Two weeks in, the financial markets have joined the overwhelming consensus of economists and agreed that Brexit was not the grave threat to global prosperity suggested by market volatility in the immediate aftermath of the vote. Equity markets have broadly recovered, both globally and especially in the U.S. Even the FTSE 100 (the large-cap index for U.K. companies) is now at its 2016 high. The S&P 500 finally clawed its way back to a new all-time record after a wait of 14 months since the last peak was reached.
As discussed in my last newsletter, impacts are likely to be greatest in London (particularly its financial sector) and decline sharply with distance from London and especially the U.K.. Accordingly, the British pound is at its lowest rate relative to the dollar in decades. But too much is uncertain at this early date to make broad long-term predictions. Much will depend on the trade agreements that the new British leadership ultimately negotiates with the European Union and the rest of the world.
So economists and the markets have now refocused their attention back to the domestic U.S. economy, and here there growing reasons to be pleased. The jobs report was exceptionally strong in June as we added 287,000 new payroll jobs, a very welcome rebound from the anemic 11,000 jobs in May (see chart).
Job growth seems to have slowed a bit this year as we’re nearing what economists consider to be “full employment,” so the June figures likely won’t be repeated this summer. But neither will we fall to the depths of the May figure (which more likely reflected weakness in statistical methodologies than genuine economic weakness). Jobless claims remain near their 40-year low, showing further momentum in the labor market.
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Andrew J. Nelson is Chief Economist for Colliers International in the United States. Based in San Francisco, he covers a mix of general economic topics as well as related issues that bear on the performance of property markets.