Earlier this month, the US Bureau of Labor Statistics (BLS) released its January employment figures. January nonfarm payroll employment was 155,073,000 which represents a monthly increase of 517,000. Interestingly enough, the market was expecting a lower number and we could possibly expect an immediate negative market response. However, we expect the response to relatively moderate.
Economists often refer to the pandemic as an unprecedented event. In that spirit, is it appropriate to note that January employment was 1.8% above the pre-pandemic level as February 2020 nonfarm employment was 152,371,000 jobs.
It is also interesting to note the change in population and employment over the past decade:
Clearly a higher percentage of the population is working today. This helps to explain the historically low unemployment rate.
It is also interesting to compare US GDP growth. 2013 GDP was 16,629 billion. Current GDP is 26,132 billion, representing an increase of over 50% in under a decade. One of the main influences on this was the rapid growth and implementation of advanced technology.
The economy seems to be slowing. This is concluded from many different variables that contribute to market fluctuations:
- 21.2% of the population (70,609,000) is receiving social security (including supplemental security income)
- Construction jobs were responsible for 4.8% of January’s job growth. Down from 12.6% last month, we expect this to continue to slow.
- Increase in Healthcare jobs (79,200) accounted for 15.3% of the job gains. We expect this to continue to be strong.
- Restaurants (food services and drinking places) accounted for 19.1% of the job gains (98,600). We expect this growth to continue as current employment (12,173,300) is still 165,000 below pre-pandemic levels.
Bottom line, the economy is slowing. Although this is not entirely positive for real estate demand, it may result in the moderation of the 10 year US Treasury rate, which is definitely a positive.
It is good to be in Florida. Over the past year Florida is growing jobs almost 50% faster than the US:
Negative Market Reactions
Also important to note, it has been speculated that the Fed is trying to reduce inflation by slowing down the economy, increasing unemployment, and everything that comes with it. Strong jobs reports historically point to a slowing of the economy. This is undoubtedly true with unemployment being at its lowest since 1969.
The assumption is that the Fed may push interest rates higher in an attempt to "slow down” the economy and inflation as well. Higher rates have always had a negative impact on the value of all assets.
As noted, we are in an unusual economic cycle. The pandemic changed some of the rules. Looking forward, if the Fed thinks the economy is not "slowing down", they will begin to raise rates again.