Also, while the labor market recovery has been painfully slow and uneven; there are areas of improvement that may be positive for housing. For example, recent upward revisions in non-farm payroll numbers have meaningfully strengthened the average pace of jobs growth this year, despite a recent slowing in the metric. Moreover, outside the sectors I’ve deemed structurally impaired (construction, financial services and government), job gains have generally been on par with past cycles.
The point here is that housing is critical to broader economic recovery – in fact, the connection between houses and jobs alone is critical, as Figure 2 suggests.
Put it altogether, and you have to believe – I believe – that the Fed will do the right thing and keep interest rates “highly accommodative” for a considerable period of time, even as the central bank considers tapering its quantitative easing program. Such a monetary policy would help maintain affordable mortgage rates and could even counter the possible negative impact of other factors that could curtail loan growth, such as new and increased bank regulation.
So, while it may be easy to make a pessimistic medium-term case for the US economy in the wake of financial crisis and painful recession (alongside myriad risks still plaguing the globe), such a case doesn’t adequately account for several positives in our economic trajectory – housing being one of the key positives among them.
Now, some of you may be thinking: OK, but what about those financial assets he mentioned – where are those headed? In my next post I’ll talk about how economic growth and policy could affect asset class returns for the rest of the year. I look forward to continuing our conversation.
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, Co-head of Americas Fixed Income, and is a member of the Executive Committee of the firm-wide Alpha Strategy business. He is also a member of BlackRock’s Global Operating Committee.