Zillow Market Pulse: October 7, 2020

October 7, 2020

August JOLTS data are the latest to show a labor market recovery that is leveling off. Collapsed federal stimulus talks go against Federal Reserve pleas, and will likely prompt more monetary policy actions. And participation in student debt forbearance programs has been massive.

August job openings data reinforce slowing labor market narrative

• The number of job openings in August fell slightly, to 6.5 million.
• Voluntary separations, a measure of employees' confidence in the market, also fell on the month.

The sudden collapse of stimulus talks upended markets and will likely prompt more Federal Reserve activity

• It appears unlikely that another comprehensive federal pandemic relief package will be passed by the end of the year.
• The Federal Reserve will likely take more action in order to support the economic recovery, which should help keep mortgage rates low.

Participation in federal student debt forbearance programs has been nearly universal

• Only about 11% of people with federal student loans are making monthly payments during the pandemic.
• Student debt relief is due to expire at the end of the year, raising concerns for the financial fate of some borrowers.

So what? 

Last week's September jobs report highlighted the fact that the labor market continues to recover, albeit at a slower pace, with increasing rates of persistent unemployment and limited opportunities for certain groups. August's Job Openings and Labor Turnover Survey (JOLTS) report, reinforced this narrative of a slowing recovery and emerging longer-term labor market risk. Hires in August continued to greatly exceed the number of lost jobs via quits and layoffs – as has been the case for the past few months – indicating that, overall, jobs are still being added to the economy. But forward-looking indicators suggest that growth is slowing, with the number of job openings ticking down slightly in August from July, indicating a slowdown in labor demand is underway. The number of people quitting their jobs voluntarily – a measure of workers' confidence in the labor market and their ability to find better employment — also fell on the month, though only slightly. Separately, data from Indeed appears to reinforce the idea that longer-term labor market risks persist. While open job postings have increased in some sectors directly affected by pandemic-driven lockdowns – particularly retail – other, more indirectly affected sectors including finance and software development have few open positions relative to this time last year. The differences across sectors might indicate an unwillingness of employers to commit to the long term. Software development positions, for example, aren't generally posted immediately after a business opens up from a lockdown, and are instead more of an investment.

Longer term risks to the labor market, and therefore the economic recovery, have been central to discussions around a possible next round of federal fiscal relief. But progress that appeared to be building earlier in the week has since abruptly stalled, swinging markets and making smaller, more-targeted packages appear more likely than a sweeping bill. But the larger question is what impact the lack of a comprehensive relief bill will have on the economic outlook in coming months. In a speech on Tuesday, Federal Reserve Chair Jerome Powell strongly encouraged policymakers to pass more relief, and minutes from September's FOMC meeting confirmed that most Fed forecasters had assumed more pandemic-related fiscal relief was forthcoming before the end of 2020. Among the impacts, the lack of more relief will probably force the Federal Reserve to take even more aggressive approaches in order to aid the economic recovery. One likely approach is for the Fed to extend forward guidance on their program of bond purchases known as Quantitative Easing. Doing so should help keep bond yields, and thus mortgage rates, low for the foreseeable future. Of course, many other factors – not least the spread of the virus and the uncertainty surrounding the election – will dictate the path of recovery from now on as well.

A specific relief program passed in the Spring that has had a significant effect has been the moratorium on monthly student loan payments. In March, the Department of Education announced that those with federal student loan debt could pause their monthly payments interest-free until September, a policy subsequently extended through the end of the year. Participation in the program has been nearly universal. According to a report from higher education expert Mark Kantrowitz, fewer than 11% of people with federal student debt are making their payments during the pandemic – about 4.6 million out of 42 million borrowers. On the surface, this could be viewed as good news: Participation in the program frees up cash for people – some of whom have either lost employment or experienced a pay decrease – to spend on other needs. But much like mortgage forbearance, questions regarding repayment have begun to surface, as the tentative expiration date of the program draws near. Levels of student debt have ballooned in the last couple decades as wage growth, particularly for college graduates, has slowed. And prior Zillow research suggests that having high levels of student debt can severely limit prospective home buyers' budgets and choices. Determining the expectations for student loan payments once relief expires will be critical to the economy's recovery in both the short and long terms.

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