Local Market Monitor, a National REIA preferred vendor, recently released their monthly National Economic Outlook where they share their thoughts on developments taking place in the U.S. economy.
National Economic Outlook
By Ingo WInzerDecember, 2023
Overall, in October, jobs grew 1.9 percent compared to last year, continuing a trend towards slower growth as more pandemic job losses are recovered. That’s still the case at restaurants, in healthcare (nursing homes) and government (state government).
Our best estimate of where growth is headed is provided by the very large business services sector, where job growth now is around 1 percent. This sector provides the services that all businesses need, so it’s a measure of how well businesses are doing.
An economy growing about 1 percent per year isn’t bad, but it’s vulnerable. Any international, political or financial shock can bump it into the spiral of recession. And it’s possible that a shock is on the way if home prices start to slide in the next few quarters.
Another measure of how well the economy is doing is provided by Gross Domestic Product, almost 70 percent of which comes from consumer spending. Starting at a fairly low level at the end of 2022, GDP has steadily increased and was up 2.9 percent in the third quarter, compared to last year, and 4.9 percent compared to the second quarter.
Most of the increase is due to more consumer spending, which is puzzling in light of the slow growth of consumer income. A possible explanation – and a very worrying one – is that the high spending comes from homeowners, who feel much richer because the value of their home is 50 percent greater than it was two years ago.
If this is the case – and it’s my speculation only – the economy could be in for a big shock when home prices start to slide in 2024 and homeowners rethink their spending plans. Home prices are so high that a readjustment period could last several years and bring prices down 20 percent or more. A recession in 2024 is a distinct possibility.
We’ll know more at the end of December, when new home price data come out.
The 1.9 percent increase in jobs in October included increases of 2.7 percent in construction, 0.1 percent in manufacturing (the autoworkers strike), 0.4 percent in retail. 0.7 percent in finance, 1.1 percent in business services, 3.9 percent in healthcare, 2.In November, jobs continued the slower rate of growth we’ve been seeing all year. The overall increase compared to last year was 1.9 percent, but with a big part of that growth due to post-pandemic rehiring.
Jobs in the big healthcare sector increased about 4 percent, but largely because of a 5 percent increase at nursing homes, which are restocking after their pandemic layoffs. Once that hiring is done we can expect growth in healthcare to revert to the normal level of 2 percent.
Jobs in the equally large government sector increased about 3 percent, but similarly, mainly because of rehiring at a 5 percent rate at the state level. Government jobs normally increase less than 1 percent a year.
While jobs that are refilled are a good addition to the economy, they’re not a guide to how well the economy will grow during the next year.
A more accurate clue comes from the manufacturing sector, where the increase of jobs in November was just 0.2 percent. The remaining manufacturing jobs in the US mainly serve domestic demand, so we can conclude that it’s pretty weak.
Another negative indicator is the growth of jobs in the business services sector, which was very strong after the end of the pandemic but in November was just 0.9 percent. Partly this reflects the fact that companies have been shedding temporary workers, which happens when their own business prospects look poor.
Finally, consider that home builders have stopped hiring new workers. They’re still finishing existing projects, but business doesn’t look good enough to expand.
Meanwhile, jobs in retail and in finance increased just half a percent.
This looks like a very fragile economy, which could be push into a recession in 2024 if home prices start dropping. 9 percent at restaurants, and 2.8 percent in government..
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