According to the latest U.S. job report, the unemployment rate
decreased to 7.6% in March from 7.7% in February with about 88,000
jobs added to the market. Although the job additions were
significantly less than expected, the takeway from the report was
the drop in the unemployment rate, which apparently appears
positive and augurs well for the economy that is limping back to
normalcy from the wounds of a deep recession.
However, a critical analysis would reveal that the dip in the
unemployment was primarily attributable to 500,000 Americans
dropping out of the labor force, which dragged the labor
participation rate (the percentage of the population within the
demographic age of 16 and over in the labor force) to a 34-year low
Since reaching its zenith at 67.3% in 2000, the labor
participation rate has declined over the years as discouraged and
frustrated Americans left the job market only to return when
conditions briefly improved. However, the gradual retirement of an
aging Baby Boomer population and a recession in late 2007 has
continuously pegged back the labor participation rate.
Although a smaller pool of workers looking for jobs are likely
to get them easily, it restricts potential economic growth of a
country and consequently is not a healthy sign for the U.S.
Another outwardly positive signal in the economy has been the
continuous rise in home prices as revealed by data from the
S&P/Case-Shiller index. Tracking changes in the residential
real estate values across the country, the S&P/Case-Shiller
Home Price Indices are arguably one of the best measures for the
U.S. residential housing market and are calculated monthly using a
three-month moving average.
The latest data from the January report divulged that although
home prices are yet to reach the pre-recession peaks, they have
risen the fastest since 2006. The 10-city composite climbed 7.3% in
the trailing 12-month period, while the 20-city index escalated
8.1% as all cities posted gains on a yearly basis.
A housing recovery would do wonders for the U.S. economy that was
plunged into one of the worst recessions ever witnessed by the
country by a subprime crisis primarily led by a housing bubble.
However, a deeper analysis would suggest that the surge in housing
prices was the fallout of bulk buying by institutional buyers.
With a substantial amount of dry powder, institutional buyers
are making an effort to mop-up assets in distressed sales. Listed
investment and capital management firm such as The
Blackstone Group LP ( BX ) as well as hedge
funds and private real estate investment firms like Colony Capital
and GI Partners are amassing a huge portfolio of single-family
homes. Blackstone has already spent over $3.5 billion for more than
16,000 single-family homes and is reportedly spending about $100
million a week to further increase the tally.
These institutional buyers largely have a profit-based approach
and their investment model is based on piling a huge pool of real
estate assets, which are then rented out to generate a fixed
monthly income with the homes serving as collaterals. The biggest
question left to ask therefore is - Would this benefit the common
man and the economy as a whole? Or is this just a ploy of the rich
to be super-rich?
What also remains to be seen are whether other asset management
firms such as Kohlberg Kravis Roberts & Co. (
Affiliated Managers Group Inc. ( AMG ), and
AllianceBernstein Holding L.P. ( AB ), each carrying a
Zacks Rank #2 (Buy), jump on the bandwagon.ALLIANCEBERNSTN (AB): Free Stock Analysis
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