1. The Bureau of Labor Statistics (BLS) reports that total nonfarm payroll employment edged up by 103,000 in March. Wall Street economists had expected an increase of about 185,000, according to Bloomberg. Why do you think this closely watched number fell so short of expectations, and what should we read into this underwhelming figure for March? Were you surprised by the headline number?
The number was surprising. I think most of the country was hopeful that the tax cuts were going to supercharge the economy after February’s impressive job growth. As it turns out, average monthly gains in the first quarter were approximately 25,000 jobs above last year’s rate. Essentially, growth in February was overinflated as much as March’s figure disappointed. The job market remains healthy, but a breakout year is likely to elude us this cycle.
2. Were there any employment sectors that stood out to you in March, or in the first quarter, which might be of particular interest to our commercial real estate audience?
The manufacturing and mining industries showed impressive growth last month, up 12,000 and 8,000 jobs respectively, which will support the industrial sector. Many of the tools and machinery used in oil extraction are manufactured in the United States. Warehouse buildings are also seeing support from online retailers. Although the retail trade sector lost 4,400 jobs, the transportation and warehousing sector added 9,800 spots.
3. According to The Wall Street Journal, U.S. employers have added to payrolls for 90 straight months, extending the longest continuous jobs expansion on record. How many more months do you think we can extend this streak before it runs out of gas and what will be the biggest determining factors?
Unless the Bureau of Labor Statistics changes how it tracks census jobs, we can potentially extend the streak to mid-2020. Every single census year has seen at least one month of job cuts dating back to World War II, and I don’t expect 2020 to be any different. In the summer of 2019, we’ll surpass the longest expansionary period since the Second World War, which I believe is plausible. I’m eyeing a recession in 2020, driven by higher interest rates and high sovereign debt.
4. What impact do you think the Tax Cuts and Jobs Act will have on the jobs market and our economy in general in the short and long term?
During this expansion, it will lift hiring modestly and fuel some retail spending. However, the impact of the Tax Cuts and Jobs Act isn’t sufficient enough to bring the economy into 3.5 percent or higher growth. Over the long term, it’s likely to be a drag on the economy as sovereign debt becomes a larger issue.
Our readers pay close attention to interest rates because commercial real estate is a highly capital intensive business. Given the current state of the U.S. economy, where do you think the 10-year Treasury will stand at the end of 2018? It’s currently just shy of 2.8 percent.
With the Fed on track to raise rates two more times this year, the baseline estimate would be in the low-3 percent range. However, volatile equity markets and a mature recovery should entice many investors to reposition their portfolios to include a larger share of safe investment vehicles, including U.S. bonds. We anticipate the 10-year Treasury to finish the year close to 3 percent.
5. President Trump recently slapped tariffs on $50 billion of imports from China. In retaliation, China put tariffs on $50 billion worth of U.S. exports to China. What effect can a trade war have on job creation, if any?
Overall, free trade is good for the economy, and more importantly, free trade prevents wars. President Trump is a “deal maker” and tariffs are a way for the administration to gain negotiating power, which I suspect is happening. After this tit-for-tat over tariffs, I assume Chinese and American delegations will negotiate a trade agreement that will be more beneficial to America than what’s in place now. Over the long run, I don’t believe the announced tariffs will be nearly as high and a balanced agreement with China will be good for American workers.