I bought an old convertible earlier this spring. It’s a fun way to get around town and purportedly safer/more practical than a motorcycle, so my wife is happier with this acquisition. Resultantly, I’ve been following the weather reports more frequently and diving into the hourly forecast much closer than before. And you’ll never believe this, but sometimes they’re wrong.
This morning’s Jobs Report shows the Unemployment Rate moving down a tick to 4.2% from last month’s 4.3%. Sounds like palm trees and butterflies, but the headline is misleading. Here’s why: the antiquated U-3 formula counts anyone with a part time job as being employed. And within the Report we see that there are 438,000 fewer people working full time this month than last and 527,000 more relegated to working part time. The still up and coming U-6 calculation, which considers those with part time work but who desire full time work as not being utilized to their full potential, actually ticked up from 7.8% to 7.9% this month. That means that an additional 168,430 people are completely out of work this month.
The rising U-6 number is corroborated by the scant 142,000 newly created jobs last month (vs. 160K expected) as well as backwards revisions for previous months wiping out 365,000 thought-to-be newly created jobs earlier this year. So despite the lower headline Unemployment number which would lead one to believe that fewer people are out of work, there is underlying weakness in the U.S. labor market. Fortunately, Utah remains a whole percentage point lower for the U-3 and the U-6 rates, and the health of our local economy is reflected in our rising population rates and home prices. Like topless driving, you get the bad with the good.
A conclusively weakening labor market rises the likelihood of a solid 1/2% Fed rate cut in two weeks, if not the standard 1/4%. Whatever the reduction, it’s a sign that the velocity of money is slowing down a sure thing and interest rates are moving in the right direction to grease the skids. Not one to miss a party, mortgage rates are now the lowest they’ve been in a year and a half and would-be homebuyers are already capitalizing.
