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Wells Fargo Reports: Florida Labor Market Update: March 2017

The pace of hiring decelerated slightly, as the late Easter held seasonally-adjusted nonfarm job growth to just 6,200 net new jobs. Hiring is growing twice as fast in Florida on a year-over-year basis than it is nationwide.

This Year’s Late Easter Held Back Hiring in March

The later arrival of Easter this year appears to have held back nonfarm employment growth. Nonfarm employment rose by 6,200 jobs in March on a seasonally-adjusted basis, with employment in the leisure & hospitality industry posting an outsized 9,400-job loss during the month. With Easter coming later this year, Spring Break travelers—which include much more than college kids—arrived a little later than usual this year. Hiring was also likely held back in the retail sector during the month.

On a non-seasonally adjusted basis, Florida added 52,000 jobs in March, with the leisure & hospitality industry adding 14,000 jobs and retailers adding 3,100 jobs. The split between the adjusted and unadjusted numbers drives home the importance of understanding how the seasonal adjustment process can sometimes distort the data in exactly the opposite way it is intended to. The more relevant data for Florida is that job growth on a year-over-year basis is rising solidly, climbing 3.0 percent, or exactly double the 1.5 percent gain posted nationwide.

Florida’s Economy Is Firing on Nearly All Cylinders

Florida has done a very good job of diversifying the state’s economic base and making the state less dependent upon tourism. The technology and aerospace industries are two notable successes. Employment in professional & technical services has risen 3.2 percent over the past year, while employment in the aerospace sector has risen 4.9 percent. Growth in the aerospace industry is particularly evident along the Space Coast, Jacksonville and in South Florida. Overall manufacturing employment has risen 3.7 percent over the past year, with much of that growth coming in the higher paying durable goods sector. In addition to adding lots of higher skilled positions, Florida also continues to add lots of entry level jobs, which is something not evident in many other states. Employment in administrative services has risen 3.4 percent over the past year, creating 21,800 net new jobs.

Florida’s relative abundance of job opportunities is pulling job seekers in from other parts of the country. Florida’s labor force has risen 3.5 percent over the past year. Employment has risen even faster, however, allowing the unemployment rate to fall 0.1 percentage point to 4.8 percent.

Source: U.S. Department of Labor and Wells Fargo Securities

Wells Fargo Reports: California Labor Market Update: March 2017

Non farm employment rose solidly across California in March, as employers added 19,300 jobs across the state. The Golden State’s unemployment rate fell 0.1 percentage point to 4.9 percent.

California’s Jobless Rate Falls to 4.9 Percent

California employers continue to hire at a steady, albeit somewhat more modest, clip, with the year-over-year pace of job growth settling in near two percent. The unemployment rate fell 0.1 percentage points to a fresh cycle-low of 4.9 percent, marking its lowest rate since December 2006 (top chart). The labor force and the number of employed Californians grew by 12,100 and 37,100, respectively, while the number of unemployed declined by 25,000 in March.

Construction Leads California Job Gains

Golden State employers added 19,300 net new jobs in March, pushing up the three-month average to 18,700 jobs. An outsized 18,900 job-gain in construction accounted for the bulk of the increase, and marked the largest one month gain in construction payrolls since 1997. Building activity was likely held back in December and January, as unusually wet weather in California prevented some construction projects from getting started. The drier weather in March likely triggered a larger than usual pick up.

Hiring was mixed across most other key industries over the month. Solid job gains were reported in government (+6,300), leisure & hospitality (+4,700) and education & health services (+4,300), while manufacturing posted a more modest increase (+1,700). These gains helped offset job losses in trade, financial activities and professional & business services. The national employment data were also soft in March, so too much should not be made of this past month’s smaller overall job gains in California.

One area that has seen a more prolonged slowing is professional & business services. This industry category captures much of the tech sector and there has been a great deal of anecdotal evidence that hiring has cooled off a bit. If the tech sector is slowing, we believe it is likely due to a combination of factors, some of which may now be reversing. A large proportion of tech sector sales are made overseas and slower global growth and the stronger dollar have likely contributed to some belt tightening over the past year. Fortunately, global growth is once again gaining momentum and the dollar has given back some of its gains, making U.S. tech exports more competitive. The rapid increase in the cost of doing business in California may also be weighing on tech job growth. Firms are increasingly shifting lines of business to lower cost locations in Texas and the Southeast.

Oakland posted the largest monthly job gain, adding 9,900 positions in March on a seasonally-adjusted basis (bottom chart). Employment in Los Angeles fell by 9,300 jobs in March and Orange County lost 1,300 jobs. Hiring rose in the Inland Empire, however, which added 4,300 jobs. San Diego lost 1,000 jobs in March, while Sacramento added 1,100 jobs. San Francisco added 200 jobs and San Jose added 3,000 positions.

Source: U.S. Department of Labor and Wells Fargo Securities

Wells Fargo Reports:U.S. Home Prices Continue to Hit New Highs

National home prices rose 0.4 percent in February and are up 5.8 percent year over year, according to the S&P CoreLogic Case-Shiller Index. Prices continue to be fueled by a steady uptrend in sales and low inventory.

National Home Prices Edge Up

  • · Supported by tight supply and steady gains in home sales, U.S. home prices continue to edge higher. The S&P CoreLogic Case- Shiller National Home Price Index is up 5.8 percent over the past 12 months and the 20-City and 10-City indices are up 5.9 percent and 5.2 percent, respectively.
  • · Among the 20 cities, Seattle continues to lead price gains, reporting a 12.2 percent increase over the year.

Solid Seller’s Market

  • Sentiment reports indicate that consumers feel increasingly confident that it is a “good time to sell.” Survey measures have been corroborated by recent hard data as the NAR reports properties are selling at a faster rate. Existing homes were on the market for an average of just 34 days in March, down from 45 days in February and 50 days in January. Low inventories and rising demand are likely to continue to fuel price pressures.

Wells Fargo Reports: Texas Labor Market Update: March 2017

Texas added 9,500 jobs in March and February now shows a larger 14,100-job gain. Labor force growth outpaced job growth, however, causing the jobless rate to edge 0.1 percentage points higher to 5.0 percent.

Seasonal Quirks Hide a More Positive Story

Although a 9,500-job monthly gain may seem small by Texas standards, job gains disappointed at the national level in March as well. The better household data provided some consolation in the U.S. report, but less so in Texas, where the jobless rate rose 0.1 percentage points to 5.0 percent as labor force growth outpaced employment growth.

Texas posted the third largest job gain among all states. Revisions to February were significant, bringing Texas’ three-month average job gain to 25,000. The details of the March data also tell a better story than the headline. Most major sectors added jobs. The largest gain was in professional & business services, which added 13,200 jobs, with large gains in both professional & tech services and administrative support positions. Financial services also had a strong month, adding 2,800 jobs in March. Even with solid hiring in government, information and education, service sector employment declined by 1,000 jobs in March. Gains were offset by a 12,300-job decline in the leisure & hospitality sector, which may have been impacted by seasonal factors. This year’s relatively late Easter pushed Spring Break out into mid-April, resulting in less seasonal hiring than usual in March. There was a large decline in health employment on the month, although the sector remains one of the strongest growing over the year. Cuts in March were likely a one-month blip.

In a reversal of sorts, goods producing sector employment was up broadly in March. Mining & logging added 4,800 jobs, reflecting the ramp up in drilling activity in the Permian Basin. The rig count has steadily climbed higher since bottoming out last May. Construction employment rose by 4,000 jobs in March—also likely reflecting the improvement in the energy patch as well as continued gains in homebuilding and commercial construction. Manufacturers added 1,700 jobs in March and February’s gain was revised up to +6,400 jobs. March marks the first month that Texas’ manufacturing employment was above its year-ago level in nearly two years.

The bottom chart illustrates some of the impact of the energy boom and 105 subsequent bust. Houston’s employment remains essentially flat with its 100 December 2014 level, which is a testament to efforts to diversify its economy beyond fossil fuels. It appears to have paid off. The energy bust did take a bit out of Houston’s momentum, however. We expect the region to return to growth mode rather quickly now that oil prices have stabilized and drilling activity is ramping back up. Manufacturing faces a longer road to recovery, as headcounts are still 5.1 percent lower than peak in December 2014, though the upward trend is encouraging. Mining & logging employment in Texas has returned to where it was back in 2012, right at the beginning of the shale boom. With oil prices seemingly stuck at around $50 a barrel, oil producers are becoming even more efficient, which means employment will likely come back slower than production does.

Source: U.S. Department of Labor and Wells Fargo Securities

Wells Fargo Reports: Existing home sales increased 4.4 percent in March to a 5.71-million unit pace—a new cycle high.

 Existing home sales increased 4.4 percent in March to a 5.71-million unit pace—a new cycle high. Inventories remain tight and have helped to push prices up 7 percent over the past year, pressuring affordability

Sales Recover in March with a Little Seasonal Help Existing home sales came in even stronger than our above-consensus call in March. Sales of previously owned homes rose 4.4 percent in March to a 5.71 million unit annual pace—a new cycle high. Sales of both single-family and condos/co-ops rose over the month, but single-family sales have demonstrated a clearer uptrend in recent months and are up 6.1 percent over the past year.

We expected sales to rebound in March following February’s strong reading on pending home sales. Pending home sales, which typically lead existing home sales by one to two months, rebounded 5.5 percent in February. That more than reversed the previous month’s drop. While pending home sales tend to exaggerate monthly moves in existing home sales, the recent jump suggests sales are nearly back in line with the trend registered last fall before mortgage rates moved noticeably higher.

A relatively warm January and February, however, likely helped to propel pending home sales early in the year and suggest some risk to sales early in the second quarter. The Northeast saw the largest increase in existing sales in March (up 10.1 percent), but a late season snowstorm will likely have weighed on closings for April. Sales in the Midwest snapped three months of declines and jumped 9.2 percent in March. Meanwhile, the South, which accounts for more than 40 percent of sales, saw March sales rise 3.4 percent, building on a strong run that began last fall.

Tight Inventories Leading to Affordability Challenges

Heading into the key spring buying season, inventories remain exceptionally lean. As is typical for March, inventories rose last month, but are down 6.6 percent over the past year. The stronger pace of sales last month kept the supply of existing homes at 3.8 months, well below the 5.5 month supply considered a balanced market. The average number of days a home spent on the market fell to 34 in March from 45 days in February and 47 days a year earlier.

The low level of inventories continues to put upward pressure on prices and dent affordability. The median price of an existing home is up 6.8 percent from last March, with the South and West seeing prices rise north of 8 percent. Combined with higher mortgage rates, affordability has fallen nearly 9 percent over the past year, and has kept the share of first time buyers stuck around 32 percent. Historically, first-time buyers have accounted for about 40 percent of sales. The share of households that believe now is a good time to sell a home reached a fresh cycle high in the preliminary April University of Michigan Consumer Sentiment Survey whereas the share believing now is a good time to buy has been trending lower over the past two years.

Source: National Association of Realtors and Wells Fargo Securities