August 8, 2023 – The Employment Picture Clouds a Bit

Economic Commentary

The Employment Picture Clouds a Bit. The Federal Reserve and every market analyst have been waiting for the job market to cool down a bit so that one of the last bastions of inflation could fall. The June employment picture was a bit cloudier for the first time this year. Though the headline job data again was just about 200,000, which is nothing to sneeze at —the underlying numbers were a bit weaker. For example, the previous two months of gains were revised downward by just over 100,000.

Even one number which showed strength could be interpreted as a weakness. The average hours worked per week was higher, indicating the demand continues. However, often employers expand overtime when they have the need and don’t want to hire additional personnel. Or perhaps they can’t find the workers. Wage inflation was still on the strong side, so this supports the latter theory.

These “cloudier” numbers made the July report released last Friday even more interesting. How did we do?  The economy added 187,000 jobs in July, a decent number – but decidedly less than the average for the first half of the year. The previous two months of gains were revised down by approximately 50,000, making the overall numbers even lower.  The headline unemployment rate moved down one tick to 3.5%.  The all-important wage inflation numbers came in a bit high at 0.4% for the month and 4.4% annually.  All-in-all, this was seen as a softer report, though wage growth will be concerning to the Fed.  With no Fed meeting this month, there will be another jobs report before they meet in September.

Weekly Interest Rate Overview

The Markets. Rates rose again last week as the strong economic news continued and there was a surprise in the form of a downgrade of the U.S. credit rating. The higher cost of funding the huge Federal debt is a major concern. For the week ending August 3, 30-year rates rose to 6.90% from 6.81% the week before. In addition, 15-year loans increased to 6.25%. A year ago, 30-year fixed rates averaged 4.99%, almost 2.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The combination of upbeat economic data and the U.S. government credit rating downgrade caused mortgage rates to rise this week. Despite higher rates and lower purchase demand, home prices have increased due to very low unsold inventory.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

According to research from Realtor.com and Censuswide, fine china and other traditional wedding gifts are out, and cash wedding gifts that are contributions toward homeownership are in. The research was conducted by Censuswide, with 2,291 respondents in the U.S. including 755 people who have created a wedding registry in the last 24 months. “It’s extremely difficult for first-time homebuyers right now,” Realtor.com executive news editor Clare Trapasso tells FOX Business. “Any extra financial assistance they receive can mean the difference between becoming homeowners and remaining renters. First-time buyers also struggle with saving for a down payment. Inflation is high, rents have increased and student loan payments are resuming. All of these factors can make it a challenge for first-time buyers to come up with a down payment plus closing costs. Additionally, first-time buyers are also at a disadvantage as they don’t have a home they can sell for a profit,” Trapasso said. The study found that newlyweds would rather gift-givers skip traditional presents in favor of financial gifts toward the purchase of a home. Although this is their preference, the data also revealed that many feel obligated to register for traditional gifts they don’t want. Newlyweds polled for the survey who have had a wedding registry in the last 24 months reveal this cash-focused gift trend is spot-on, as 85% say they would have preferred to have received money toward a down payment on a home, rather than a physical gift. And 80% said that if they were creating a gift registry today, they would include an option for people to give them money toward homebuying expenses, such as a down payment, a mortgage payment or closing costs, according to the survey. Source: Fox Business

Curbio, Inc. released its newest “Preparing to Sell: 2022 Home Improvement Report”, which analyzes projects completed by Curbio to determine which ones will get homeowners the highest return on investment (ROI) when selling and surveys homebuyers on what they’re looking for in a home. Curbio conducted its homeowner insights survey to find out more about the misconceptions people have regarding pre-listing home improvements. The survey found that nearly half of homeowners—or 43%—don’t think they need to update their house before listing. However, it turns out that’s not what homebuyers think, as 67% of potential homebuyers say they only consider homes with updated features and layouts. In addition, roughly 68% of potential homebuyers say the biggest dealbreaker when buying a home is disrepair and wear and tear. When renovating or making repairs to get a home ready to sell, different projects can result in vastly different returns. New data analysis of renovation projects across 30+ U.S. markets shows where home sellers can get the most bang for their buck. The report found that the project bringing the highest return is a kitchen refresh, with a 377% ROI; if a homeowner spends $15,000 to update their kitchen, they can expect to sell for an additional $71,550 to a $56,550 profit. The data also shows that refreshing key areas of a home, like a kitchen or bathroom, delivers higher returns than full remodels. A bathroom refresh has a 256% ROI, and a full bathroom remodel has a 120% ROI. Source: MReport

The average retirement savings in the U.S. has increased by 3% to $89,300 for 2023, up from $86,869 in 2022, according to the 2023 Planning and Progress study conducted by Northwestern Mutual. However, the expected retirement age has also risen sharply year over year, climbing from 62.6 in 2022 to 65 years in 2023. “Americans’ magic number for retirement readiness continues to rise,” said Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual. “The good news is that they are saving and investing more for tomorrow, even in this time of high inflation and market volatility. That is a step in the right direction and a reverse of what we saw last year when the gap widened rather than narrowed.” Some interesting trends have emerged from the data, Gokhale said, including “a big disparity between what they think they’ll need to retire and what they’ve saved to date.” When looking at the age groups specifically, the study shows that the average person in their 50s expects to need $1.56 million saved for a comfortable retirement, the highest figure cited by participants. Those in their 60s say they need $968,000 to retire comfortably, and respondents in their 70s expect to need $936,000, according to the data. That figure increases substantially for those with higher net worths, who expect to need as much as $3 million to retire comfortably. In terms of confidence in retirement preparedness, Gen Z is the most confident generation, with 65% saying they expect to be financially prepared for retirement. Millennials are next at 54%, followed by baby boomers who are not yet retired at 52%. Generation X is the least confident, with only 45% expecting to be ready for retirement when the time comes. “These retirement readiness feelings impact how long people expect to work,” the survey results say. “Boomers plan to work the longest (71) while Gen Z expects to retire more than a decade earlier (60). Millennials and Gen Xers plan to work to age 63 and 65, respectively. Overall, Americans on average plan to work until the age of 65, up from 64 last year and 62.6 in 2021.” The study also found that people who “identify as disciplined financial planners knock two years off their retirement age,” believing it will be 63. Informal or non-planners, meanwhile, believe their retirement age will be 67, an addition of two years. “One of the greatest gifts that financial planning provides is time,” said Gokhale. “Planning and discipline can unlock four years of life in retirement, and professional help is there for everyone regardless of where they are on their financial journey.” Source: HousingWire