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March Jobs Report Casts Doubt on the Impact of Tax Cuts on the Economy

HomeUnion® - March 2018 - Jobs Report - Real Estate InvestingThe nation’s most-watched report, the monthly jobs figures from the Bureau of Labor Statistics, shows an economy that’s on a slow-growth trajectory, but raises questions about the impact massive tax cuts will have on expansion. At present, the US economy appears to be relatively immune from outside influences. Years of low interest rates failed to supercharge the economy, and now initial indications show the Tax Cuts and Jobs Act, which pumped more money into the market, has been met with a similar response. Averaged over the first three months, payroll growth has been slightly over 200,000 per month, 26,000 more spots per month than during the same period last year.

Employment growth slowed in March, though the overall health of the nation’s job market remains positive. After a revised 326,000 positions were added in February, employers created 103,000 spots last month. The economy appears to be modestly stronger than one year ago, though hopes for a breakout year faded with March’s job report. Nonetheless, our forecast for job growth this year remains at approximately 2.4 million positions, modestly above last year’s 2.2 million additions. Unemployment held steady at 4.1 percent and hasn’t budged in six months.

For real estate investors, the monthly jobs report provides some insight into the trajectory of interest rate policy by the Fed. Had employers repeated February’s performance, an additional interest rate hike could have come into play this year. March’s lackluster report, however, should keep the Fed on course for two more increases in 2018. The next two hikes are expected to occur in June and December, with the Fed taking its usual break during the September meeting and all meetings without a scheduled press conference. Despite four increases in the federal funds target rate since the beginning of 2016, the 10-year Treasury has only ticked up 45 basis points. The window for investors remains open, which is beneficial since rising home prices are eating into returns in many areas.

Drilling down into the jobs reports reveals little surprising data. Wage growth, a hot topic for the Fed in recent meetings, trudged along at a 2.7 percent year-over-year rate. The usual suspects added the most jobs, including professional and business services and healthcare. Manufacturing and mining were also contributors, while construction gave back some of the gains accrued in February. That retreat is expected to be short-lived however, as commercial and residential development remains healthy through the end of the year.

 

Sources: HomeUnion® Research Services, BLS, Federal Reserve Bank

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