Why It’s Good News For Home Buyers When Unemployment Rates Surge
On the first Friday of every month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.
More commonly called the “jobs report”, today’s 2-page analysis of May 2008 shows that the economy shed jobs and that unemployment surged.
This is terrific news for home affordability.
That may sound counter-intuitive, so let’s dig deeper into the jobs report and what it really tells us about the U.S. economy.
Over the last year, rising food and energy costs have chipped away at household budgets, leaving Americans with two basic choices:
- Spend less on discretionary items like vacations and dining out
- Demand more pay at work so they can vacation and dine out
If Americans choose to spend less, the economy eventually slows down because two-thirds of it is tied to Consumer Spending. This is anti-inflationary.
But, if Americans demand pay raises instead, businesses eventually pass those higher wage costs back to consumers in the form of higher prices.
This is called a “wage-price spiral” and it’s very inflationary.
So, because today’s jobs report showed unemployment surging by a half-percent to 5.5%, Americans really have no choice but to follow the “Spend Less” path — they’re not in a position to demand more pay at work.
Today’s jobs data is good for home affordability because it relieves inflationary pressures in the economy and when inflation is falling, mortgage rates tend to do the same.
Better mortgage rates mean less expensive housing payments.
Source
Employment Situation Summary
BLS.gov, June 6, 2008
(Image courtesy: Wall Street Journal)
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