Total nonfarm employment rose by 209,000 jobs in June, a bit closer to our forecast (214,000) than to the consensus forecast (230,000), with private-sector payrolls up by 149,000 jobs and public-sector payrolls up by 60,000 jobs. Prior estimates of job growth in April and May were revised down by a net 110,000 jobs for the two-month period…
Slowing Job Growth
Although the pace of job growth slowed sharply in June, the average length of the private-sector workweek ticked up by one-tenth of an hour, providing a powerful boost to growth in aggregate private-sector labor earnings. Job growth was less broadly based across private-sector industry groups in June, continuing a concerning trend we’ve been highlighting in recent months.
Unemployment Rate and Underemployment
While the unemployment rate fell to 3.6% in June, the broader U6 measure, which also accounts for underemployment, rose to 6.9% from 6.7% in May on a jump in the number of those working part-time for economic reasons.
It is also worth noting that on Aug. 23 the Bureau of Labor Statistics will release a preliminary estimate of the annual benchmark revision to the establishment survey data, in which the monthly estimates of employment, hours, and earnings are benchmarked to the universe of payroll tax returns. Based on our take of the Quarterly Census on Employment and Wages, drawn from the payroll tax-return data, BLS has been significantly overestimating job growth over the past few quarters.
Recession Indicators Flash
Economic and Financial Markets Review Cumberland Advisors July 6
Leading Indicators of Recession
The leading indicators of a recession are continuing to point strongly towards an impending downturn. Despite not having officially begun yet, the Conference Board’s Index of Leading Economic Indicators (LEI) has seen a decline for 14 consecutive months. The 12-month change in May, standing at -7.9%, has historically always preceded recessions.
Treasury Yield Curve
Furthermore, the Treasury yield curve remains significantly inverted, with short-term rates higher than long-term rates. Although this inversion has slightly decreased since the beginning of May, it still remains one of the steepest observed since at least 1981.
Monetary Policy Changes
Given the long and unpredictable lags associated with monetary policy changes, pinpointing the exact start of a recession after these indicators turn negative is challenging. However, these indicators have proven to be accurate guides in the past and are likely to be reliable this time as well.
Attention: Considering the current economic landscape, it is important to stay informed about these recession indicators as they may help individuals and businesses make informed decisions accordingly.
Rx for Japanese Companies
A longstanding issue with Japanese companies is the historically low return on equity. Over the past seven-and-a-half years, Japanese ROE has averaged 8.5%. Over the same period, the corresponding figure for the U.S. was 16.1%, the EA 10.2%, and the U.K., Canada, and Australia, around 12%. Until the low ROE issue is resolved, through-the-cycle returns for Japanese equities are likely to remain subpar.
The good news is that there does finally seem to be an effort under way to improve this state of affairs. In May, Hiromi Yamaji, the new Tokyo Stock Exchange CEO, issued a “name and shame” statement about TSE-listed companies with price/book ratios below one. The aim is to remedy this undervaluation. In order for that to happen, capital efficiency needs to be improved (asset turnover, return on capital employed, etc.), all of which would also boost ROE.
By Andrea Cicione, Skylar Montgomery Koning
The Long-term Case for Tech
Truist Advisory Services
The S&P 500 achieved its gains this year in an unusual way. Don’t Run from Real Estate
The foundations of the global commercial real estate market are shifting. Since 2020, a confluence of factors—a dramatic shift in how buildings are used, the fastest surge in interest rates in more than 40 years, bank failures in the U.S. and Europe, and now a looming recession—has prompted price declines not seen since the global financial crisis 15 years ago. This upheaval will challenge rules of thumb and require a fresh approach to real estate underwriting.
Challenging Times Ahead
Over the cyclical horizon, commercial real estate dynamics are likely to get worse before they brighten. For investors, this might seem daunting. But it also could be one of the best periods to deploy capital in decades.
Unprecedented Potential in Real Estate Debt
By John Murray and Francois Trausch
The future of real estate debt holds unprecedented potential. As lenders retreat, there are new senior origination opportunities arising. Additionally, distressed public and private debt is presenting itself as a lucrative avenue for investment. We predict a significant wave of real estate loans set to mature by 2025, with staggering numbers: at least $1.5 trillion in the U.S., approximately 650 billion euros in Europe, and $177 billion in Asia-Pacific.
Expanding Opportunities in Select Equity Investments
Aside from the plethora of debt options, we also believe in strategically positioning portfolios for select equity investments. Sectors with strong secular tailwinds, such as residential real estate, logistics, and data centers, offer enticing prospects for growth and returns.