EMPLOYMENT
Nonfarm payrolls rose by 275,000 jobs in February, but revisions to the previous two months’ reports subtracted 167,000 jobs. The unemployment rate rose from 3.7% to 3.9% while labor force participation remained unchanged at 62.5%. Average hourly earnings grew by 0.1% and are up 4.3% year-over-year.
Our Take: The employment report was a bit of a mixed bag. Headline job growth was strong but was tempered by revisions and the household survey (used in calculating the unemployment rate), which showed a reduction of 115,000 jobs. In addition, average hourly earnings came in lower than expected, though on the heels of a large increase in January. All in all, it seems as though the employment sector is still relatively strong, but kinks in the armor are starting to appear.
POWELL TESTIMONY
This week, Federal Reserve Chairman Jerome Powell provided his semiannual monetary policy report to Congress. His remarks echoed those he made following last month’s FOMC meeting, suggesting rate cuts “will likely be appropriate at some point this year” but that the Fed is in no hurry to normalize rates. He added the Committee can be patient until it has “gained greater confidence that inflation is moving sustainably to 2%.”
Our Take: There was nothing surprising in the Chairman’s testimony. The Fed’s consistent message has been that it can remain patient and wait for continued improvement in inflation before taking the first step in cutting rates.
CHINA
At the National People’s Congress (NPC), Chinese Premier Li Qiang announced a 2024 GDP growth goal of 5%, the same as the 2023 goal. Li did not give many specifics of how the government would support achieving this goal, and many economists expressed doubt that it could be done without significant monetary and fiscal stimulus. Li’s announcements around fiscal policy did not indicate a big increase in fiscal support.
Our Take: While the 5% goal is in line with last year’s numbers, 2023 had the benefit of comparing to 2022, when the country was in the COVID-zero lockdown for much of the year. It is difficult to see how China can credibly achieve the 5% goal when consumers are not spending, foreign investment is fleeing the country, exports are under pressure from supply chain realignments, youth unemployment is at very high levels, and overinvestment in property and infrastructure is leading to a potential debt-deflation spiral. If the reported growth number does end up meeting the goal, markets are likely to be very skeptical of it.
MUNICIPALS
The Illinois First District Appellate Court overturned a Cook County Circuit Court’s rejection of a referendum to be placed on the March 19 ballot that would change the city of Chicago’s real estate transfer tax. The referendum, if approved, would lower Chicago’s real estate transfer tax on properties sold for under $1 million but increase the real estate transfer tax on properties sold for over $1 million. According to the referendum, the additional funds generated from the nicknamed “mansion tax” would be “used for the purpose of addressing homelessness, including providing permanent affordable housing and the services necessary to obtain and maintain permanent housing in the city of Chicago.”
Our Take: Voters will decide on the measure later this month. If passed, it will take time to determine the full financial effect. Supporters of the referendum claim that the measure could generate $100 million each year for homelessness services while reducing the amount of tax owed for 94% of the transactions within the city. Opponents are concerned that the tax would reduce demand for commercial real estate in the city and could lead to an overall reduction in taxes collected.