The Weekly Briefing - May 3rd, 2021

The Weekly Briefing – May 3rd, 2021

In This Week’s Brief:

  • U.S. and European Economies Tacking in Divergent Directions
  • Homeownership Rate Edges Down from 12-Year High
  • Metro Employment Figures Finding Their Way Back to Pre-Pandemic Levels

U.S. and European Economies Tacking in Divergent Directions

The U.S. economic recovery shifted into a higher gear at the start of the year, expanding at an annualized pace of 6.4% during Q1 2021, 2.1 percentage points faster than the Q4 2020 pace and more than double the pre-pandemic average. The eurozone economy, in contrast, entered reverse with a 2.4% annualized decline.

More aggressive fiscal and monetary measures in the U.S. provided a major boost last quarter relative to counterparts in the Eurozone. The second stimulus package mostly rolled out early in Q1 2021. Later in the quarter Congress enacted the $1.9 trillion third package, which included stimulus checks and extended supplemental jobless benefits, causing personal income to spike 21.1% in March.

With extra cash in their pockets, U.S. consumers ramped up spending at an annualized pace of 10.7% during the quarter. Outlays for goods contributed nearly five percentage points to GDP growth, and spending on services also accelerated as the rate of new virus cases slowed and vaccination campaigns ramped up. Fixed investment added another 1.8 percentage points to growth.

On the other side of the ledger, a drawdown in private inventories knocked 2.6 percentage points off the headline figure, possibly due in part to supply chain disruptions at some ports. Trade activity also weighed on total GDP as imports jumped at an annualized pace of 5.7%, while exports posted a modest decline.

Despite the recent positive economic news, the Federal Reserve appears committed to its current accommodative policy stance to support the recovery. Fed Chair Powell announced this week that the central bank will maintain interest rates near zero and continue purchasing treasuries and mortgage-backed bonds.

Contributions to Percent Change in Real GDP: Q1 2021


Homeownership Rate Edges Down from 12-Year High

The U.S. homeownership rate was 65.6% in Q1 2021, increasing by 30 basis points YOY. On a quarterly basis, the seasonally adjusted rate declined for the third quarter in a row, edging down by 20 basis points from Q4 2020.

Prior to the pandemic, the homeownership rate rose gradually beginning in 2016 after a decade-long decline. Low mortgage rates, low unemployment, and part of the millennial generation moving out of the prime renter age were strong factors in the notable rise in the homeownership rate. In Q2 2020, the early days of the pandemic, the homeownership rate spiked 2.6 percentage points from the previous quarter – the largest quarterly change ever. However, the sudden rise (and subsequent fall in Q3 2020) may be attributed to the Census Bureau’s survey methodology as they paused in-person interviews and reached out only by phone. In-person interviews fully resumed by Q4 2020.

Even so, home sales surged with shifting consumer preferences since the pandemic started. However, the homeownership rate has almost returned to its pre-pandemic peak, and amidst historic lows in the availability of housing supply, median home prices soared to new highs during the pandemic. Though high median home prices created a challenge for potential first-time homebuyers, younger age cohorts saw larger annual gains in their respective homeownership rates. Homeownership for the under-35 aged households—nearly all millennials—experienced the largest YOY increase in Q1 2021 (+80 basis points). The oldest age group (65+), which usually has the highest rate, experienced the next largest increase (+60 basis points). The 35-to-44 cohort—half Gen X’ers, half millennials—experienced the next largest increase (+50 basis points).

Homeownership by Age and Income


Metro Employment Figures Finding Their Way Back to Pre-Pandemic Levels

The employment situation in the U.S. continued to improve in March as vaccination totals climbed, more states and local jurisdictions eased restrictions on businesses, and consumer spending surged. The U.S. economy added 916,000 jobs from February to March and continued to regain job losses, although the economy is still 8.4 million jobs short of its pre-pandemic peak. While job growth was down 4.5% YOY, analysis of metro employment figures provides a more nuanced picture of the economic recovery.

Focusing on the largest 40 U.S. metro areas, which includes markets with over 700,000 jobs and over 1.5 million residents, paints a clear picture of leading and lagging metros. All 40 metros included in this analysis lost jobs in the year ending in March. Salt Lake City had the strongest performance year-over-year with job growth at -0.2%, nearly regaining all jobs lost during the pandemic and far outpacing the national rate of -4.5%. Jacksonville and Austin both neared their pre-recession peaks with a 1.3% decline YOY. San Antonio (-1.8%), Tampa (-2.1%), Columbus (-2.2%) and Phoenix (-2.4%) trailed closely.

On a month-to-month absolute basis, all 40 metros added jobs. Several Tier I and Texas markets added the largest number of jobs. New York City contributed 94,200 jobs from February to March, followed by Los Angeles (52,000), Houston (34,200), Chicago (30,900) and Dallas (28,600). Smaller markets in the top 20 included Kansas City (19,300), Atlanta (14,800), Austin (14,700), Portland (14,300) and the Inland Empire (12,500).

Note: the chart below excludes New York City and Los Angeles for scaling purposes.

Year-Over-Year Employment Change – By Number and Percentage

 

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