KEY MARKET INDICATORS as of Feb 05, 2018
January Jobs Report
The U.S. job market began 2018 on a strong note, adding 200,000 jobs in January. The job market is at full employment, with unemployment rate at just 4.1%. The maturing job market means that it will be harder for the economy to add more jobs without triggering wage inflation. But wage inflation has been missing, up to now. In January, wage growth jumped from 2.5% to 2.9%. January’s stronger-than-expected wage growth suggests that inflation pressure may be building up, which is a key driver of long-term interest rates. As a result, long-term interest rates such as the 10-year Treasury and the 30-year conventional mortgage rates have moved up in the past few days. It also shook confidence in the equity market, since all assets are priced using long-term risk-free interest rates such as the 10-year Treasury yield. Yields and asset prices move in opposite directions, so higher yields imply lower asset prices. It is important to remember that this is just one data point, and may not signal the beginning of a new trend. For homebuyers, the recent increases in mortgage rates overwhelm the size of wage growth and actually make housing affordability less attractive. That is why higher wage inflation at this point in the cycle is considered a headwind for housing.
Construction, education and health, and leisure and hospitality (tourism/restaurant) reported the most monthly job growth during January. The ongoing housing recovery continued to draw more workers into the construction sector. Other than mining, it is the only sector that is growing employment by more than 3% a year. Transportation is another sector that is facing widely-reported labor shortages and it is growing employment by close to 3% a year.
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