September 20, 2010
Nation's Building News

The Official Online Weekly Newspaper of NAHB

Eye on the Economy: Some (Slightly) Positive Employment Numbers

By David Crowe
NAHB Chief Economist


Recent employment figures indicate that there still are signs of life in the U.S. economy’s recovery. The August Employment Situation report by the Bureau of Labor Statistics (BLS) confirmed that the U.S. economy is on the mend, albeit slowly.

Indeed, total nonfarm payroll employment was down 54,000, a figure dominated by the loss of 114,000 temporary Census Bureau workers who have completed their work on the decennial census.

But at the same time the public sector was reducing its temporary work force, the private sector added 67,000 workers in August, the eighth consecutive monthly increase. Further, July’s private sector increase was revised up 36,000 jobs to 107,000, as was the June increase, from 31,000 initially to 61,000.

The August increase included the addition of 16,800  temporary workers, which following a loss of 900 temporary jobs in July. With the exception of the July setback, temporary worker employment has been on the rise every month starting in October 2009.

The reliance on temporary workers in the private sector at this stage of the recovery indicates that employers are still uncertain about the recovery’s strength — in particular, how long a rise in demand for their products and services will last. Temporary workers enable employers to hedge their hiring bets until they are certain that demand is sustainable.

If demand is sustained — as NAHB forecasts — many of the temporary positions in the private sector will become permanent.

Private sector job gains were realized in health care and social assistance (up 40,200) and professional and business services (up 20,000). But job losses in such areas as retail trade (down 4,900) and transportation and warehousing (down 7,400) partially offset the gains.

Employment stability and job growth — keys to housing’s recovery — are needed to help boost the confidence of households that are considering buying or renting a home. NAHB continues to forecast slow employment gains for the remainder of the year as economic activity shows modest growth.

With home builders in a holding pattern due to weak housing demand, residential construction jobs fell 9,800 in August, following the loss of 15,400 jobs the month before and the 21,400 jobs lost in August a year ago. The continued decline corresponds with the slowing of single-family housing starts, down for the third consecutive month, and July’s sharp drop in housing completions.

On a more positive note, total construction jobs, which include non-residential employment, rose 19,000 in August, the first monthly increase since April. However, the overall unemployment rate for construction rose to 22.5%, up from 20.7% in July.

Pending Home Sales — Some Positive News for Housing

The Pending Home Sales Index (PHSI) by the National Association of Realtors® (NAR) reported that contracts signed on existing homes ticked up 5.2% in July. This follows a sharp downturn in May (-29.9%) and further weakening in June (-2.8%) in reaction to the April 30 deadline for signing a contract to qualify for the home buyer tax credit.

July’s upturn was broadly based, with improvement found in all regions. The strongest bounce was in the West (11.6%), followed by the Northeast (6.3%), Midwest (4.1%) and South (1.2%).

The PHSI — which is based on contract signings similar to that of new-home sales data — is a leading indicator of housing market activity. Also, unlike existing home sales, which measures the total number of units sold, the PHSI is an index based on the average level of contract activity in 2001 (i.e., the baseline for 2001 is  100).

According to the NAR, more than 80% of pending home sales are closed within two months of the contract signing, with the bulk of the remainder closing within the following two months and only a small proportion cancelling.

However, the Realtors® did note in their recent release on pending home sales that the average closing period increased in recent months — primarily because of the large volume of short sales and foreclosures as well as a more thorough loan underwriting process. Although there is no direct relationship between pending home sales and existing home sales, there is a clear trend. Existing home sales generally lag behind the PHSI by two months, so the sharp July downturn in existing home sales was predicted by the dramatic fall in May of pending the PHSI.

Likewise, with the June PHSI reading, we can expect August existing home sales (released on Sept. 23) to remain soft.

The July PHSI is an early indication that housing demand is beginning to rebuild on the heels of the dramatic drop-off when the home buyer tax credit expired on April 30. We can expect a turnaround in existing home sales in September, which is consistent with NAHB’s forecast of weak housing demand in the third quarter, followed by a fourth quarter recovery.

With the economy and employment expected to improve in 2011 and 2012, we also can expect housing demand to build momentum. By the fourth quarter of 2012, NAHB forecasts existing home sales returning to normal, pre-recession levels.

Some Positive News on the Multifamily Front

The second-quarter NAHB Multifamily Market Indices (MMI) released on Sept. 14 showed significant improvement in the current conditions for multifamily rental occupancy. All three classes of rental apartment indices rose significantly from the first quarter and from a year earlier.

Class A jumped from 42.4 to 59.5, its highest level since the first quarter 2007. Class B increased from 41.6 to 57.6, its highest level since the third quarter 2007. And Class C rose from 40.8 to 56.6, its highest level since the fourth quarter 2007.

The indices for the outlook for rental occupancy over the next six months also projected improvement. The Class A index rose to 58.8 from 50.2 and 38.4 a year earlier. Class B was up to 56.2 from 51.4 and 44.2 a year earlier. Class C increased to 56.7 from 50.7 and 48.7 a year earlier.

Improvements in occupancy have not translated into increased construction activity, largely because of the difficulty in obtaining financing. Only the index on current conditions for starts for market rate rental properties showed improvement, rising to 34.4 from 30.1 and 16.7 a year earlier, its best level since second quarter 2008.

The index for low-rent projects fell to 32.8 from 35.4. But it was up from 21.8 a year earlier. Condo projects took an even harder hit, falling to 14.5 from 21.5 and 15.2 a year earlier.

Expectations for projects for the next six months were not much better, suggesting concern about obtaining financing in the future. Indices for market rental projects exhibited the most positive outlook. They remained flat at 37.7 — the highest reading since the second quarter 2008.

The index of expectations for low-rent projects fell to 37.2 from 39.9 and 39.7 a year earlier. The index of expectations for condo projects also was down — to 22.5 from 27.0 and 26.9 a year earlier.

The current surplus of for-sale and rental properties, both single-family and multifamily units, has been a drag on the condo and rental markets — putting downward pressure on condo prices and rents, respectively — and has made obtaining financing for new projects more difficult.

Multifamily starts have been below 150,000 at an annual rate for the last 16 months, less than half the level of annual starts from 1996 through 2007. From January 2009 through July 2010, multifamily starts averaged a mere 109,000.

There is a real possibility that condo and rental property shortages will emerge in some areas of the country during the next several years as the economy improves and household formations, which have been delayed because of the economy, increase.

Federal Reserve Reports Slower, But Positive Growth

As reported in the Federal Reserve’s September Beige Book, which summarizes the results of surveys of economic conditions in each Federal Reserve district, economic growth slowed from mid-July through August when compared to earlier in 2010. 

The survey found that consumer spending increased, but that consumers generally remained cautious. Although many sectors — including manufacturing, professional services, agriculture and finance — experienced growth, the rate was slower than earlier in the year.

The report reinforces NAHB’s view that regional markets are responding at different paces, though all the regions slowed after April.

The Fed reported that most districts experienced slowing residential real estate activity — low or declining home sales — following the expiration of the home buyer tax credit, although some areas in the Midwest did experience gains.

Some districts, such as New York and Dallas, noted that the expiration of the tax credit created especially weak conditions for lower-priced homes, while the high end of the market was the primary weak spot in Philadelphia and Kansas City.

While residential construction activity declined in most areas in response to weak demand, Cleveland, St. Louis and Minneapolis were the exceptions. Surveys in these districts indicated residential construction activity began to improve in late July and August.

Inventories of available homes rose across the country, although the availability of new homes in Atlanta was held down by the slow pace of new-home construction.

Price movements were mixed. Most districts reported stable or declining prices. A few exceptions —notably Boston, Minneapolis and San Francisco — reported that prices rose in some areas compared with the previous reporting period or last year.

Richmond reported that recent home sales were “dominated by foreclosure and short sales,” and Chicago reported an increase in the supply of foreclosed homes for sale.

NAHB Chief Economist David Crowe analyzes the economy from the point of view of the housing market every other week in the free e-newsletter, “Eye on the Economy.” The preceding is a reissue of his Sept. 17 edition. To subscribe to “Eye on the Economy,” click here.

Visit NAHB’s ‘Eye on Housing’ Blog for the Latest Economics and Housing Policy News and Analysis

Housing and economics followers can get the latest economics and housing policy news, analysis, studies, charts and graphs from NAHB’s free new blog, “Eye on Housing,” at

Featuring NAHB Chief Economist David Crowe, as well as observations and comments from NAHB economists Bernie Markstein, Paul Emrath, Robert Dietz, Peter Grist and Robert Denk, the blog also includes links to relevant housing stories and information from other news sources.

Blog entries will be updated on a regular basis as the news related to housing occurs. The blog also will replace the content in NAHB’s Eye on the Economy. While subscribers will still receive their regular issues of Eye on the Economy, the e-newsletter will serve primarily as a digest of the content featured on the "Eye on Housing" blog.

Readers can either visit the free blog directly at, or subscribe to the RSS feed on the blog to have the latest entries sent tothem as they are posted.

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