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Real Estate Market Commentary - August 2014
by Peter L. Zachary, MAI, MRICS

On Saturday, August 2, 2014, The New York Times had an article on the front page of their Business Day section by Dionne Searcey entitled "More Rejoin Labor Force; Jobless Rate Up To 6.2%". It stated:

"Little to rave or rant about.

That was the view among economists of Friday's jobs report, in which the Labor Department estimated that the economy added 209,000 jobs in July, continuing a string of sturdy monthly advances above 200,000 but lower than in recent months and less than analysts had expected.

And while the numbers didn't soar to new heights, they completed the strongest pace of job creation over a six-month period since the prerecession year of 2006, while helping to calm concerns on Wall Street that the economy was about to accelerate to a point where the Federal Reserve would be under pressure to start raising interest rates earlier than anticipated.

"This report is consistent with a moderation in economic growth in the second half of the year," said Dean Maki, chief United States economist at Barclays. "This is a labor market that is growing solidly, just not quite as fast as in prior months."

The Labor Department, using a different method of measuring the job market, said Friday that unemployment increased to 6.2 percent from 6.1 percent in June. Many economists viewed the slight rise in the official jobless rate as a modestly encouraging sign, in part because more people reported that they were looking for work, suggesting that many of them were seeing greater job opportunities.

The latest economic data reinforced the view that inflation and wages remain bound by a fairly tight straitjacket, suggesting that the Federal Reserve will see little need to retreat more quickly from its stimulus campaign. The Fed's chairwoman, Janet L. Yellen, and her allies argued in recent months that the declining unemployment rate overstated the economy's progress, because more people would start looking for work as the recovery continued. The uptick in the unemployment rate in July lent credence to that view.

The Fed affirmed on Wednesday that it planned to keep interest rates low as long as unemployment remained elevated and inflation remained under control. The sole dissenter, Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, said on Friday that the Fed still should be moving more quickly toward raising rates. In an unusual statement explaining his decision, he noted that inflation had increased over the last year, while unemployment declined, so conditions were moving closer to the Fed's stated goals.

On the jobs numbers, the July figure was well below the revised 298,000 surge reported in June and lower than the 229,000 figure now reported for May.

The figures for July confirmed that a gradual healing of the job market remained on track, even as it underscored just how much more needs to be done to reach a level where most people who want to work can find a job relatively easily.

"This is another solid report that shows we are sustaining the momentum of broad-based growth in the economy," said Thomas E. Perez, the labor secretary, in a telephone interview. He cited the growth in well-paying professional and business services jobs as evidence that the economy is not creating just low-paid jobs. The retail and manufacturing sectors also added jobs.

General optimism about the economy was supported on Wednesday when the Commerce Department, in its initial estimate of the economy's overall output for the second quarter, reported that the gross domestic product grew at a seasonally adjusted annual rate of 4 percent for the spring, rebounding from a 2.1 percent decline during the harsh winter quarter.

Adding to the more upbeat view was a report from the Institute for Supply Management showing its manufacturing index rose to 57.1 in July, from 55.3 in June. It was the highest reading in three years, bolstered by improvements in the index of new orders, production, employment and supplier deliveries.

The University of Michigan consumer sentiment index rose to 81.8 in the last July reading, up from the initial July reading of 81.3. The index was on track with moderate consumer spending growth.

But Friday's data from the Labor Department showed that in July wages barely moved, inching up by just a penny and leaving wages only 2 percent higher than a year ago, a rate that barely outpaced inflation.

"People's standards of living are still stuck in the mud," said Mark Zandi, chief economist at Moody's Economics, who called the government's report otherwise "close to perfect" because job growth increased across nearly all industries and all pay scales.

The news that wages remained flat contrasted with an Employment Cost Index report Thursday that American labor costs recorded their biggest gain since the third quarter of 2008. The notion that wages might be rising helped prompt the sell-off among investors Thursday, highlighting the divergent views between some on Wall Street and those held by many economists who view rising wages as essential to sustaining an expanding economy.

Higher wages have been "a key missing ingredient from the recovery," Jared Bernstein, an economist at the left-of-center Center on Budget and Policy Priorities, wrote in a blog post.

In Rochester, at least one company was looking to hire young people. Neal P. Elli, chief executive of Empire Precision Plastics, said he had openings for about a dozen workers for his company, which makes molds for plastic parts used in electronics and medical devices.

Most workers in his industry are older and will be retiring soon, Mr. Elli said. A new employee with four years of training could make $50,000 a year. "I can't think of a better career than mold-making," he said."

Conclusion: This is exactly what the economy needs more plastic.

More to come next month. Read previous Real Estate & Housing Market News.

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