Property decline offsets US jobless fall

Property decline offsets US jobless fall
By Richard Beales in New York
Copyright The Financial Times Limited 2006
Published: September 1 2006 13:40 | Last updated: September 1 2006 19:57



US unemployment fell slightly to 4.7 per cent in August, suggesting the US economy is still generating jobs, but a sharp slowdown in the residential property market persists, according to data released on Friday.

Construction spending dropped an unexpected 1.2 per cent in July, pulled down by a 2 per cent fall in private residential activity. And the National Association of Realtors’ pending home sales index plunged 7 per cent in July. Each was the biggest monthly decline of its kind for five years.

The fall in unemployment reversed a surprise increase to 4.8 per cent in July, according to the Labor Department’s monthly employment report.

The report, among the most influential regular economic releases, also showed the US economy added 128,000 jobs last month, in line with expectations. The July figure was revised slightly higher to 121,000.

The rise in average hourly earnings was only 0.1 per cent, against consensus expectations of 0.3 per cent. A higher number could have intensified fear that the Federal Reserve would be more likely to raise interest rates to fight price pressures.

“Optimists will continue to point to the household survey’s more upbeat job growth, whilst pessimists can point to the peaking out of earnings growth and hours worked,” said Rob Carnell, analyst at ING Financial Markets.

He said the report had “no substantial market implications”.

The fall in residential construction was offset by a rise in non-residential activity, but John Ryding, chief US economist at Bear Stearns, said the fall in pending home sales heralded further weakening for the housing sector.

Recent housing data have shown sharp declines in sales of new and existing homes, rising inventories of unsold properties, and weak sentiment among potential buyers.

The rapid price appreciation of recent years has slowed to nearly zero on a national basis.

Stocks consolidated gains in morning trading, while government bonds slipped on the payrolls news before rebounding positively on the housing data.

Ian Shepherdson, chief US economist at High Frequency Economics, said he expected a further slowdown in growth by the end of the year.

He thought the Fed would leave interest rates steady: “The Fed expects sub-trend growth to continue; so no more hikes.”

The market for Fed funds futures is pricing in only about a 10 per cent chance of the Fed raising rates again this month, and only a slightly greater likelihood of a rise by the year’s end.