We are watching the price action of the 10-year treasury yield. Last week we had the biggest drop in over a month even after a great jobs report on Friday. The 10-year treasury is currently at 2.7%. We are having some economic strength that usually drives rates up. However, the Fed holding steady is driving rates down. This can be impactful because business loans and mortgage rates are becoming more affordable with lower rates. The 30-year mortgage rate at the end of last year was 5.1%. Now, it’s averaging about 4.6%. We are looking to see the housing market strengthen while we are entering the spring season.
The job growth is accelerating and it’s accelerating late in the cycle. So, if you look at it in 2017, there were 179,000 jobs per month created. In 2018 that number rose to 223,000 per month. The interesting thing is the last 4 months of 2018, during a volatile time in the markets, provided 250,000 per month during this time period. If you look at 2018 the 1.3 million jobs is above where economist originally forecasted. Growth is occurring faster and later in an economic cycle which almost never happens.
The jobs number was very good in January coming in around 304,000 against the estimated 165,000. That’s a big gap. We’re starting to see that positive trend jobs growth in late 2018 continue into early 2019. This number was good despite the government shutdown. We also learned a fact that 40% of American households are one missed paycheck away from poverty, according to Prosperity Now Scorecard. That can be a hard stat to swallow. It will be interesting to see if this affects consumer confidence which ultimately leads to company earnings. This could also encourage people to stay in the job field to keep the paychecks coming. We’re probably seeing that underemployed percentages come down for the first time in 20 years. So we are seeing that group of people getting jobs and keeping them.
We are kind of in a real Goldilocks situation of not too hot not too cold and that we’ve got a perfect storm of great economic data. It’s not so good that that it’s bad in that it causes the Fed to raise rates or lead to higher inflation. We’re seeing economic growth and job growth. Consumer confidence took a dip at the end of the year and we find it hard to see that it won’t go up given how many jobs have been created in January. So we’re seeing economic growth, but also interest rates coming down. This is good news is good news right now and are starting to find ourselves in a good, unique sweet spot.
We have said this in previous vlogs but the Chinese just can’t hang with this head-to-head for too long because of the structure and size of the economy. One more indication of this is the Shanghai and Shenzhen Indexes. A staggering 395 companies on that index, for 2018, showed a loss. That is difficult to sustain while revenue is dropping and inventory is down. This just show how bad it really is for them right now.
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