As we find ourselves in the midst of 2023, economic indicators are shedding light on the state of employment, real estate, and potential Federal Reserve actions. Let's delve into the details of these trends and what they could mean for the near future.
Mixed Employment Picture
Employment growth has been a focal point throughout the year, and recent numbers reveal both strength and areas of concern. June's job creation of 209,000 positions marked the fourth instance in 2023 where monthly hiring fell below the 300,000 mark. Although a dip compared to recent periods, this number still outpaces the past 30-year average of 126,000. Notably, public sector hiring led the way with 60,000 new positions, while private industry payroll gains concentrated in healthcare, social assistance, and construction. Despite the ups and downs, the unemployment rate inched down by 10 basis points to 3.6 percent, maintaining a range between 3.4 percent and 3.7 percent since March 2022. This tight labor market has translated into an above-average year-over-year wage growth of 4.4 percent, providing support for household finances.
Multifamily Real Estate Trends
The multifamily real estate sector is showing promising signs. With average hourly earnings keeping pace with core PCE inflation, households might be experiencing increased financial confidence. While household formations slowed in the second quarter, projections indicate a rebound above one million by year-end. This level was consistently achieved from 2011 to 2016, during which the multifamily sector witnessed a drop in vacancy rates by 110 basis points and a 29 percent surge in average effective rent. Despite some regression in renter demand last year, 2023 has seen improvements in leasing activity. Preliminary data from May shows a rise in the number of renter leads, helping maintain vacancy rates despite increasing construction activity. As the single-family housing inventory remains low, growing housing demand is poised to bolster the multifamily outlook for the current year and beyond.
Student Debt's Potential Impact on Shopping Trends
Consumer spending patterns have been influenced by employment security, with increased spending on necessities and dining benefiting certain sectors like value retailers, drug stores, and grocers. However, a new challenge looms in the form of student loan payments resuming in October. Monthly payments, which can vary widely, could dampen holiday shopping as these expenses take precedence. This development might particularly affect discretionary retailers until budgets adapt.
Employment Growth Moderation Ahead
Although June's employment growth exhibited historical strength, signs of a softening labor market are emerging. Labor force participation remains stagnant, and replacing the engagement of older individuals might prove challenging in the short term. The number of people working part-time for economic reasons increased by 12 percent in the last month as certain businesses reduced hours. Job openings have also declined, and temporary help positions continued to decrease in June. Historically, these patterns have foreshadowed more significant job contractions, implying a slowdown in employment growth as the year unfolds.
Fed's Future Moves
June's employment gain has implications for the Federal Reserve's actions. While the goal is to cool the labor market to curb inflation, sustained high wage growth presents a challenge. Experts predict the Federal Open Market Committee will raise the overnight lending rate by 25 basis points in July to further mitigate inflation pressures. This decision might maintain high capital costs, but the relatively small increase should minimize disruptions to ongoing transactions between borrowers and lenders.
In conclusion, mid-2023 presents a complex economic landscape with both positive and cautionary indicators. The labor market, real estate sector, and Federal Reserve decisions all play a role in shaping the trajectory of the economy in the months ahead. As we navigate these trends, staying informed is key to making informed financial decisions.