08/05/2022 | Press release | Distributed by Public on 08/05/2022 13:01
Key Takeaways:
The establishment payroll survey came in well above our expectations and continues to signal an extremely hot labor market. While we are likely to upgrade our near-term employment outlook due to this report, there is still a divergence between the establishment and household surveys over the past four months. Since March, the establishment survey has shown roughly 1.7 million new jobs added, while the household survey has reported a net decrease of 168,000. Part of the divergence is a definitional difference: When adjusting the household survey to use the same definition of employment as the establishment survey, total job gains are 722,000, though this is still less than half of the establishment survey reported number. Therefore, we suspect some of these jobs gains may be revised downward in the future, but we believe the labor market is still strong and the Fed will continue tightening.
Other incoming data sent mixed signals about the economy's near-term outlook. On the positive side, the increase in the ISM services index, particularly to the business activity and new order subcomponents, points to further strength in consumption spending on services in Q3. Factory orders were also modestly above consensus expectations and continued growth in exports could provide another boost to Q3 GDP. Further, the supplier deliveries component of the manufacturing index decelerated significantly, suggesting supply chain issues are starting to ease. However, an improving supply chain outlook is at least partially due to lower demand, as the new orders index remained in contractionary territory for the second consecutive month and the inventories index reached its highest level in nearly four decades. On balance, we believe the incoming data is consistent with our forecast for positive but below trend Q3 2022 GDP growth as tighter monetary policy continues to work its way through the economy.
The significant drop in single-family construction spending is supportive of our forecast for falling residential fixed investment leading the broader economy into a recession in the first half of 2023. Still, with the most recent reading from Freddie Mac's primary mortgage market survey showing the FRM30 rate below 5 percent for the first time since April, we may see some near-term pick-up in home sales if buyers who were previously sidelined by the sharp increase in mortgage rates decide to reenter the market. Despite this possibility, however, we continue to expect housing activity to slow over the coming quarters.
Nathaniel Drake
Economic and Strategic Research Group
August 5, 2022
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.