The headline numbers were lower than expected for the Bureau of Labor Statistics (BLS) Employment Situation covering December 2016, but wage growth—which many economists have cited as a key factor in the growth of housing—picked up during the month following a slight decline in the previous report.
But the rise in wages may result in some unintended adverse side effects for housing, according to some economists.
Approximately 156,000 jobs were added during December, and job growth has averaged 165,000 over the three-month period from October to December—the lowest three-month average since June. The unemployment rate (4.7 percent) was changed little from November, and the labor participation rate (62.7 percent), which has hovered near a 40-year low for much of the last year, rose slightly from November to December.
The good news contained in the December Employment Situation was that the average hourly wage bumped up by 10 cents from November (and by 2.9 percent over-the-year) up to $26.00, after falling by 2 cents from October to November.
“Though job creation slowed according to December’s employment report, we have now seen a record 75 months of job growth,” said Jonathan Smoke, Chief Economist at realtor.com. “Growth in the labor market is slowing down for the same reason we’re seeing sluggish growth in existing home sales: we have a supply problem. With job openings at near record levels, we can expect further economic growth to lead to higher wages. This growth should lead to higher household incomes and stronger consumer confidence.”
National Association of Federal Credit Unions Chief Economist Curt Long stated of the December Employment Situation, “The labor market finished the year on a positive note, as job gains were slightly below expectations but still strong, and wage growth continued to improve. Hourly wages grew 2.9 percent from a year earlier, the fastest pace since 2009. Moreover, wage gains were spread broadly across industries. Labor force growth has slowed, which provides further evidence that full employment has arrived, or is at least in sight. While the labor market continues to hum along, this report does not raise alarm bells for the Fed as it considers the next rate hike. Wage growth is improving but still not strong enough to suggest that the Fed is in danger of getting behind the curve.”
The numbers contained in December’s Employment situation could be a sign that the market is at full employment, according to First American Chief Economist Fleming.
“Today’s jobs report for December shows little or no change from November,” Fleming said. “A good sign? Has the labor market found its floor? Is it paused in waiting for more details on what’s to come? It makes sense that wages continue to show stronger growth, 2.9 percent in 2016, in an environment with slowing job creation and a stabilized unemployment rate. Aren’t these signs of a market either at or getting close to full employment?”
As far what the numbers mean for housing, Fleming said, “Increasing wages are good for prospective homebuyers as it increases their purchasing power. We also expect home price appreciation to slow in 2017, another purchasing power benefit to the consumer. Faster rising rates may counter some of that purchasing power improvement.”
The rise in wages comes with a caveat, according to Fannie Mae Chief Economist Doug Duncan.
“The improvement in labor force participation and rise in compensation are generally positive results for housing,” Duncan said. “However, they need to be watched to determine how much is a result of minimum wage increases and lack of available skilled labor. Increased minimum wages can result in a reduction in entry-level employment and shortages of skilled labor can result in additional wage pressure. Overall, this is a solid report, sealing a string of six consecutive years of annual job gains of more than two million—the best record since 1999—and showing a visible uptrend in wage growth over the past two years.”
It is also possible, according to Smoke, that wage growth could indirectly lead to higher mortgage rates.
“The financial markets and the Federal Reserve will follow wage increases closely, looking for signs of higher inflation,” Smoke said. “In fact, expectations of higher inflation in 2017 are responsible for the increase in mortgage rates we’ve seen since October. For consumers, the challenge will come from inflation driving mortgage rates even higher.”
Click here to view the full December Employment Situation from the BLS.