Federal National Mortgage Association : Hiring Slows Despite Record Number of Job Openings, While Upward Price Pressures Continue

Key Takeaways:

Due to the holiday weekend last week, nonfarm payroll employment is included in this weekly update.

• Nonfarm payroll employment increased by 235,000 in August and the unemployment rate declined two-tenths to 5.2 percent, according to the Bureau of Labor Statistics (BLS). The June and July estimates were revised upward by 24,000 and 110,000 to gains of 962,000 and 1,053,000 jobs, respectively. The labor force participation rate was flat at 61.7 percent, which is 1.6 percentage points lower than in February 2020. Employment in leisure and hospitality was also flat after recording 812,000 new jobs over the past two months. Residential construction employment (which includes specialty trade contractors) rose by 17,400.
• The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings increased 749,000 to 10.9 million in July, hitting a new record level for the fifth straight month, according to the BLS. Leisure and hospitality added 134,000 new openings to reach 1.8 million, while job openings in the education and health services sector jumped by a record 281,000 to reach around 2.0 million total openings. The number of hires fell 160,000 to 6.7 million, though that's still the second most hires since May 2020. Total separations, driven by 4.0 million quits, the second highest number on record, edged up 174,000 to 5.8 million. Layoffs and discharges increased 105,000 to 1.5 million, the highest level since March 2021.
• The Producer Price Index (PPI) for final demand of goods and services increased 0.7 percent in August, according to the BLS. Core PPI increased 0.3 percent after a 0.9 percent increase in July. On an annual basis, headline and core PPI were up 8.3 percent and 6.3 percent, respectively, the fastest annual pace on record for both, though these readings are impacted by base effects from below pre-COVID trend prices in the summer of 2020. The price for softwood lumber fell 27.3 percent in August following a 29.0 percent decline in July, while steel mill products rose 5.1 percent over the month, following a 10.8 percent increase the month prior. Both products are inputs for residential construction.
• Consumer (non-mortgage) credit outstanding increased $17.0 billion in July, according to the Federal Reserve Board. Revolving credit (largely credit cards) rose $5.6 billion to the highest level since April 2020, and non-revolving credit (largely auto and student loans) increased by around $11.5 billion.

Forecast Impact:

The record number of job openings in July failed to translate into a strong August jobs report, which was much weaker than expected. The disappointing payroll gains were partially offset by upward revisions to previous months' reports and a more optimistic household survey, which showed the unemployment rate declining and a strong year-over-year gain in hourly earnings. Still, flat employment in the leisure and hospitality industry, where there are still approximately 1.7 million fewer workers than in February 2020, suggests that Delta variant concerns continue to weigh heavily on the sector, which may also suggest a general slowdown in the pace of recovery in the service sector overall. Though we expect the expiration of enhanced unemployment benefits to lead to a somewhat greater pace of hiring in coming months, state-level data to date has not conclusively shown hiring to be stronger in states that ended enhanced benefits early. Further, continuing COVID-related health concerns, combined with uncertain school re-openings, may keep the labor market tight, limiting the pace of payroll growth and putting further upward pressure on wages. In part due to the jobs report, we are likely to downgrade our near-term growth forecast to reflect weaker consumption and employment in service industries than previously expected.

Much of the continued strong gain in the PPI is likely reflecting ongoing supply chain disruptions. As these issues eventually resolve, we expect much of the inflationary pressure to pass, with prices for many durable goods in particular declining over the next year back toward a level more consistent with their pre-COVID trend. However, there are also signs of growing inflationary pressures less likely to be transitory in nature as evidenced by the 0.7 percent price increase in final services, as a tight labor market has pushed up wages above their pre-COVID trend in many industries. Upward wage pressures, as well as the slower-than-expected resolution of some supply chain issues, will likely lead to an upward revision to our near-term inflation forecast.

Nathaniel Drake
Economic and Strategic Research Group
September 10, 2021

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.