Trend Tracker March/April 2022

March 8th, 2022 by Nathan Hobbs

High Water Marks: Numerous Factors Point to the Return of a Healthy Market

By Michael Collins

The last real pre-COVID month in the U.S. was February 2020. It’s hard to believe how things have changed since then, especially considering that COVID-19 remains such a daily factor in all of our lives. But numerous factors now point to a healthy market, including job creation, unemployment, and mortgage rates.

In the trailing 12 months ending February 2020, an average of 171,000 jobs were created per month. In the year ending January 2022, the pace was a sizzling 479,000 jobs per month. A monthly job creation rate of 200,000 jobs generally indicates a self-sustaining economic growth environment in the U.S. Having come through the pandemic and other challenges, we are rolling along at double the required job creation rate to predict sustained growth.

Meanwhile, mortgage rates remain in a favorable range. In January 2022, average rates stood at 3.5%. On a side note, they were at their highest level in 1981, at 16.6%. Fortunately, the Federal Reserve has become more adept at monetary policy since then and has avoided repeating such extremes. In fact, if the Fed hadn’t made the tough decision at the time, to raise interest rates from 2016 through 2018, they wouldn’t have had the ability to cut rates to spur growth during the early days of the 2020 shutdowns. Now that inflation has spiked, the Fed is poised to raise interest rates to cool the economy somewhat.

Making a Comeback

Wage inflation in December 2021 was roughly 9% above the same month of the prior year. Wages grew each month from their peak of 15.3% year-on-year growth in April 2021 to the end of last year. According to the Bureau of Labor Statistics, the recent peak in unemployment was in April 2020, when the unemployment rate reached 14.7%. By January 2022, the unemployment rate had fallen to just 4%. This represents a full-employment level for our economy. As unemployment decreases, we would expect wages to rise further.

The advent of the vaccine and booster shots and the expiration of enhanced unemployment benefits around the country have increased the pool of workers willing to work. This increase has eased some of the difficulty of hiring workers and the need to raise wages to make hires. A door component supplier shared with us that their recent job fair had 50 attendees and that 30 workers were hired. This time last year, their job fair drew only five.

In addition to favorable macroeconomic news, certain segments of the market that performed the most poorly over the past two years have started to show promise. With armies of employees heading home and working productively from there, companies began to reassess their needs for office space. Large organizations with multiple buildings got creative and found ways to shed a building or two, resulting in downward pressure on office construction. Hotel and hospitality properties became a less attractive investment opportunity in light of the lockdowns and sharply decreased rate of travel in 2020. Today, both of these segments are performing better. The fact that these hardest-hit segments are starting to perform well again bolsters our confidence in the current health of the overall market.

Michael Collins is an investment banker and a partner in Building Industry Advisors. He specializes in mergers and acquisitions in the door and window industry.

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