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Economic & Housing Weekly Note

Job Growth Decelerates as Retail Trade Employment Falls for the First Time Since April

December 4, 2020

Key Takeaways:

  • Nonfarm payroll employment grew by 245,000 in November, the fifth straight month of deceleration and the smallest increase since February, according to the Bureau of Labor Statistics. Total nonfarm employment remains approximately 6.5 percent below the level seen at the peak in February. Over half of the job growth in November was concentrated in the transportation and warehousing subsector. Retail trade employment fell for the first time since April. Residential construction employment (including specialty trade contractors) rose 15,400, just below the level seen in February. The unemployment rate fell two-tenths to 6.7 percent.
  • The ISM Manufacturing Index fell 3 points in November but remains at 57.5, well above the expansionary threshold of 50. All three of the new orders, production, and employment indices declined, though the employment index was the only one to fall back below the expansionary threshold. The ISM Service Index edged down 0.7 points in November to 55.9, the second straight month of decline, but also remained well above the expansionary threshold. Both the business activity index and the new orders index fell, though both remained above 50, while the employment index increased.
  • Light vehicle sales declined 3.1 percent in November to a seasonally adjusted annualized level of 15.9 million units, according to Autodata. From a year ago, light vehicle sales fell 7.6 percent.
  • Factory orders and shipments each rose 1.0 percent in October, according to the Census Bureau. Nondurable goods orders increased 0.7 percent, though they continue to remain well below early-2020 levels. Core capital goods orders and shipments rose 0.8 percent and 2.4 percent, respectively. Core capital goods orders are now 4.8 percent above the previous peak seen in January.
  • The real goods trade deficit (an input into the calculation of net exports) widened by approximately $2.3 billion to $89.9 billion in October, according to the Census Bureau. Both exports and imports rose over the month, though real exports remain around 5.3 percent below February levels.
  • The National Association of REALTORS® Pending Home Sales Index, which records contract signings of existing homes and typically leads closings by one to two months, fell modestly by 1.1 percent in October to 128.9. This was the second straight month of declines; however, it remains at an elevated level. From a year ago, pending sales were 20.2 percent higher. Regionally, sales dropped over the month in the Northeast and Midwest, while staying relatively unchanged in the South and West.
  • Private residential construction spending rose 2.9 percent in October, 7.5 percent above the level seen in February, according to the Census Bureau. New single-family housing spending increased 5.6 percent to the highest level since May 2007, while new multifamily spending grew 1.2 percent to the highest level in series history. From a year ago, new single-family spending jumped 14.2 percent, the largest annual increase in just over three years. New multifamily spending improved by 18.0 percent, the largest annual increase since July 2016.
Forecast Impact:

The continued deceleration in job growth, as well as the decline in November light vehicle sales, supports our expectation that near-term growth will likely decelerate considerably. Much of the hiring since April has occurred in industries that had been hit particularly hard by the April/May COVID-related shutdowns/social distancing measures, such as retail trade and leisure/hospitality. While the normal seasonal pattern of holiday-related hiring may be abnormal this year, leading to uncertainty in interpreting seasonal adjustments to the data, we believe the first decline in retail trade employment since April suggests that the rapid phase of job recovery has come to an end. Given the current rise in COVID cases, some localities are once again imposing restrictions on eating establishments, which, when combined with potential changes in consumer behavior, will likely further drag on employment in the near term. Meanwhile, the pace of expansion in the manufacturing sector decelerated according to the ISM survey, though it continues to indicate strength as industrial production catches up to the recovery in consumer demand. Capital goods orders (a leading indicator) remained healthy, suggesting further growth in business investment in the coming months. In terms of housing, the decline in October pending home sales suggests to us a slower pace of existing sales growth in the coming months, though this is not too surprising given the current lack of available and affordable supply. However, while pending sales declined, single-family construction spending continued to show strength, which supports our expectation of a strong showing in Q4 for residential investment.

Ricky Goyette
Economic and Strategic Research Group
December 4, 2020

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.