October Employment Report: “Reassuring” or “Meh”?
The October employment report has been described with dueling descriptors by pundits and analysts, both as: “meh” and as “reassuring.” In this case, perhaps no news is good news?
Payrolls added another 214,000 jobs in October, and the unemployment rate dropped to 5.8%. The number came in slightly below the average projection, but still within the range of expectation.
First things first: the threshold of 200,000 new jobs per month is typically used as an indicator for a healthy economy, and monthly payroll growth has consistently eclipsed this number in 2014. Over the past year, there are 3.8 million more people who are employed in the United States economy.
What’s more, according to the real estate and finance blog Calculated Risk, 2014 is about to finish as the best year for employment growth since 1999.
And of course, sinking unemployment claims continue to set new 14-year lows seemingly every week.
Is this a recipe for “meh” employment?
True enough, the employment growth can hardly be considered explosive. Underlying concerns remain, especially with the slumped pace of wage growth. If wages are stagnant, then sectors that rely on consumer purchasing power, like retail sales and real estate, could slow.
More questionable news: the civilian labor force participation rate of 62.8% is still well below the 66% ratio prior to the recession. The employment-population rate ticked up to 59.2%.
The 5.8% measure of unemployment looks great, but another measure known as “U6” puts unemployment at 11.6%, once accounting for part-time workers who want full-time work, and discouraged workers who believe they can’t find a job.
So the report isn’t overwhelmingly positive, but “meh”? My reaction leans towards that of Randy Frederick, managing director of trading and derivatives at Charles Schwab. Frederick was quoted in a CNBC article on the employment report:
“The mid-terms are behind us, Fed tightening is behind us, and the economic data continues to look good; I’m not an uber-optimist, but I’m having a difficult time finding anything to worry about through year end,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.
I’m having a difficult time finding anything to worry about through the end of the year.
With worries about the “slowing global economy” a consistent refrain, it is nice to see that U.S. put together a strong year of employment growth.
Maybe a bit, but given the rest of the world, “no news” looks a whole lot like “good news.”
You may recall a few weeks ago that mortgage rates plummeted sharply and quickly to their lowest level in 18 months. The dip came as investors reacted to the “slowing global economy” (as mentioned above) and various geopolitical concerns. The major U.S. stock indexes – Dow Jones Industrial Average, S&P 500, and Nasdaq – dipped near to “correction” territory, defined as a 10% drop. This instability offers a beneficial environment for mortgage rates.
Since then, mortgage rates have popped back up. Just today, the Dow and S&P 500 were trading at all-time record highs during the trading day. Earning reports, employment / unemployment… the news is pretty good for the economy, which gives investors the incentive to leave the “safety” of bond markets and pursue the higher-yielding, if riskier, stock market.
Though the price improvements have largely been erased, rates aren’t too far from the historical low levels reached in 2012 / 2013. Relative to rising mortgage rates, a bigger concern for the real estate market seems to be rising home prices and constrained supply. CNBC real estate reporter Diana Olick wrote in a recent column:
What is holding buyers back today is sticker shock. Home prices bounced off the bottom far more quickly than most had expected, thanks to heavy, all-cash investor interest. Prices rose considerably faster than income growth, and now that investors have slowed their purchases, mortgage-dependent buyers are not picking up the slack, even as rents continue to rise. Higher rents, in turn, are keeping some borrowers from saving for a down payment.
Central Coast buyers can commiserate: prices have risen steadily from their 2011 valley, with the SLO County average up about 30% in 36 months.
The lesson from this changing environment: always be prepared, so that you can act when the time is right. Give us a call at 805.543.LOAN for a completely free, honest, and confidential discussion about your finances. Once pre qualified, we can act quickly should rates fall or should the right home become available.