MBA’s Mike Fratantoni on the latest jobs report
June 15, 2021
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Today’s HousingWire Daily features an interview with the Mortgage Bankers Association’s Senior Vice President and Chief Economist Mike Fratantoni. In this episode, Fratantoni reviews the latest U.S. Bureau of Labor Statistics jobs report on employment conditions and discusses how labor and supply constraints in the construction sector are impacting homebuyers.
Additionally, he also explains what the latest inflation report means for consumers and shares some insight into how the current job market is performing against economists’ predictions.
For some background on the interview, here’s a brief summary of HousingWire’s latest coverage of the May jobs report:
Total nonfarm payroll employment rose by 559,000 in May, below economists’ predicted rate of 675,000 new jobs. According to the U.S Bureau of Labor Statistics, unemployment now stands at 5.8% – around 30 basis points lower than April and now at its lowest rate since the pandemic began. So what does that mean for the housing industry, and the likelihood the Fed will change course on monetary policy?
According to the government’s statistics, job gains were again concentrated in the service industry, which showed an increase of 489,000 jobs in May. Within this sector, the leisure and hospitality components sported the most robust job gains, posting an increase of 292,000 jobs, indicators that American life is creeping back to normal.
There were disappointments for the real estate sector, too. The overall construction sector actually lost 20,000 jobs in May, though it was mostly concentrated among nonresidential specialty trade contractors. The construction sector remains an economic weak spot in many respects – it’s down 225,000 jobs from prior to the pandemic.
While commercial contractors are truly suffering, residential construction employment is at least moving in the right direction, even if gains there are tepid at best for the housing industry. According to the BLS statistics, residential construction employment, including specialty trade contractors, rose by just 1,900 jobs in May.
HousingWire Daily examines the most compelling articles reported across HW Media. Each afternoon, we provide our listeners with a deeper look into the stories coming across our newsrooms that are helping Move Markets Forward. Hosted by the HW team and produced by Alcynna Lloyd and Victoria Jones.
Below is the transcription of the interview. These transcriptions, powered by Speechpad, have been lightly edited and may contain small errors from reproduction:
Victoria Jones: Hello, HousingWire Daily listeners. Today, I’m joined by the Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni. Listeners, today, Mike will be speaking to us about the U.S. Bureau of Labor Statistics report on employment conditions in May. Mike, thanks for joining us again on HousingWire Daily.
Mike Fratantoni: Thanks for having me.
Victoria Jones: Absolutely. Well, let’s get started by discussing the nation’s unemployment rate. According to the U.S. Bureau of Labor Statistics, total nonfarm payroll employment rose by 559,000 in May and the unemployment rate dropped to 5.8%. So, Mike, taking a closer look at this data, what does the nation’s unemployment rate indicate about the job market at this time?
Mike Fratantoni: Well, things are certainly getting better. You can see it all around you, businesses opening up, people willing to go out and go to restaurants, take trips, do things they haven’t done for more than a year. And many businesses, honestly, at this point, are struggling to hire. You see job openings, more than 9 million job openings right now, across the entire economy, particularly in those sectors that are really racing to open as the pandemic, hopefully, is winding down. But as you mentioned, the unemployment rate at 5.8%, that’s better. You know, we were well below 4% in February 2020 before this all started. We’re holding to our forecast. We think we’ll get to about 4.5% by the end of the year. So that means this, we got more than 500,000 jobs gained in May. We think it’s gonna continue and might even accelerate through the remainder of the year.
Victoria Jones: Okay, thanks for answering that. Well, while the bureau indicates sectors like leisure and hospitality, which saw an increase of 292,000 jobs in May, experience significant gains, jobs in the real estate sector, like construction, remain stagnant coming in at 225,000 during the month. And this rate sits lower than its rate in February 2020, highlighting the slowdown in the market. So as we know, supply constraints and homebuyer demand have greatly impacted the housing market this year but in your perspective, if the market remains stagnant, how will this impact demand?
Mike Fratantoni: Yeah, great question. So yes, the total construction job number dropped a bit. We saw a slight increase in terms of residential construction or home building and a decrease on non-residential, so office-building construction, you know, other non-residential uses and even things like heavy construction like streets and, you know, bridge buildings, We’re waiting for that infrastructure bill which would impact that side of the economy. But on the home building side, I think, you got it exactly right. This is really reflecting the supply constraints that builders are facing. Your lumber prices are still unbelievably high. They’re more than double what they were last year. In many cases, builders even have difficulty getting access to the materials they need. We continue to hear about them not being able to find appliances to put in new homes. And if it’s just an increase in cost, that price will be higher for the homebuyer, but the home sales will continue. If it’s an availability issue, they may not be able to sell those homes. Although we’re actually seeing in the housing starts numbers though they’re backing off of it because they’re not able to access the materials they need.
Victoria Jones: Yeah, that’s a good point. We’re now halfway through 2021 and more Americans are returning to work, therefore increasing wages and stimulating their local economies. In your point of view, as more workers enter the job sector, is the economy behaving as economists previously anticipated?
Mike Fratantoni: I would say if anything, it’s stronger so, you know, we’re gonna see double-digit GDP growth in the middle of this year, something we haven’t seen for more than a decade. And reflecting, as you said, consumers getting back into the mix, you know, going out to movies, going out to restaurants. They’ve had more than a year stuck at home, limited to what they could get delivered by Amazon, right? And now, they’re going out and experiencing things again. The impact on the economic data is just gonna be profound. And to the way we started, the question right now is, you know, why aren’t employers able to hire even more than that 500,000 plus we saw in May? And some of it seems to be real, you know, hesitation on the part of many potential employees to get back to the job site, right? And so, we’re seeing the labor force participation rate still percentage points below what we saw pre-pandemic.
Victoria Jones: Okay, well, despite how poorly the housing sector did in the latest jobs report, do you consider May’s job gains to be a bright spot in the financial health of the American economy?
Mike Fratantoni: It’s certainly strong, right? So, we’ve averaged 541,000 job gains over the past 3 months and we think it’s gonna accelerate from here. Some of that may get pushed along as his unemployment insurance benefits end. [inaudible 00:04:59.288] data came out this morning. Initial claims for unemployment insurance were down substantially, continuing claims down, so all these other signals indicating a very strong job market, that just feeds through to a stronger demand for homes. So we do think the housing market is gonna reflag this positive news in the job market. And again, it’s like they’re gonna get stronger from here.
Victoria Jones: Okay. Well, before we go, Mike, is there anything else that you’d like to add today or anything else you think our listeners should know at this time?
Mike Fratantoni: Well, certainly, the big economic news today is that inflation report, so consumer price index up 5% year on year and you look at the core inflation up 3.8%. We talked about supply constraints in terms of building materials but I think more and more consumers are gonna be seeing price increases on just about everything they’re looking at and longer-term, that is gonna mean higher rates and everybody knows what that means for our industry, less refinance but do expect the purchase market is gonna be strong.
Victoria Jones: All right. We’ll definitely keep an eye out on that. We want to say thank you again for your time today, Mike. We appreciate it. And thanks for joining us on HousingWire Daily.
Mike Fratantoni: Thanks, Victoria.
Victoria Jones: Absolutely.
