Economist's Commentary: October 3, 2008

Quick Take on the Economy: October 3, 2008

By Lawrence Yun, NAR Chief Economist

Employment Conditions

• The official monthly tally of the job market conditions from the Bureau of Labor Statistics shows a rapidly deteriorating situation.
• In September there were 159,000 fewer payroll jobs. The manufacturing and construction industries accounted for roughly half of those job cuts. The office requiring jobs in the Professional Business Service sector fell by 27,000 - which will hurt commercial real estate demand. Consumers have pulled back fast as the retail trade sector cut 40,000 jobs.
• From two years ago to date when the housing market was on its way down, the construction sector has shed 607,000 jobs.
• A separate household survey (as opposed to a company survey for payroll data) also showed deep job cuts. There were 222,000 fewer jobs when asking people about their employment status. Despite that, the unemployment rate stayed the same at 6.1 percent because over 100,000 people left the labor force not seeking work.
• The average hourly wage rose by 3 pennies to $18.17 per hour. The 12-month wage increase of 3.4 percent is not keeping pace with inflation, though low wage growth helps by giving the Federal Reserve the opportunity to lower the fed funds rate.
• The Hurricane in Texas may have had an impact - though modest because most people generally still remain on the payroll despite natural disasters. The credit squeeze for small businesses no doubt contributed more significantly to the latest weakening job market conditions. Even the successful and profitable small businesses cannot expand because of limited loan availability.

What does today's data mean for REALTORS® and consumers?

• The job market is tough. Job cuts will likely last through the end of the year.
• The economy has been producing more, so we may not formally be in a recession. But we are dealing with semantics. Call it what you will, the economy is not sound.
• With weak wage growth, the Federal Reserve is now likely to cut fed funds rates - if nothing but to shore up people's confidence. But the real credit availability will be determined not by the Fed this time but by the banks' willingness to lend. The $700 billion package will make a big impact in reversing the financial crunch.
• People with jobs - who make up 94 percent of the work force - and who looking to buy a home are in the best of positions. Mortgage rates are historically low while inventory selection remains plentiful. First time home buyers will also get that special home buyer tax break.

Daily Forecast Update

• NAR's monthly official forecast as of September 9th (15K PDF)
• GDP Q3: 0.0%
• GDP Q4: -0.6%
• Unemployment rate at year end: 6.5%
• Average 30-year fixed mortgage rate in December: 6.1%
• Average 30-year fixed mortgage rate by mid-2009: 6.3%
• The next Fed policy change: a rate cut at the end of October.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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