September 30, 2020

Red hot home sales activity continued into August. Consumer confidence grew in September, though their outlook remains uncertain. And underlying dynamics suggest the labor market could be in better — or worse — shape than it appears.

Pending home sales hit an all-time high

• Seasonally adjusted pending home sales rose 8.8% in August from July to the highest level ever recorded, according to the National Association of Realtors.
•  The index is up 24.2% year-over-year.

Consumer confidence bounced back in September

• The Conference Board’s Consumer Confidence Index jumped to 101.8 in September, 15.5 points above August’s reading and the strongest monthly increase in 17 years.
• The index remains 23% below February’s levels.

The labor market may be at a turning point

• Even with massive losses, job postings are at similar levels to where they were in 2018, suggesting the job market could bounce back quickly once uncertainty disappears.
• But layoffs at large companies across many industries underscore persistent challenges.

So what? 

The National Association of Realtors’ Pending Home Sales Index increased 8.8% in August from July to its highest-ever level, reinforcing the idea that buyers are undeterred by the persistent shortage of homes for sale and that competition for housing remains red hot. Solid monthly and annual gains were recorded in each of the nation’s four regions. Remarkably, pending sales in August were 19.2% above February’s pre-pandemic levels — which, at the time, were considered quite strong. The question now is how long this home sales hot streak can continue. Theoretically, the shortage of inventory and presumed dissipation of pent-up home shopping demand from earlier in the year should begin to weigh on home sales, but so far that has not happened.  A more pressing constraint looking ahead is worsening home affordability. The imbalance between supply and demand is leading to steep price increases, and while low mortgage rates help keep monthly payments reasonable, coming up with a down payment is increasingly difficult. For now, though, the impressive run of home sales is showing few, if any, signs of slowing.

After two consecutive monthly declines, the strong bounce back in consumer confidence was, on net, an encouraging development and a good sign for the economy overall. The Conference Board’s Consumer Confidence Index jumped 15.5 points in September from August, the strongest monthly gain since April 2003, and its forward-looking Expectations Index improved by 17.4 points on the month, the largest increase in more than a decade. Even as agreement on an additional federal relief package continues to remain out of reach, consumers said they were more optimistic about their financial well-being and expressed more confidence in the state of the labor market. More people believe that jobs are plentiful than believe jobs are hard to get, an improvement from August and all months during the pandemic except July, when the opposite was the case. Altogether, the improvement suggests that the economic recovery is on track to continue, even if it’s at a slower pace. That said, we’ve seen this movie before and it’s important to keep the broader story in perspective. Overall confidence is still 23% below pre-pandemic levels and a number of factors – most notably, an increased spread of the coronavirus – could send confidence back downward in a hurry, as it did in July.

Ahead of Friday’s pivotal September jobs report, the labor market is offering conflicting signals of its current state. Contrary to some reporting, the current number of job openings is actually relatively high, considering the high unemployment rate and alternate measures of permanent joblessness. Job openings have declined due to the pandemic, but currently sit at a level similar to those found during 2018, a time when the labor market began to really take off. Growth in job openings has slowed of late, as has hiring — an indication that employers may be (but not definitively so) hesitant to fill open roles too quickly given widespread uncertainty. Either way, the fact that job openings are high relative to previous years and recessions means the labor market could quickly take off – and unemployment could fall sharply – once the cloud of uncertainty is lifted. Alternatively, a wave of layoffs from a number of high-profile companies across industries suggest that fractures in the labor market persist. Just today, three very large firms put out a string of tough announcements: Disney announced plans to lay off about 28,000 workers from its theme parks, energy giant Royal Dutch Shell announced a plan to fire 9,000 workers and accounting firm KPMG let 1,400 of its workers go. Meanwhile, barring a last-minute deal, 30,000 airline industry positions are due to be eliminated tomorrow. Friday’s jobs report will be a key indicator on the state of the labor market, but underlying dynamics are central to the story as well.

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