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Look Beyond Recent Job News to Larger Trends

by devteam April 18th, 2013 | Share

Freddie Mac’s economists advise readers of its April Economicrnand Housing Outlook to look at employment growth over the past few monthsrnrather than the disappointing labor markets’ news in March.  To do so enables one, they say, to see thatrncertain sectors such as construction have realized strong gains.</p

From April 2006 when construction employment peaked tornDecember 2010 the economy lost 5.5 million nonfarm jobs, 2.2 million or 40rnpercent of which were in construction. rnOver the next 26 months ending in March 2013 the economy gained 4.8rnmillion jobs, only 330,000 or 7 percent of which were in construction.  In recent months however the pace of constructionrnjob growth has accelerated; it represented 8 percent of job gains over the lastrnyear and 15 percent over the last six months.</p

This acceleration is reflected in housing starts whichrnwere up 47 percent from March 2012 to March 2013, passing 1 million starts onrnan annualized basis for the first time since June 2008.  Builder confidence as measured by the National Association of HomebuildersrnHousing Market Index (NAHB HMI) has also increased – from 24 in Aprilrn2012 to 46 this month.  However,rneven as it almost doubled the index showsrnthat builders are not really optimistic about housing markets; they are just much less pessimistic. The indexrndeclined in March and April, but the component of the NAHB HMI measuring expectations of sales over the next 6 months has consistently improved and is currently at 53,rnmeaning on average buildersrnarernexpecting to see sales improve overrnthernnext 6 months.</p

Due largely tornthe disappointing economic news and jobs report and a continued flight to safety, mortgage rates fell during the first two weeks of April.  In the first week the 30-year mortgage rate for single-family loans was only 12 basis points above its all-timernlow of 3.31 reached in November 2012. </p

FreddiernMac’s economists say the lower rates should translate into a higher forecast forrnmortgage originations</bthan anticipated earlier in the yearrnand they now project no more than a 10 percent decline in single familyrnoriginations compared to 2011.  Thernrecent extension of the Home Affordable Refinance Program (HARP)rnthrough the end of 2015 has also caused them to increase projected refinancernvolume by $100 billion to account for additional HARPrnrefinances. For apartment buildings, a gain in property sales, increase in permanent financingrnduernto newly completed structures, and continuing strong refinances should push originationrnvolume in 2013 to about $150rnbillion, and totalrnresidentialrnlending tornnearly $2 trillion.</p

The Outlook saysrnthe recent disappointing labor market news should serve as a reminder of how far the economy needs to go to get back to a healthy level andrnincreases in employment across the board is key to robust growth.  “Construction employment is showing signs of life, which should help to improve the overall macroeconomic picture. Housing construction is starting to pick up, but is well below historical averages. Supported by low mortgage rates we expect more homes to be built in 2013 than in any year since 2007. This increased construction employment should continue to help bring down the overallrnunemployment rate andrnbuild a lasting recovery,” the report concludes.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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