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KEY MARKET INDICATORS as of May 07, 2018
April Jobs Report
The U.S. job market added 164,000 jobs in April, a moderate pace of job growth. The job market is at full employment, with the overall unemployment rate falling to 3.9% – its lowest level since December 2000. Despite the tight labor market, job growth has held up well in 2018 – it is currently adding about 200,000 jobs a month, similar to the previous two years. An important data point for interest rate-sensitive sectors such as housing will be wage growth. Indeed, 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 2.6% in April. The lack of acceleration in wage growth will support the Fed’s plan of incrementally raising interest rates. While faster wage growth is usually a good thing, at this point in the cycle, it is generally a sign of labor market tightening and accelerating inflation, and will drive mortgage rates higher. As a result, faster wage growth will likely make housing less affordable to potential buyers. While deteriorating affordability is a concern, demographics and the strong job growth are stronger drivers for the housing market in the near term and both remain positive.
At the industry level, professional and business services, education and health, and manufacturing again reported the most monthly job gains in April. It shows that most businesses are doing well. The construction sector, which has benefited from the ongoing housing recovery rebounded. Consumer sectors such as restaurant and tourism also performed well, but retail job growth remained weak. We still expect these sectors to perform well for the rest of the year, 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 lower than the trough in 2006-07, and approaching the lowest level since the late-90s and early-2000s.