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Newell: Strong December jobs report suggests rosier economy in 2020

Newell Normand
January 14, 2020 - 5:04 pm

The final jobs report of 2019 came out this past Friday, and though the U.S. economy added 145,000 jobs and unemployment is holding stead at 3.5%, the report is getting mixed reviews from experts and pundits. Newell invited’s Senior Economic Analyst Mark Hamrick onto the show Tuesday morning to help make sense of the numbers.

So what does the jobs report reveal?

“First of all, we can be thankful that the economic expansion is continuing this far along,” Hamrick said. “If you recall, just over a year ago in December of 2018 there were great concerns that a recession might be developing sooner rather than later. A lot of things happened since then; the Fed cut rates three times, the US and China basically declared a ceasefire in the trade war, it looks like Breixit will be handled perhaps not quite as violently as many has feared… so in the jobs report, we saw 145,000 jobs added, the average for the past three months 184,000. All of that is certainly well above the level we need to keep pace with growth in the population to keep unemployment stable, and the jobless rate is still at 3.5%, a 50-year low.”

“That in and of itself is a really shocking statistic,” Newell said, “In light of what’s happening domestically where we continue to have a trade war going on, the reinvention of NAFTA still not passed, and a lot of other political pressures that are still creating uncertainty.”

“I was talking to a colleague this morning who covers the airline industry and he told me that earnings from Delta were quite solid on both the leisure and business side,” Hamrick replied. “I joked that people are still buying airline tickets and drinking kombucha despite the political fractiousness in DC. There is an aspect of that which is remarkable, and maybe that speaks to the steadfastness of the American public, which is able to ignore all the noise that does exist out there… consumers are going to continue to do their thing for as long as the job market enbables them. That’s what we’re seeing.”

A little later in the program, Newell asked Hamrick about how the housing markets’ position as an economic indicator may have evolved over the last decade since the Great Recession.

“In college, we always looked at housing starts stimulating the economy,” Newell said. “When you look at that in relation to a third of our workforce making ten dollars an hour, is the housing criteria falling by the wayside? For so many years we just relaxed the underwriting criteria for loans, create these housing starts to jumpstart the economy. But because of all the bank failures, the regulators are in their shops all the time and it’s not as easy to do that anymore. You look at this workforce now, with yearly earnings of $18,000… that doesn’t buy you much of a house!”

“That’s a good point,” Hamrick answered. “I think the housing market story for this year, barring something unforeseen, should be one of the  more positive aspects of the economy. Experts in the housing market say that among some of the primary challenges there is just low supply, particularly in new building. Some builders have gotten wise that if you build a home at a lower price point, they’ll buy it. It’s a challenge for many young people to either have the sufficient down payment or have the means to make a monthly payment. Homebuilding is still well below the peak we saw in the pre-bust era and we might not see those numbers again for some time. It’s widely understood that there’s a shortage of supply of homes for sale. Eventually young people will get married and want to raise families, and even people in the home construction industry will say that while there’s a lot of capital being spent on multi-family apartments and condos, eventually, the younger generations will come of age and won’t always want to live in the city. I think some of that will naturally progress, but it’s only really been since we saw a decline in interest rates in the last year that the housing market has moved from being a detractor form US growth to adding to US growth, and that’s a positive.”

“Going into the new year, with everyone talking about what’s up and what’s down, and if we’ll enter into another type of restrictive economy… what are your thoughts on 2020?” Newell asked.

“There’s no recession that’s immediately visible, but having said that, one will happen,” Hamrick concluded. “It’s just a question of when, and how deep will it be and how long will it last. We’ve had some that were no-skin-off-the-teeth, so to speak, but obviously the last one was horrific. We also have to acknowledge that there are communities and neighborhoods all over this country that haven't participated in the expansion, and some of that have benefited tremendously. Now is the time to make hay while the sun does shine, and that means save for emergencies, save for retirement, look for a new job… because all those things will be harder if we’re in a downturn.”

Hear the entire interview in the audio player below.

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