U.S. Housing and Labor Markets: Progress Report

February 22, 2012

A collapse of the U.S. housing market triggered the Great Recession, and the labor market bore a heavy brunt of the punishing downturn.  A full recovery awaits a better sense of normalcy in both areas.  And while progress is being made, both markets are closer to their troughs than to pre-recession highs.

First let’s look at housing. 

  • The National Association of Home Builders housing market index (HMI) printed at 29 in February versus 16 a year earlier.  This was the best score since May 2007.  However, the HMI exceeded 49 without interruption from August 1995 until May 2006 including a peak of 78 at end-1998 and a reading 0f 72 as recently as June 2005.
  • Housing starts in January of 699K were 1.5% greater than in December, 9.9% higher than a year before, and 42.7% above the low in January 2009.  Nonetheless, last month’s level was 69.2% lower than in January 2006.
  • The Case-Shiller-20 home price index slid 0.7% in November and posted an on-year drop of 1.3%.  Home prices remained 33.5% below the level in May 2006.
  • In the U.S. national income accounts, residential construction increased in each of the last three quarters of 2011, including an advance of 10.9% at an annualized rate between 3Q and 4Q and a gain of 3.4% between 4Q10 and 4Q11.  In calendar year average terms, however, 2011 saw the sixth straight drop, and the cumulative slide between 2005 and 2011 was 58%, or 13.4% on a per annum basis.
  • A huge backlog of potential home foreclosures in the pipeline is likely to slow the convalescence of the housing market over the balance of this year.

Turn next to the labor market.

  • Last month’s unemployment rate of 8.3% represented the third straight monthly drop of 0.2 percentage points and a drop of 1.7 percentage points from the peak of 10.0% in October 2009.  The jobless rate had bottomed at 4.4% in May 2007 and remains above prior recessionary peaks of 6.3% in June 2003 and 7.8% in June 1992.
  • U.S. non-farm payroll jobs had climbed by 3.16 million last month to 132.4 million since bottoming in February 2010.  That’s an average recovery of 137.5K per month (or 1.3% per annum) and includes gains averaging 223K in the most recent two reported months.  Employment is still 5.59 million short of the peak of 138.0K in January 2008 and is 44K less than in January 2005.  In the dozen years between January 2000 and January 2012, U.S. employment increased only 1.63 million.  If the pace of job growth instead matched that sustained during the 20 years between end-1979 and end-1999, the increase of jobs over the past twelve years would instead of equaled 31.96 million, and the present level of employment would be at 162.7 million.
  • New jobless insurance claims declined to a 4-year low of  348K in the week of February 11 and averaged 365.25K over the latest four reported weeks.  Unemployment tends to decline when new jobless claims are running below 400K per week, which was the exact pace during the eight weeks to November 19.  The speed of this improvement may be overstated because the winter has not been an especially harsh one.  Nonetheless, the trend augers well for job creation in the weeks ahead.

The FOMC’s statement of January 25 predicted "some further improvement in overall labor market conditions, but said the unemployment rate continues to be "elevated" and called the housing market still "depressed."  Those characterizations seem appropriate.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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