Welcome to the CEO's monthly economic newsletter. The newsletter provides a basic narrative overview of recently published economic indicators for your reading pleasure. You should not rely on this information when making investment decisions, but rather seek professional advice from qualified investment advisors.
While the rest of the world continues to flounder economically, the US economy continues to improve. The declining cost of oil, while not desirable for the oil producing states, is a major stimulus for retailers, as consumers are able to spend money saved at the gas pump for other goods and services. While most economists believe this will continue for most, if not all, of 2015, eventually oil will move back to more traditional levels as drillers and suppliers pull back on production.
We saw another good employment report with 257,000 jobs added in January, complimented by positive revisions to November and December numbers. In January, the year-over-year change was 3.21 million jobs. This was the highest year-over-year gain since the '90s. Total employment is now up 11.2 million from the employment recession low.
Overall, the US percentage of employed people in the US amounted to 59.3%, while the employment participation rate stands at 62.9% (the percentage of the working age population in the labor force). The 25 to 54 participation rate increased in January to 81.1%, and the 25 to 54 employment population ratio increased to 77.2%. This is significant since this age group has been trending down for the past 20-plus years.
More good news came from wage growth published by the Bureau of Labor & Statistics: "In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $24.75, following a decrease of 5 cents in December. Over the year, average hourly earnings have risen by 2.2%." While not a huge move, it is above the year-over-year inflation rate and should add to consumer confidence.
Although we continue to hear about positive improvement within the housing industry, it’s still not healthy. U.S. homeownership fell to a 20-year low in the fourth quarter as more Americans opted to rent rather than buy. The seasonally adjusted home ownership rate fell to 63.9% from 64.3% in Q-3, 2014. It has not been that low since the mid ‘90’s. Our all-time high for home ownership was back in 2004 when the rate peaked at 69.4%.
In view of the very attractive interest rate environment for home loans, there are a number of people re-entering the home purchase markets. Loan payments are often times less than apartment rental rates. There are also a number of people rebuilding their credit who will choose home ownership once they qualify for loan underwriting. While we probably will not see ownership back to its all-time high, it’s very likely we will see ownership at 66 to 67% in the coming years.
Lastly, interest rates are getting a fair amount of attention these days given the Federal Open Market Committee’s public remarks about increasing short-term interest rates in the next 6 to 12 months. This became a bit more complex when the European Central Bank announced its own form of Quantitative Easing, which will drive interest rates lower in Europe. This will make our dollar stronger and trade potentially more difficult for our manufacturers if rates go up much here. Yes, these are truly interesting economic times with lots of competing forces at work.
Dennis A. Long
President & Chief Executive Officer
Pacific Financial Corporation
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