The US Bureau of Labor Statistics released its monthly June employment report earlier today.
I have been tracking the BLS employment data for many years and have been writing about it here on this site for the past six months or so.
In my prior article, I discussed how one indicator of the health of an economy is the employment growth rate of that economy. When demand for products and services increases, companies hire employees to meet that growing demand. When the reverse happens, companies slow down their hiring and may even lay off employees.
The June employment report was somewhat surprising both to me and to others based on the positive gains in the S&P 500, DOW, foreign markets, and even the US Bond market.
June Employment Slight Improvement Over Last Month
For the month of June 2016, estimated non-seasonally adjusted total US private employment was 123.2 million, which is up 2.4 million, or 1.99% year-over-year from June 2015.
Compare this to last month when we only added 2.2 million jobs, or 1.86%. By the way, the number reported for May in today’s report were slightly lower than the preliminary May numbers reported last month. But either way, May was the lowest employment growth rate we have seen since 2013.
And then in today’s report, we see that June employment increased, reversing the declining trend we have seen in prior months. While it’s not all that unusual to see ups and downs month-to-month, with the volatility in the world markets driven by the Brexit vote, I was surprised that we didn’t at least see a slight decline. Also during the month, the Federal Reserve opted to keep interest rates flat again stating concerns about employment among other factors.
Recall that we have seen a slow decline in employment growth since the peak in February 2015, when we added nearly 3 million jobs with a 2.6% growth rate. But even with the decline, for 71 straight months, the US has added private sector jobs year-over-year.
As the 30 year chart shows, we cannot maintain a sustained high growth level indefinitely. There will be a correction at some point. The question is how much of a correction, when will it start, and how long will it last?
Save Your Cash
The unexpected uptick in June employment growth this month is not enough to change my bearish view of the markets. I still believe employment is heading downward. And I have taken the following steps to solidify my capital base and prepare for a possible future economic slowdown.
Staying invested for the long-term
Despite my short-term market pessimism, I still believe in the long-term value of the market. As such, I am fully invested in my long-term tax-deferred accounts allocating 45% to US stocks, 20% to US bonds, 20% to real estate, 10% to international equities, and holding the remaining 5% in cash.
Increased cash on hand
It can be frustrating holding cash on days like today when we see a large positive gain in the markets. But as I mentioned in my June update, my shorter-term investments, or my FIRE accounts, are mostly in cash. And there are two reasons for this.
These funds have a relatively short investment horizon, with very little time to recover from a significant market correction. And since my intention is to utilize these funds to bridge any gap between active and passive income, I want to ensure the funds are available if needed.
Also, over the past year, I diversified my income streams from a single employer into multiple small businesses. And while I prefer having diversified income streams over a concentrated income stream, the businesses may require cash in the near future.
Diversified income streams
Although less predictable, owning multiple small businesses is less risky than working for a single employer. Rather than generating all my income from healthcare, I now own multiple internet businesses, a consulting business, and a real estate business. And while initially I will generate similar income as before, self-employment also provides additional financial and lifestyle benefits.
Refinance to an adjustable rate mortgage
With interest rates at an all-time low, and while Ms. Financial Slacker has a corporate job, it makes sense to consider refinancing. I’m currently looking at an adjustable rate mortgage that will cut my payments and by continuing to pay my current payment, I’ll still pay off the mortgage early. Plus I’ll benefit from increased flexibility.
Buying a rental property
Although I have stayed away from residential real estate due to the property management challenges, I am reconsidering. I may buy a rental property within the next few months thereby creating another diversified passive income stream.
The June employment numbers surprised me and many others today. Last December, I expected a downturn in employment by mid-2016. So far, we have not seen it. I will keep my eyes open for indications that the downturn is further away than I anticipate.
Readers, what are you seeing in the employment market? If you have a job, is your company hiring, laying off, or maintaining? If you are unemployed, are you getting call backs and interviews?