Article source: ConstructConnect

So far, minimally deterred by the Federal Reserve’s interest rate hikes, the unemployment rate in the U.S. has stayed near rock bottom. Seasonally adjusted (SA), it’s been less than 4.0% for 15 months in a row, indicative of a labor market that’s about as tight as it has ever been.

In the 15 graphics that follow, the historical figures on employment are presented in charts and analyzed in accompanying text boxes for 30 key sectors in the economy.

There are many instances of astonishing growth in the number of jobs. There are also cases where employment has languished and can draw on few reserves of adrenaline.

In many of the graphs, deep crevices appear in the number of jobs at the outset of the coronavirus pandemic. What’s interesting is the degree to which recovery has occurred.

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Article source: ConstructConnect

It’s as if they knew. The Bank of Canada just raised its key policy-setting interest rate, the ‘overnight rate’, by 25 basis points (where 100 bps = 1.00%) to 4.75%. This was in the belief that the Canadian economy is continuing to run too hot. 2023’s Q1 ‘real’ (inflation-adjusted) gross domestic product (GDP) growth annualized was +3.1%, an above average result. (The annual change in Canada’s GDP over the first 22 years of this century has been +2.1%.)

But it seems likely that the at-the-time upcoming Labour Force Survey report for May would have been foremost on the minds of the BOC’s decision makers, with a worry that it would show an ongoing super-charged jobs market. They were right to be concerned. While the actual change in total employment in May was -17,000 jobs, there was a great deal extra going on behind the scenes.

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Article source: ConstructConnect

What’s not to like about May’s upbeat Employment Situation Report from the Bureau of Labor Statistics? No doubt, it depends upon one’s point of view, with the Federal Reserve probably not comfortable with the results at all, but more on that in a moment.

The total number of employed positions in the U.S. economy rose by +339,000 in May, although that understates the true strength in jobs creation, since the previous month’s gain was revised higher by +93,000. Therefore, the total number of jobs in May versus what was reported a month ago for April was +432,000 jobs.

An uptick in the number of people participating in the labor force caused the seasonally adjusted (SA) unemployment rate in the latest month to move to 3.7% from 3.4% in April and 3.6% in May of last year. The not seasonally adjusted (NSA) unemployment rate was 3.4%, a bit looser than the 3.1% in April, but the same as in May of 2022.

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Article source: ConstructConnect

This is an article for posting to ConstructConnect’s corporate website and to our Forecaster Newsletter online location. It will also supply an 

An expected fallout from higher interest rates is a decline in housing starts. In both the U.S. and Canada, that proposition is being partly realized, but not to a full degree. The story is best told in graphs and the bullet points below cover the highlights.

United States Housing Starts:

• The series of hikes in U.S. interest rates caused a more or less steady decline in new home starts from April 2022 through January 2023. In the first four months of 2023, however, U.S. housing starts have leveled off close to 1.4 million units seasonally adjusted at an annual rate (SAAR) (Graph 1).
• The decline in U.S. new home starts from most recent peak a year ago, in April 2022 (1.8 million units SAAR) to now (April 2023’s 1.4 million units SAAR) has been -22.3%, which in stock market terms would summon up the phrase ‘bear market’ (Graph 1).
• Nevertheless, April 2023’s level of housing starts (1.4 million units) was still a little higher than the long-term monthly average for the U.S. of 1.3 million units SAAR. It may be a backhanded compliment, but housing starts are presently sticking above where they were during a dozen-year stretch from mid-2007 through early 2019 (Graph 2).
• Single-family starts have borne almost the entire brunt of the downturn. On average through the first four months of 2023, they are -29% compared with January-April of 2022. Multi-family starts, in units, are off by only -1% year to date (Graph 3).
• In units, singles as a share of total have fallen to 60%, serving up the remaining 40% to multiples. This is about as far as the U.S. has ever gone in lifting up multiples relative to singles (Graph 4). As will be set out later, in Canada, the proportional shares of singles versus multiples are wildly different, with the latter far more dominant.
• Regionally, the biggest blows to housing starts year to date in 2023 have come in the Midwest and the West, each -30%. The drops in the Northeast and South have been more moderate, -8% and -16%. The South is currently accounting for nearly 60% of total starts, with the West in second place at a little over 20%, or one-fifth (Graph 5).
• Even in current depressed market conditions, the year-to-date number of residential building permits issued in Houston and Dallas-Ft Worth is astonishing, 23,100 and 20,600 units respectively. By way of comparison, New York City in third place is well back at 14,200 units (Graph 6).
• On a year-over-year basis, however, it’s two cities in Florida that are shining. Miami-Ft Lauderdale (+36%) and Tampa (+18%) are leading a group of only seven cities that, year to date, have recorded an increase in total number of residential building permits. Houston and Dallas-Ft Worth, even with their outsized numbers (in units), are not keeping up with last year. (Graph 7).
• The Miami and Tampa ‘total’ increases are being driven by strength in the number of units contained within multi-family structures, +87% and +164% respectively. Other U.S. cities with exceptional ytd increases in multi-family units are Nashville, +138%; Phoenix, +41%; and Charlotte, +35%.

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Similar to what has been occurring in the United States, labour market conditions in Canada have remained robust despite significant hikes in interest rates orchestrated by the nation’s central bank. April’s nation-wide total jobs count north of the border rose by +41,000 according to the latest Labour Force Survey conducted by Statistics Canada.

The seasonally adjusted ‘headline’ unemployment rate stayed at the 5.0% level where it’s been for five months in a row. The not-seasonally adjusted (NSA) unemployment rate calculated using the same methodology as is adopted in the U.S., known as the R-3 U rate, is perhaps more relevant. In April, R-3 was 4.2%, only a little above the comparable U.S. figure of 3.1%. Graph 1 shows how closely the Canadian and U.S. U rates have been aligned going back at least ten years.

Through the beginning one-third of this year, the average monthly increase in total employment in Canada has been +62,000 jobs. From January to April of last year, the average monthly climb was almost the same, +61,000 jobs.
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Once again, there was no dramatically negative change in the U.S. labor market statistics contained in the latest monthly Employment Situation report from the Bureau of Labor Statistics (BLS). Quite the opposite. In April, the total number of jobs in the economy rose by +253,000 and the seasonally adjusted (SA) unemployment rate stayed extremely low, at 3.4%.

In March 2023, the SA U rate had been 3.5%, and in April 2022, 3.6%. The not seasonally adjusted (NSA) unemployment rate in the latest month was a barely-there 3.1%.

The continuing strength in jobs creation having been noted, there is another story that needs telling. It is hard to find a consistent narrative in the reported U.S. employment numbers.

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Article source: ConstructConnect

What’s that you say? There’s a ‘bull’ stock market underway! Yes, indeed, and it seems hard to believe, given that we were talking about ‘bear’ market conditions only a few months ago. A ‘bull’ is a gain of +20% or more in an index from its 52-week low and a ‘bear’ is a drop of -20% or more from its 52-week high.

As of its April 2023 month-end closing value, NASDAQ had fulfilled the requirement to be designated a ‘bull’ market, since it was +21.2% relative to its 52-week bottom touched on October 13, 2022. Both the DJI and the S&P 500 also had their recent nadirs on October 13 of last year and are now almost in bull territory, at +19.0% and +19.4% respectively.

Nearly every day, it seems, there is an announcement from some major company about significant job cuts that are taking place or are being planned. With such a background, what is it about the economy overall that is putting investors in a better mood?

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Article source: ConstructConnect

Much of my work-related conversation over the past year-plus has concerned the preponderance of mega-sized construction projects being green-lighted in the United States. A ‘mega’ is defined as a project carrying an estimated value of a billion dollars or more.

Spurred on by government incentive measures, a desire to bring jobs back to America from overseas, and target dates for drastically reducing carbon emissions, there has been an explosion of activity in ‘starts’ on industrial/manufacturing projects, as is captured in Graph 1 below.

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During March just passed, the DJI 30 index moved +1.9%; the S&P 500, +3.5%; and NASDAQ, +6.7%. The TSX stayed more or less flat, -0.6%. Only the Russell 2000, which reflects equity price movements for the 2,000 smallest publicly traded companies, was hesitant about putting a brighter face on things, backtracking -5.0% (Table 1).

A similar pattern was evident internationally (Table 2). While London’s FTSE was -3.1% month to month, the German DAX 30 was +1.7%; Tokyo’s Nikkei, +2.2%; and Hong Kong’s Hang Seng, +3.1%. STOXX Europe stayed essentially level, at -0.7%.

Germany’s DAX led all indices globally on a year-over-year basis in the latest month, +8.4%. New factory orders in Germany came in considerably stronger in February than had been expected. They were +4.8% versus January. Moreover, they marked three consecutive months of forward motion.

Furthermore, Europe’s biggest economy has managed, so far, to navigate its energy shortage crisis with surprising dexterity, finding alternative sources of natural gas (e.g., from nations in Africa, plus LNG from the U.S.) to substantially (50%) replace what was previously being shipped from Russia.

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Article source: ConstructConnect

Where are we on the recession watch? In a nutshell, the flow of events is confusing. There are certainly reasons to suspect slower economic times are heading our way, and the difficulties that have arisen in the banking sector have done nothing to lighten the mood. Although, in a strange and unexpected twist, financial sector turmoil may be serving a beneficial purpose through causing the Fed to become more restrained in its interest rate tightening measures.

The latest rate hike was just 25 basis points (where 100 bps = 1.00%), only half the 50 bps climb that was taken for granted each time in 2022. The upper limit for the federal funds rate is now 5.00%, which many analysts (me included) think is restrictive enough. It establishes a key policy-setting rate that has gone beyond merely ‘neutral’.

Banking distress can perhaps be characterized as one of those ‘unintended consequences’ that arise from time to time when there is a shift in governing frameworks. But the Fed has an intended consequence in mind, a deceleration in GDP and a lifting of the unemployment rate, that is taking on the appearance of being unnecessarily punitive.

Without further ado, let’s proceed to an examination of some of the most recent information on the economy appearing in public and private sector data releases.

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