By David Reaves, Senior Economist, Dodge Data & Analytics

According to the most recent report from the Bureau of Labor Statistics (BLS), non-farm payrolls added a whopping 304,000 jobs in the first month of 2019. This mark greatly exceeded the consensus estimate of 165,000 from Economists surveyed by Bloomberg. In the face of the longest government shutdown in U.S. history and general trepidation that the current U.S. expansion could be nearing an end, private-sector hiring remained steadfast and robust. In fact, the few discernable effects of the government shutdown were a slight rise in the January unemployment rate from 3.9% to 4.0%, and the number of temporary layoffs from the household survey rose by 175,000 (the majority of which were furloughed government workers). Separately, average hourly earnings for all private nonfarm employees rose by 3 cents, a 3.2% year-over-year increase. While wages did increase, wage growth decelerated from a 10-cent increase in December.

As always, some expected revisions were evident in the monthly data. Total nonfarm payrolls were boosted by 20,000 in November (to 196,000) and lowered by 90,000 in December (to 222,000). Even after those revisions, the 3-month average for job gains sits firmly at 241,000 per month. This number lends confidence to the general narrative that the U.S. labor market remains healthy. Touching on a few specifics, the leisure/hospitality (+74,000), education/health services (+55,000), and construction (+52,000) sectors all performed admirably posting more than 50,000 new jobs each. The transportation/warehousing and retail trade sectors experienced solid advances after seeing losses in December.  The largest negative from this month’s release was a slowdown in manufacturing payroll growth, which posted a five-month low for new hiring in January (+13,000).

The strength of the BLS’ recent monthly employment estimates should provide assurance of the current strength in the U.S. job market. Looking forward, however, some downside risks to the economy could pose problems for the labor market. The threat of another government shutdown, continued trade tensions with China, the threat of new tariffs on the already softening manufacturing sector, and the effect of political unease on consumer confidence are all whispers of concern that can be heard across the nation. So far, the whispers are just that, whispers.

By Kim Kennedy, Director of Forecasting Dodge Data & Analytics

It’s not news that the retail industry has been under a great deal of stress in recent years as online shopping pockets an ever-increasing share of consumer spending. New construction data from Dodge Data & Analytics show that even the giants of retail are not immune to this stress. Although Walmart spent roughly $1 billion in 2018 on new construction, additions, and renovations, that level of spending was down 11% from 2017 – and 2017 was down 18% from the previous year. Despite the declines, Walmart still outspent second-place Aldi’s Food Store by three-to-one last year.

Not all of the largest retailers lowered construction over the past year, however. Competitive pressures still kept some in expansion mode, or at least in renovation mode. Second-place Aldi’s, for example, grew construction starts by 2% in 2018 to $311 million following a 77% surge in 2017. Third-place Target has also been on a construction spree with increases of 183% in 2016, 52% in 2017, and another 19% in 2018 which brought the total dollar value of starts to $229 million.

Given the size of the stores, it’s not surprising that the big box retailers were well-represented among 2018’s 20 largest spenders for retail construction. Seventh-place Costco joined Walmart and Target among the top 20. Four supermarket chains were also on the list: Aldi (#2), Publix (#5), Kroger (#9), and new to the U.S., Lidl (#17). Two home improvement/hardware stores were also among the top 20: Menard’s and Harbor Freight Tools, which brags of opening a new store every three days. Not all of the top 20, however, have massive store footprints: three fast food restaurants were on the list (McDonald’s, Chick-Fil-A, and Taco Bell), as well as two dollar stores and two auto parts dealers. And for those of us addicted to our morning coffee, it’s noteworthy that Starbucks will soon be on even more street corners – it placed #14 among the top retail chains for construction starts in 2018.

By Anne Thompson, Economist

BEDFORD, MA – NOVEMBER 28, 2016 – Sales of existing homes improved more than expected in October to the highest level since February 2007. The National Association of Realtors reported last Tuesday that sales of previously owned homes rose 2.0% in October, to a seasonally adjusted annualized pace of 5.60 million units. Compared to a year earlier, homes resales jumped 5.9%.

[[{"fid":"620","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":"October Existing Home Sales Expand, While New Home Sales Slip","field_file_image_title_text[und][0][value]":"October Existing Home Sales Expand, While New Home Sales Slip"},"type":"media","attributes":{"alt":"October Existing Home Sales Expand, While New Home Sales Slip","title":"October Existing Home Sales Expand, While New Home Sales Slip","height":"283","width":"331","class":"media-element file-default"}}]]

October’s strong gains were widespread with expansion occurring across all regions. In the South, existing home sales rose 2.8% over the month to an annual pace of 2.22 million units. Growth in purchases also outpaced the nation in the Midwest, rising 2.3% to 1.36 million units. In the Northeast, sales improved 1.4% to 750,000 units.  While sales in the West saw the smallest gain, rising just 0.8%, they reached a seven-year high of 1.27 million units. Year-over-year resales also rose across all regions. In the West (+10.4%) sales jumped by double-digits. The Midwest (+6.3%) and South (+4.7%) also posted healthy annual growth while sales improved by a more modest rate in the Northeast (+1.4%).

The national increase in October was solely due to a 2.3% rise in purchases of single family dwellings to a nine and a half year high of 4.99 million annualized units. Growth in single family resales outpaced the nation in the South (+3.1%) and Midwest (+2.4%). Expansion was softer in the Northeast (+1.4%) and West (+0.9%). All regions also saw sales improve over the year.  Gains outpaced the nation in the West (+9.9%) and Midwest (+6.7%), but were also significant in the South (+5.9%) and Northeast (+3.3%).

Meanwhile, existing condominium sales were at a seasonally adjusted annual rate of 610,000 units – unchanged from September and from a year ago.  Sales over the month were also flat across all regions. In contrast, year-over-year sales varied widely across the country.  As with the nation, condominium resales were flat in the Midwest.  Sales slumped 7.7% in the Northeast and dropped 3.8% in the South.  These large declines were offset by a 14.3% surge in resales in the West.

The inventory of existing homes available for sale rose a modest 3.0% over the month to 1.76 million seasonally adjusted annualized units. Still, strong sales kept the months’ supply nearly flat at 4.3 months. A six-month supply is typically considered a healthy balance between supply and demand. The median home price inched up 0.5% over the month but gained 6.3% over the year to a seasonally adjusted $223,000, marking the fifty-eighth consecutive month of year-over-year gains.

The positive news about existing home sales was dampened on Wednesday by the Commerce Department’s report on new single family home sales. Sales dipped 1.9% in October to a four-month low of 563,000 annualized units. While the report was disappointing, new home sales represent less than ten percent of all sales and are traditionally a volatile series. Year-over-year purchases, which are a better indicator of the general trend, improved by double-digits for the seventh straight month in October jumping 17.8%.

Regionally, sales were down from September across most regions. In the Midwest sales slumped 13.7%, while in the Northeast (-9.1%) and South (-3.0%) the declines were more moderate. Meanwhile, sales in the West leapt 8.8% over the month. The 17.8% gain in national sales over the year was driven by the West (+28.7%) and South (+17.9%). Sales in the Midwest rose 8.6% from October 2015 while sales in the Northeast fell 6.3%.

Weak sales forced the number of new homes available for sale to climb 2.9% from September to a seven-year high of 246,000 units. At the current pace of sales, it would take 5.2 months to deplete the available inventory. A 1.3% increase brought the median price of a new home to a seasonally adjusted $310,000. The median price of new homes is now 31% above the median price of existing single family homes.

The outlook for the housing market in the coming months is shaky.  On the positive side, wages will inch up as the labor market nears full employment. More millennials will become homeowners as they continue to settle down and start families. However, while the gap between rising home prices and wages is narrowing, inventories will continue to shrink putting upward pressure on prices.  Compounding this issue is rising mortgage interest rates. Over the past month, mortgage rates have surged 50 basis points to a fifteen-month high of 4.03%.   In addition, the Federal Reserve appears on track to raise interest rates in December and rates are likely to continue to increase alongside inflation.