counted for 355,000 of the month’s payroll additions. Temporary job losses declined, suggesting businesses were able to reopen and rehire workers as COVID-19 case counts fell nationwide. 

The overall gains are a “surprise” and can be boiled down to reopening “arriving earlier than expected,” Brian Coulton, chief economist at Fitch, said.

Warming weather, continued vaccination, and even lower daily case counts stand to supercharge job gains into the summer. Plenty on Wall Street agree. The data “suggest that the labor market recovery is accelerating in earnest,” Bank of America economists Joseph Song and Michelle Meyer said Friday.

Michael Feroli, chief US economist at JPMorgan, said investors can expect “even better numbers” as reopening provides an “incredibly powerful tailwind.”

“There is no ambiguity regarding where employment is headed, in our view, but just how long it takes to get there,” Rick Rieder, chief investment officer of global fixed income at BlackRock, said.

Not so fast

Still, the battle is far from won. A handful of datapoints signal the climb to maximum employment will be much steeper than the 6.2% U-3 rate implies. 

Ahead of the February report’s release, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen repeatedly said the “real” unemployment rate was closer to 10%. The unofficial estimate included Americans misclassified as being employed and those who dropped out of the labor force since the pandemic began.

That “real” rate improved to 9.1% through February, according to Insider analysis. While this is down significantly from the year-ago peak of nearly 24%, the pace of decline slowed significantly through the winter.

The U-6 unemployment rate – which tracks people marginally attached to the workforce and Americans employed part-time for economic reasons – showed no improvement at all and held at 11.1% last month.

These gloomier datapoints practically guarantee Powell will keep ultra-easy monetary conditions in place for the foreseeable future. The Fed chief cautioned on Thursday that it “will take some time” to achieve the central bank’s goal of maximum employment. The healthy decline in baseline unemployment is cause for some optimism, but a broad set of criteria need to be met to ensure the recovery is robust, he added.

“We want to see wages moving up. We’d want to see that the gains in employment are broad-based and that different demographic groups were experiencing it,” Powell said. “We have a high standard for identifying what maximum employment is.”

The still-elevated unemployment rate has also been cited by Democrats as a sign additional stimulus is still warranted. Senate Democrats kickstarted a lengthy amendment process on Friday with aims to pass a $1.9 trillion relief package over the weekend. The deal includes $1,400 direct payments, a $400 supplement to federal unemployment benefits, and funding for state and local governments.

While Republicans have argued the bill is a case of overspending, Democrats have pointed to lasting labor-market pain as justification for the hefty price tag. The bulk of February’s payroll gains can be traced to business reopenings, but an additional stimulus package could boost demand and drive new demand for workers.

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The ‘real’ February unemployment rate is closer to 9% after adding dropouts and misclassifications, analysis shows

Northgate Mall empty hall
  • While the February jobs report showed unemployment dipping to 6.2%, the “real” rate is much higher.
  • Fed Chair Powell and Treasury Secretary Yellen said in early 2021 the real rate is closer to 10%.
  • When accounting for misclassification and dropouts, Insider calculates the true rate at roughly 9.1% after February.
  • Visit the Business section of Insider for more stories.

February labor-market data published by the Bureau of Labor Statistics pegged last month’s unemployment rate at 6.2%. The true state of the economy is likely gloomier.

Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen emphasized before the BLS report that the “real” unemployment rate likely stands closer to 10%. Such an unofficial measurement ropes in workers suspected to have been misclassified as having a job even though they’re actually on a COVID-19-related furlough and people who have stopped looking for work and dropped out of the labor force since last February amid the crisis.

Those populations are left out of the government’s benchmark U-3 unemployment reading – the number that stood at 6.2% after February. By Insider’s calculations, the “real” unemployment rate touted by Powell and Yellen stands at roughly 9.1% for the same period.

Other gauges used by BLS paint a similarly bleak picture. The U-6 rate – which includes Americans marginally attached to the labor force and those employed part-time for economic reasons – held at 11.1% in February, according to the Friday release. The gauge peaked at 22.9% in April 2020 but still has plenty of room to fall before reaching the pre-pandemic reading of 7%.

To be sure, the jobs report wasn’t all bad. By some measures, it was a sign of major improvement. Nonfarm payrolls grew by 379,000, handily exceeding the median economist estimate of 200,000 payrolls. The hospitality and leisure industries accounted for 355,000 of those new jobs, a signal that the sectors hit hardest by the virus and related lockdowns are steadily improving.

The diffusion index – which tracks how many sectors added jobs versus those cutting payrolls – returned to positive territory, signaling job gains are broadening. The labor-force participation rate held steady at 61.4% after declining the month prior.

The data underscores recent commentary from Fed Chair Powell on his economic outlook. There remains “a lot of ground to cover” before the US comes close to reaching the Fed’s maximum-employment goal, the central bank chief said. And while the unemployment rate remains a key indicator, other gauges are critical for judging the overall health of the labor market, he added. 

“Yes, 4% would be a nice unemployment rate, but it would take more than that to get to maximum employment,” Powell said.

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