Investment markets finally turned positive last week, with key employment numbers driving the movement. The U.S. Department of Labor said on Friday that the United States created 113,000 jobs in January, well below the consensus economist forecast of 180,000. December’s report was revised only modestly from +74,000 to +75,000, although a larger weather-related revision had been expected. However, the November data was also revised up from +241,000 to +274,000, creating a three-month average of 154,000 payrolls growth. Healthcare, one of the consistent contributors to job growth, failed to deliver new January jobs, perhaps reflecting confusion over the rollout of Obamacare. The government sector also continued to shed jobs in areas like the U.S. Postal Service. Some of the 30,000 government cuts may have been a holdover from the government shutdown.
For the week, the S&P 500 gained 0.81%, the Dow increased 0.61%, and the MSCI EAFE (developed international) added 0.76%.
Here are the 3 stories this week that rose above the noise:
Boomers Turn On, Tune In, Drop Out of U.S. Labor Force
The U.S. labor force participation rate is near its lowest level since 1978 (63 percent) and the biggest contributor to the decline is retiring baby boomers. In fact, 80 percent of the decrease over the last two years was directly caused by retiring baby boomers according to Federal Reserve research.
Many economists predict that labor force participation will remain low for the foreseeable future. Individuals over age 55 will make up 25.9 percent of the labor force by 2022, ahead of the current level of 20.9 percent. The labor force participation rate is only 40.3 percent in that group versus 81 percent for individuals aged 25 to 54.
A shrinking labor force has a negative impact on GDP growth and changing demographics may keep the U.S. economy from reaching growth rates seen in the decades leading up to the 2008-2009 recession (3 percent plus) on a consistent basis going forward.
Home Prices Rose in Fewer U.S. Markets in Fourth Quarter
Home prices continued to rise during the fourth quarter in the majority of U.S. cities, according to data from the National Association of Realtors. However, as detailed in a recent Bloomberg article, the percentage of cities showing year-over-year price gains declined to 73 percent from 88 percent in the third quarter, which may be an early indication that momentum in the housing market is cooling in response to higher interest rates and decreasing affordability.
Given the important role the rebound in housing has played in boosting consumer confidence in recent quarters, this potential loss of momentum in housing prices bears close watching in the coming months.
Bulls Return to Unloved Europe
With investors exiting emerging markets, European equity markets are beginning to see more attention. Interestingly, research and investment firm Gavekal has found that since the start of the year, stocks of European companies that derive a significant portion of their revenue directly in the Eurozone have outperformed their more export-dependent counterparts.
“With financial and cyclical conditions improving considerably in the Eurozone, and risks rising in emerging markets, the most domestic focused Eurozone companies now look more and more like the new defensive plays,” said Francois-Xavier Chauchat, an economist at GaveKal.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
