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Labor Pressure and Housing - August 6, 2019

“Little Changed”

 While markets, policymakers, and pundits alike are reeling from President Trump’s recent trade tweets, some relative calm can be found in the latest Job Openings and Labor Turnover Summary. The June data release from the Bureau of Labor Statistics contained the phrase “little changed” twenty different times and indicated that the overall labor market continues to chug along. Job Openings continue to outnumber the unemployed, and both Quits and Layoffs were among the series that saw little change. There were, however, some headlines that caught our eyes. According to a recent Bloomberg article, once again, Walmart and other retailers are in the news for raising wages and benefits as they vie “for workers amid historic low levels of unemployment”. Admittedly, some wage increases are legally mandated as states have passed laws raising minimum wage. While this is helping workers, employers are struggling to cope. Bernie Sanders’s political campaign is not immune to wage pressures, as shown by the recent pay debacle. According to this article from the Wall Street Journal, New York businesses are also feeling the pinch. While the plural of anecdote is not data, it appears that when it comes to paying workers more, Milton Friedman was right, “there’s no such thing as a free lunch”.

 “Shortages Remained Widespread”

 The housing market is feeling the heat from a tight labor market. According to an article from Eye On Housing, “labor and subcontractor shortages remained widespread in July” and are “putting additional pressure on new home prices”. Far from being an isolated issue, shortages of labor “remained fairly widespread” across all 15 of the 15 different occupations addressed in an NAHB/Wells Fargo survey. Additionally, the nine occupations for which the NAHB has long-term data showed the highest average shortage level on record. These shortages are leading to higher wages, bids, and home prices, which are in turn “contributing to the ongoing and serious problem of housing affordability”.

Warnings of affordability problems could be shrugged off by pointing to the adage that “the cure for high prices is high prices”. But there are some initial signs of sand in the gears. Another article from Eye On Housing, reports that total sales for the first six months of 2019 are 2.2% higher than “the comparable total for 2018”, but the combination of “tax reform-related effects and affordability” are causing problems. These problems are showing up in the form of massive regional dispersion: though the first six months of 2019 saw home sales up in both the South and the West, the Northeast saw a 24.4% decline YTD and a 50.0% drop in June sales, “despite the lower mortgage rates in the recent weeks”!