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KEY MARKET INDICATORS as of June 01, 2018
May Jobs Report
The U.S. job market added 223,000 jobs in May, a significant step-up from the previous two months. The job market is at full employment, with the overall unemployment rate falling to 3.8% – its lowest level since April 2000. Despite the low unemployment rate, job growth has held up well in 2018 – averaging 207,000 jobs a month so far this year, slightly ahead of the pace in 2016 and 2017. An important data point for interest rate-sensitive sectors such as housing will be wage growth. While faster wage growth is usually a good thing, it is generally a sign of labor market tightening and accelerating inflation at this point in the cycle, and will drive mortgage rates higher. Wage growth and inflation will be two data points that the market and the Fed will focus on in 2018 and beyond. Wages grew by 2.7% in May, suggesting a slow acceleration. We believe that this will support the Fed’s plan of incrementally raising interest rates.
Job growth in May was broad-based. Professional and business services, transportation, and manufacturing reported strong job growth, suggesting that most businesses are doing well. The construction sector, which has benefited from the ongoing housing recovery also continued to report strong job growth. Consumer sectors such as restaurant and tourism showed that consumers are feeling confident, benefiting from the boost to after-tax income under the new tax law.
The job market is providing a favorable economic environment for potential first-time homebuyers. Unemployment rates for people in the primary homebuying age (25-34 and 35-44) are now approaching the lowest level since the late-90s and early-2000s. The unemployment rate for the 25-34 year olds fell below 4% in May, and the unemployment rate for the 35-44 year olds fell below 3% – both at levels last seen in 2000.
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