June 4, 2021

More than half a million jobs were added in May and wages rose strongly, but the U.S. labor market is still struggling to get back to full speed. Monetary policy is less likely to be tightened soon, which should help mortgage rates remain low in the near term. And Fannie Mae announced more protections for renters in multi-family buildings as the expiration of a federal eviction moratorium looms.

The labor market recovery accelerated, but not as quickly as expected

*559,000 jobs (seasonally adjusted) were added in May, below general expectations in the range of 670,000.

*About 2/3 of jobs lost in the pandemic’s early stages have been recovered.

Mortgage rates look set to fall in coming days

*Investors seem to believe the underwhelming jobs report reduces the likelihood that the Federal Reserve will tighten monetary policy.

*Prior to the jobs report, mortgage rates ticked up for the week.

New protections for renters arrive ahead of expiring eviction moratorium

*Fannie Mae announced an extension of mortgage forbearance through September for multifamily landlords.

*About 14% of rental households are behind on their monthly payments, according to the Census.

So what? 

The U.S. labor market recovery accelerated in May following a surprisingly weak April report, though the improvement still fell short of most experts’ expectations — the latest indication that adding jobs to the rapidly reopening economy is likely easier said than done. With separate reports showing that the number of job openings and the number people voluntarily quitting their jobs are at and near record highs, respectively, the labor market is not suffering from a lack of demand. The supply side is where it appears to be falling short. The national labor force participation rate – the share of working-aged adults either employed or actively looking for work – fell in May from April and has basically stayed flat since the summer. This suggests that many workers have not come back to the job market after leaving it in the early months of the pandemic. There could be a number of reasons for this — some policy-related, some not — but a lack of willing workers for available jobs does appear to be holding the economy back. Perhaps the one single thing that could coerce people back to work is an increase in wages, and the May report did indicate that compensation was on the rise. A measure of wages that controls for the industry composition of current employment rose has risen over the past two months at a faster rate than any pre-pandemic two-month period since the early 1980s. While most industries gained jobs on the month, total employment in the construction industry actually fell in May from April. Employment in the residential construction sector increased from April, but growth in the industry has slowed in the last two months, likely due to constraints posed by sharply rising materials prices.

The May jobs report held considerable weight in financial markets, as investors appeared to be looking to it to help determine the Federal Reserve’s next steps. Fed Chair Jerome Powell and other senior members of the central bank have stated that the economy is not at a point that would necessitate a tightening of monetary policy. But recent statements from the Fed suggest that some officials have discussed the possibility of reducing the Fed’s program of bond purchases – which has contributed to considerable downward pressure on bond yields and mortgage rates in the past several months. A more-robust jobs report would have added more volume to those discussions, but instead the relatively tepid data garnered a mixed reaction from investors. Ultimately, markets currently appear to believe that the lukewarm figures offer less incentive for the Federal Reserve to tighten monetary policy, and bond yields fell sharply upon the data’s release with mortgage rates likely to follow in coming days. Despite rising slightly on the week, mortgage rates remain near historic lows.

The national eviction moratorium is due to expire at the end of the month, leaving questions about the fate of millions of renters struggling to meet their monthly obligations. As of the end of May, about 14% of U.S. rental households were behind on their monthly rent payments, according to Census data, and there are significant disparities in rental delinquencies across states and demographics. According to the Center on Budget and Policy Priorities, almost a quarter of renters in Florida and South Carolina are behind on their monthly payments. And Black renters are almost four times more likely to be behind on rent than their white peers. Congress allocated $45 billion in rental assistance as part of the government stimulus packages passed in late 2020 and early 2021, but the distribution of those funds has proven to be difficult. In an effort to help address this looming crisis, Fannie Mae announced this week that they are extending mortgage forbearance for multi-family building landlords with Fannie Mae-financed loans to September 30, so long as they continue to suspend evictions until that date. The landlords are also required to allow renters to repay their rent over time (not in a lump sum), not charge any late fees, and offer other protections. As of 2019, about 45% of rental households were in multi-family buildings (5+ units).

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