Inflation, housing and labor market point to economic plateau

This is one of the most confusing times in recent memory for the economy. If you listen to what people are saying, there is an unprecedented gloom; meanwhile, employers are hiring at a pace that is only modest compared to last year’s massive job gains. The housing market is in a state of flux, no longer supported by low and falling interest rates; some of the country’s hottest markets have not only seen a slowdown in price growth, but the beginning of an outright reversal. Meanwhile, for many tenants, housing costs continue to climb.

And the most important and uncertain economic condition of all, inflation, has no simple answer.

But across all of these varied sectors of the economy, there is a common thread emerging from the tangle of data and experience, a kind of slowdown as the economy retrogrades after the frenetic year of rapid recovery from contraction. massive winter and spring 2020.

Whether this all adds up to a recession remains to be seen, but across the economy we can see a slowdown and the possibility that many of the trends that have defined the post-covid-shutdown experience – growth Massive employment and employer demand for labour, a booming housing market, skyrocketing inflation – may have peaked or at least slowed. This is not the end of economic openness, but perhaps the beginning of the end.

Labor market appears to be easing, especially in tech

The labor market is slowing down. It may seem strange to say that in June 372,000 new jobs were created, after 384,000 in May and 368,000 in June. In 2021, the average number of new jobs created per month was 562,000, while in the first quarter of 2022 it was 539,000. When you look at data other than the net number of jobs created, the slowdown, although not necessarily recessive, becomes more apparent. The number of new jobless claims rose last week, a sign that more companies are seeing the need to lay off employees.

“Initial jobless claims … are clearly trending up now,” Indeed economist AnnElizabeth Konkel told Grid. “When you zoom out and look at the longer-term trend, it’s been rising since the spring of this year.”

This follows anecdotal evidence of layoffs and hiring freezes, particularly in the tech sector. Following a wave of venture-backed and crypto companies announcing layoffs, some of tech’s biggest employers, like Meta and Alphabetannounced hiring slowdowns or freezes for certain positions.

Konkel saw evidence of the tech slowdown on Indeed. “We’re seeing software development jobs continue to cool, as well as IT and help desk, and information design and documentation,” she said. “We’re seeing a cooling in tech job postings, obviously something’s going on in the job market, it’s that cooling.”

“I’m going to watch what happens with consumer spending almost a week from now. If dollars aren’t invested in business, it will impact hiring decisions,” Konkel said.

There’s a chance that inflation will slow – or will soon

Consumer spending is one of the most watched indicators right now, not only because of how it could affect the labor market, but also because of how it could affect prices. Inflation is at its highest level in 40 years, leading consumers to feel worse about the economy than even at times of the Great Recession. But when you look at the data more closely, a more nuanced picture emerges.

There is a chance that inflation will slow – or will in the second half of the year. There has been a slight but real stagnation or even an outright decline in inflation expectations, whether measured by what financial markets expect inflation to be over the next five years or by what consumers expect over the next year.

This could be because the Federal Reserve has taken dramatic steps in terms of rate hikes, rapidly raising interest rates and signaling that it will continue to do so until the inflation figures come out. are improving considerably.

According to Skanda Amarnath, executive director of Jobs America, there are also technical reasons why the inflation chart – at least on the so-called basic side, which does not include food and energy because these are affected by the volatility of commodity prices – could improve.

“The real thing to watch from here is whether we get some inflation relief on the commodity side,” Amarnath said, pointing to stockpiling by retailers that could see dramatic price cuts during the back to school and holiday shopping season. The manufacturing issues that have plagued makers of everything from clothing to homewares “seem to be closer to the back view,” Amarnath said. “There are more reasons to be optimistic, for retailers to dump inventory; we may see more discounts and price cuts.

Another major driver of goods inflation – the massive rise in car prices, especially used cars, as automakers were unable to make as many cars as consumers demanded in because of the flea crisis – might calm down, Amarnath said. “Autos, you can see the weekly data is a bit more forward looking. That weekly data is starting to roll in now. Give it two months before it turns into CPI.

But headline inflation could still be driven by food, energy and rents. “It remains to be seen where commodities go from here. I’m still concerned about the energy outlook,” Amarnath said. “Commodity shocks are with us.”

House prices are still high, but growth is slowing

The housing market has been white-hot for much of 2020 and 2021. Thanks to low interest rates and remote working allowing and encouraging people to move away from crowded cities, home sales have taken off. But 2022, especially the second half, looks like something completely different. Interest rate hikes have pushed 30-year mortgage rates from just over 2% to well over 5%, and although price growth has slowed, prices remain extraordinarily high, making the buying a home more unaffordable than ever.

“This affordability crisis is putting a lot of shoppers out of the running,” said Jeff Tucker, economist at Zillow. Home sales have started to decline, with existing home sales in June falling about 14%, according to the National Association of Realtors.

While that hasn’t lowered home prices, it’s at least starting to slow growth, Tucker said, while in some markets like San Francisco; Seattle; San Jose, California; and Austin, Texas, home prices began to drop.

For the three West Coast cities, which have some of the highest prices in the country, Tucker attributed the drop in prices to buyers simply being driven away by higher interest rates.

“These are markets where many buyers can only qualify to pay very high prices when mortgage rates are exceptionally low. Most of this marginal distribution of homebuyers was squeezed out when rates rose,” Tucker said.

As for Austin, it has seen some of the biggest price increases in 2020 and 2021 and could be a harbinger for other hot markets.

“I think the monthly pace of price growth will slow down again next month, and that will likely bring more metro areas in this group to stall or down slightly in terms of price levels,” Tucker said.

But at the same time, new home construction has started to decline as builders see a slowdown in the housing market. In June, builders began building fewer homes than analysts expected.

“Purchasing requests and sales of new homes are decreasing; these are leading indicators for the construction of new single-family homes. As demand declines, builders will balance supply and demand; starts follow,” Dustin Jalbert, lumber analyst for Fastmarkets, told Grid. “[There is a] much more room for single-family homes begins to fall in the third quarter.

This is a reversal from the past two years, when, despite difficulties finding workers or supplies, housing construction took off in an attempt to meet the massively increased demand for new homes.

“We’ve had this tremendous boom on the new construction side,” Jalbert said, “[There was] so many requests from future and new owners, given the shifts in preference and accelerated migration patterns we’ve seen. For the better part of two years, we’ve been in this building boom.

Now home builders face a different picture.

“In June, we began to see a moderation in demand and an increase in cancellations due to rapidly rising mortgage rates and continued inflationary pressures across much of the economy. The supply of new homes and resale at affordable prices remains limited,” David Auld, chief executive of homebuilder DR Horton, told analysts on an earnings call Thursday.

Whether it’s inflation, jobs or housing, the respective markets may have slowed and calmed down, but that doesn’t mean things are much better.

Thanks to Lillian Barkley for writing this article.

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