Two of the most highly anticipated economic indicators will be announced late this week: the Labor Department’s unemployment and non-farm payrolls reports. For investors, this week is full of economist commentary, predictions, revisions, and general nail biting. Traders spend a lot of time positioning their portfolios ahead of the report, and if the forecasted numbers are off, the markets are sure to roll.
Tune in to "The Cost of Freedom" business block, Saturday at 10am ET and Sunday at 3am ET, to hear what the "Bulls & Bears" gang has to say about how these reports affect your money, the stock market, and the economy.
Most students of the US’s most recent economic expansion will agree that jobs growth has been slow to unfold. When the stock market first began to come back to life in 2003 they called it a “jobless recovery" because unemployment rates continued to decrease, yet there was no increase in non-farm payrolls. Then, from March to May of 2004, non-farm payrolls increased by almost one million jobs.
But just how closely are jobs growth and stock market growth correlated? Consider that unemployment claims and non-farm payrolls are reported and revised each month; and initial reports can often be misleading. As a rule, an improving labor market should be an indirect benefit to consumers because positive consumer confidence leads to increased consumer spending, and consumer spending drives approximately two-thirds of the US economy.
But stock market growth is based on perceived future growth of earnings — not on new job creation. In fact, company profits are increasing due to our worker’s higher productivity rate (technology) and off-shoring (outsourcing jobs overseas). Both work against the contention that jobs growth leads to a higher market!
Jobs and the Housing Market
Never before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. The driver? After the market crumbled in 2000, the rise in property prices helped to prop up the world economy, and investors began to put their money to work in real estate. That combined with low interest rates, government sponsored promotion of moderate and low-income housing (through Freddie Mac and Fannie Mae) and the perceived abundance of cheap money encouraged over $1 trillion in mortgage refinancing and a housing market blast off.
According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion — an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stock market bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stock market bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.
New jobs are certainly not driving the housing boom. The only correlation between jobs and the housing market is that you need a job to buy a house. And maybe more jobs created in a specific area would create an increase in commercial real estate markets.
This weekend our Business Block has much more on how the job market affects your money. Tune in Saturday at 10am ET and Monday at 4am ET.
Danielle Hughes is President and CEO of DivineCapitalMarkets LLC, a leading women-owned securities brokerage and investment banking firm. She regularly appears on FNC's "Cost of Freedom" business block.