Economy Watch: Jobs Are Growing, But Housing Isn’t. Here’s Why

The Chicago Fed reported on Monday that its National Activity Index was back in the positive in January.

By Dees Stribling, Contributing Editor

The Chicago Fed reported on Monday that its National Activity Index was back in the positive in January—slightly positive, that is, at +0.13. In December, it was -0.07. Zero, in this case, means that the economy is growing at its historical trend, not that it isn’t growing. Naturally, positive is better in some abstract sense, but the movement of the index’s components are more useful numbers for the real estate industry, and they point to strong job growth but weaker residential fundamentals.

The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. All of those are important in one way or another to the commercial and residential real estate industry. Employment, for instance, is critical in household formation. Even the apartment industry, which has been doing well as Millennials started getting jobs again, had a slump as the job market cratered in 2008 and ’09. Jobs also impact office leasing, as do sales, orders and inventories. And income and personal consumption are fairly important in the greater scheme of retail.

Considering the spike in employment in recent months, the employment-related indicators that go into the Chicago Fed’s Activity Index turned in a good showing in January, +0.18, though not quite as high as in December. Consumption and housing, on the other hand, aren’t doing nearly as well: -0.10 in January, only a little better than in December, and still below historic growth rates. Sales, orders and inventories were a bit above historic growth rates, but not much.

In all, the index paints a mixed picture of economic growth. For a non-recessionary period, that’s typical, at least for the last 30 years. During the 1960s and ’70s, the monthly index and the three-month moving average tended to swing around quite a lot, sometimes reaching as high as +2.0 in boom times and as low as -2.0 during recessions. Since the 1980s, the pattern has smoothed out: the highs aren’t so high and the lows (except for the Panic of 2008) aren’t so low.

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