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Economic & Housing Weekly Note

Payroll Employment Continues to Increase, Though Pace of Improvement Is Slowing

August 7, 2020

Key Takeaways:

  • Nonfarm payroll employment increased by 1.8 million in July, according to the Bureau of Labor Statistics, the third straight monthly gain, though still over 12 million payrolls lower than February’s peak employment level. Almost half of July’s increase was in the leisure/hospitality and retail trade sectors. The unemployment rate dropped 0.9 percentage points to 10.2 percent, though it remains 6.7 percentage points above its February level. Average hourly earnings increased 4.8 percent year over year, a slight deceleration from June. Residential construction employment (which includes specialty contractors) increased by 24,000 jobs.
  • Light vehicle sales rose 10.2 percent in July to a seasonally adjusted annualized rate (SAAR) of 14.5 million, according to Autodata, the highest level since February. From a year ago, light vehicle sales were down 14.6 percent.
  • The ISM Manufacturing Index rose 1.6 points in July to 54.2, the highest level since March 2019. The indices for new orders, production, and employment all increased, though the employment index remains below the expansionary threshold. The ISM Service Index increased 1.0 point in July to 58.1, the highest level since February 2019. The business activity index rose to the second highest level in series history, though the employment index fell one point and remains below the expansionary threshold. Any reading above 50 indicates expansion.
  • Factory orders jumped 6.2 percent in June, according to the Census Bureau, driven by a 20.2 percent increase in orders for transportation equipment. Excluding transportation, new orders rose 4.4 percent. Orders for nondurable goods jumped 5.0 percent but remain well below early-2020 levels.
  • The Federal Reserve Board Senior Loan Officer Opinion Survey in the three months ending in July showed banks significantly tightened credit standards for all residential mortgages to levels not seen since the Great Recession. Credit standards for commercial real estate loans also tightened significantly. Meanwhile, a “major net share of banks” also reported stronger demand for all categories of residential real estate loans other than home equity lines of credit.
Forecast Impact

Economic data from July continued to show some improvement, albeit at a slower pace than in June as COVID cases across the country began to spike again. We expect the rise in cases across the country will likely weigh on employment in the coming months, particularly in the service sector as state and local governments consider re-imposing social distancing protocols and restrictions on businesses. Both July manufacturing and service sector activity surpassed levels seen before the pandemic and, when coupled with the strength in light vehicle sales and June factory orders, these data support our outlook of a strong rebound in overall growth in the third quarter. In housing, the pandemic and downturn in economic activity led to a sharp increase in credit standards for residential mortgages, but demand for mortgages remained strong, particularly for GSE-eligible mortgages. The strong demand seen in the three months ending in July despite the economic turmoil during the same time period supports our expectation of an increase in sales in the third quarter, particularly as mortgage rates continue to fall to record lows.

Payrolls Add 1.8 Million Workers, Unemployment Rate Falls to 10.2 Percent


Manufacturing and Service Sector Activity Climb Past Pre-Pandemic Levels


Economic and Strategic Research Group

August 14, 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, including assumptions about the duration and magnitude of shutdowns and social distancing, 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.