Beard: Don’t Plan on a Fed Rescue for Single-Family

Remember last month, when the pundits were gushing about the Great American Job Creation Machine roaring back to life? In June, the machine downshifted. Employers added just 57,000 jobs — less than half May’s pace.

The unemployment rate actually ticked down to 4.2%, but only because population growth is flat. Since we’re not adding people, we don’t need as many jobs.

Nobody’s panicking. But nobody’s popping champagne, either. Job gains YTD have been stronger than expected, but those jobs have been concentrated in healthcare, which is relatively low-paid. As you’ll see in my presentations at this year’s meetings, our expectations for full-year job gains remain muted.

Here’s the bigger problem: inflation. Consumer prices rose 4.2% YOY in May, nearly double February’s 2.4%, while average weekly earnings grew just 3.7% in June. Inflation was driven by energy costs (Iran).

While we thought relief was on the way as the deal was announced, they’ve ticked back up this week as uncertainty prevails. When paychecks trail prices, consumers get grumpy — and they are.

The University of Michigan’s consumer sentiment index rebounded to 49.5 in June, which sounds encouraging until you notice it’s bouncing off May’s 44.8, the weakest reading since the index was launched in 1978.

Hot inflation also means the Fed isn’t riding to the rescue. The 30-year mortgage ended May at 6.51%, up more than half a point since February. Predictably, the existing home sales “surge” the media celebrated last month faded right on schedule: June sales slipped to 4.09 million (annualized) from May’s 4.19 million.

We said one month doesn’t make a trend. It didn’t. Meanwhile, the median existing home price hit $440,600, a new all-time record. Affordability relief is not on the way.

In new construction, the news is even tougher. Total housing starts fell to 1.18 million (annualized) in May, the weakest pace in more than four years, with single family at 882,000. New home sales dropped to 580,000, and while we’ve seen slight relief in unsold inventory through our own surveys, builder confidence (HMI at 37) remains stuck in the basement.

In Canada, the labor market followed May’s surprise 87,800-job surge with unemployment easing to 6.6%. Housing starts held at a healthy 247,000 (annualized) in May, but multifamily is doing all the heavy lifting; single family detached starts are languishing around 42,000. New home prices are down -2.4% YOY, and the 5-year fixed mortgage sits at 5.13%.

Bottom line for dealers: repair and remodel and multifamily still have legs, while single family is fighting rates, inflation, and gloomy consumers all at once. Watch your inventory, mind your receivables, and don’t build your second-half plan on a Fed rescue that isn’t coming.