Glinkonomics, life this week on WSB radio, Ilyce talks about the employment situation for August, 2013.
Welcome back to the Ilyce Glink show, I’m Ilyce Glink. If you are investing in real estate and want more information you should check out my new series, The Intentional Investor: How to Be Wildly Successful in Real Estate. Go to thinkglink.com and click on the red house and it will tell you all about it.
Okay, we’ve got lines open. There’s some people calling in. We’re going to let that play out for just a moment. In the meantime, I’m going to talk about the jobs data this week because I think it points to everything that’s going wrong, or not going wrong, but still not fixed. And yet some things are looking a little bit better. But when it comes to unemployment you know that I really feel like we can’t have a very, very strong real estate recovery, a true recovery, without having a lot of jobs. I just think if you don’t have a job you can’t pay your mortgage, and these days the banks aren’t going to let you try either.
So, what happened with the job report this week? We saw the jobs data with a 169,000 increase in nonfarm payrolls, it’s just shy of 180,000 (that was the consensuses forecast). But that was after some sizable downward revision, remember? You might recall hearing from ADP, which is never right by the way; we were going to get 223,000 new jobs. It wasn’t anywhere close to that. But the jobless rate has ticked down nationally to 7.3 percent. Remember a couple of years ago it was over 10 percent, that was really frightening. And now it’s 7.3 percent, which is great… except, the reason that the unemployment rate is going down is because the labor force participation rate slid to 63.2 percent. That’s the lowest level since August of 1978. And let’s rewind, what was happening in August of 1978? 1977 and 1978 were when women really started to move into the workforce. There was sort of a big push in World War Two, and then the soldiers came home, and a lot of women got married and had babies… beginning of the baby boom. But into the 70’s, we started to see women go into the workforce in sort of a really big number. And the fact that we now have men and women in the workforce and yet the labor force participation rate has shrunk back to where it was in 1978…35 years ago (if my math serves me) that’s really not so good. And for those of you who have been looking for a job… well you know this is really tough.
Now, the percentage of the population that’s employed, and this is an all-inclusive measure, also fell to 58.6 percent. And that’s the low end of the range that’s 1983. But what was 1983? Do you remember 1982? Interest rates went skyrocketing to like 18 percent. If you went to get a mortgage in 1982/1983 you were paying somewhere between 15 to 18 percent for that mortgage. We’re at 4.75 percent this week and people are freaking out. Try being back in the mid-1980’s with the gas and oil crisis and mortgage interest rates at 16 percent… that was terrifying. 1983, we were early in a recovery from a really bad recession. Where are we now? We’re four years (plus) past the official end of the recession, and we’re seeing labor participation rates that are right out of a very deep recession in the early 80’s. So were looking at, kind of a ratio, of where we were back in 1977. There’s something wrong when we’re talking about the economy and we’re talking about it in terms of 1977 and 1978. I don’t know any other way to say it… it makes me very nervous.
So what was good in the jobs report? Well, full-time jobs rose by 118,000, so that was good news. The part-time employment fell by 234,000. We want more people to have full time jobs than part time jobs. Full-time jobs have more longevity, they come with more benefits, people feel more secure in what they have, right? And then the U-6, which is kind of what I call the fullest measure of unemployment. That’s the part that takes into account discouraged workers, and those who work part-time because they can’t find full-time work, and those who gave up and decided to stay home and be with their kids, and those who decided to go back to school. All of that changed and fell a little bit from 14 percent to 13.7 percent. So it ticked down three tenths, not bad.
So what else might be going on with unemployment? Well, here’s something that you may have heard about. The porn industry (and yes I just said the porn industry). The porn industry, part of the motion picture industry, had a bit of a trouble last month. You may have read that two workers were diagnosed with HIV and it basically froze everything going on in that industry. And so this month’s jobs data reported that a record 22,000 jobs in the motion picture industry disappeared, there’s a shortfall. And some reports attribute this to a temporary work stoppage in the adult film business. Which if that’s true could contribute to a rebound in job growth in September. So that’s sort of interesting. You know… I don’t even know where to go with that, but there was that 22,000 loss jobs in motion pictures industry. Actually a very significant number and if that is actually because of the adult film work stoppages, that’s another conversation to be had… but anyway.
The August employment data wasn’t the worst and it wasn’t the best and it certainly wasn’t anywhere near what we were hoping for. And this is now directly going to have an impact on what the Federal Reserve Bank is going to do, right? The Fed said they would start withholding the 85 billion dollars that they’re spending each month to keep interest rates super low. They were going to start pulling back on that in September or when the official unemployment rate hits 7 percent. And then we saw Ben Bernanke over the last few months’ kind of hedge on it. Saying that he thought maybe we weren’t going to see so much pulling back. And he wasn’t really sure that the unemployment rate at 7 percent was actually a true reflection of what’s going on in the industry with employment. So he had his own concerns. But it seems like the Fed might start to pull back and what is going to happen when that happens? It’s really interesting. We’re already starting to see what’s going to happen in the housing industry.
So the housing industry finally has had a great spring, right? We had a limited number of houses, we saw home prices zoom up, we saw homes get sucked off the market so fast. I mean it’s hard to believe that there were homes that sat on the market for two and three years… 2008, 2009 to 2010, and in 2011 nobody wanted to buy anything. Then the end of last year and into the beginning of this year, wow… I mean, homes went on the market and vaporized. All kinds of closings happened and home prices went up. And part of the reason for that was super low interest rates and people realizing that these things are going to tick up and they aren’t going to be around.
Well, what’s happened now that we’ve had two or three months where mortgage interest rates have been up a point, a point and a quarter… you know, one to one and a half percent over what they were? And were already hearing reports about how everything is kind of… ground to a halt in some pieces of the market. So investors who still have cash are out there, or who don’t actually need the money because they’re the ones who get all the loans these days, easily. They are out there still buying, but first-time buyers, who should be a very significant part of the marketplace right now, are not. And they’re not because they can’t get the loans and because interest rates are jumping up. So it doesn’t really help when I tell you that mortgage interest rates in 1982 were around 16 percent, or even when I bought my first house in 1989 and I paid, you know, 11.75 percent, or that historically over the last fifty, sixty years mortgage interest rates have averaged 7 percent. What matters in everybody’s minds, for first-time buyers, is that they’re out there looking at properties to buy, worried about their jobs, having mortgage interest rates jump up a little bit, and not feeling like they can qualify, and that they have what it takes to be able to buy a house in this market place. And that’s a really serious situation.
WSB Radio’s Ilyce Glink Show – September 8, 2013
Click the audio link below to listen to the full Ilyce Glink Show on WSB Radio, or go to iTunes and download the show to your handheld device.
Thanks for listening.