U.S. Labor Market Update, No More NAFTA, a Review of 2018's Third Quarter

 

Last September, the percentage of unemployed people in the U.S. labor market fell to lowest level since December 1969 at 3.7%.

The jobless rate fell from 3.9% in August as the economy added 134,000 jobs, a record 96th straight month of job gains. Furthermore, the upward revision of July and August non-farm payroll numbers were especially encouraging.

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What does this mean for students?
The robust Employment figures and the Job Openings and Labor Turnover Survey (JOLTS) indicates a strong economy which should continue the steady demand for labor.

As of today, there are 6.9 million jobs opening for the 5.9 million unemployed people actively looking for job. Under these circumstances, employers will have to fight for the best talent. This is evident from the recent announcement by Amazon to raise their minimum wage to $15 per hour for all full-time, part-time, and seasonal workers.

The chief economist of job search site Glassdoor summed up the current state of labor market by stating, “This is the best job market in a generation or more”.

Where Does U.S. Labor Market Stand Against Rest of the World?
The current state of U.S. labor market is very robust with the unemployment rate below the 4% natural rate of unemployment.

In Euro Zone, the unemployment rate is more than two times that of the U.S. The situation is even more dire in Spain, where the unemployment rate is close to five times that of the U.S. at 15.3%.

While our Canadian friends up north are struggling with 5.9% unemployment rate, our southern neighbor seems to be in a great shape with the unemployment rate at 3.5%.

U.S. Labor Market by the numbers:

  • Unemployment rate lowest since 1969 at 3.7%

  • Women unemployment rate lowest since 1953 at 3.6%

  • 6.9 million total jobs opening

  • 5.9 million total unemployed people


Out with NAFTA, In With USMCA
On October 1, 2018, the United States and Canada reached to an agreement on revising NAFTA with a new accord called the United States Mexico Canada Agreement. Here are some of the biggest changes to come from the USMCA or Nafta 2.0:

  • 75% of the car parts must be made within the region to qualify for tariff-free.

  • 40-45% of a vehicle must be made by someone earning at least $16 an hour.

  • Canada will offer 3.6% of their domestic milk market to U.S.

  • Canada will scrap milk-pricing policy which has upset producers in U.S.

  • Duty-free shopping limit is raised to $100 to enter Mexico and $115 to enter Canada. This is a boon to the e-commerce companies like Amazon who can now sell more goods.

  • Canada agreed to extend pharmaceutical companies monopoly protection from 8 to 10 yeas.


2018 Third Quarter Market Review:

Healthcare was the best performing sector gaining +14.0%, followed by industrials at +9.7%, and technology at +7.4%. The newly created communications sector was the worst performing sector at -1.4% with materials just above it at +0.8%.


Among the style factor strategies, Midcap Growth was the best performing strategy at +8.5% with Momentum closely behind at +8.3%. The SmallCap was the worst performing strategy with returns of just +3.8%.


Among the qualitative factor strategies, quality outperformed the rest at +8.7% followed by buyback at +7.3%. The insider sentiment was the worst performing strategy returning -0.2%.


Based on the country ETFs, Mexico and Poland were the best performing countries with EWW gaining +11.5% and EPOL gaining +11.0%. The strong performance by Mexico can be attributed to their presidential election result.


On the other hand, Turkey was the worst performing country with TUR falling -20.9% as they deal with a currency crisis.

By Tenzin Thinlley - Director of Portfolio Management, Baruch Investment Management Group