Stocks had a good week with four of the last five days finishing strongly higher. However, as if on cue, Friday arrives and everyone panics once again with the spectre of the coronavirus making headline news. Investors are having a difficult time knowing what to focus on with the volume of news coming out daily. Between the Iowa caucus fiasco, Trump acquittal, and jobs report today, investors forgot, if not momentarily, that there was this virus brewing in China which is slowly making its way toward the United States.
Despite today’s sell-off, the market looks to close roughly 800 points higher this week. So where to begin? Let’s start with the jobs report which was a stunner. This morning the Bureau of Labor Statistics reported 225,000 jobs were created in January which was well above the 160,000 expected and indicates the strong pace of hiring continues. Job growth in construction, health care, transportation and warehousing was particularly strong, aided by unseasonably mild weather in January. For comparison sake, the economy has averaged approximately 175,000 per month over the past twelve months. Also, the unemployment rate ticked up to 3.6% as the labor force participation rate increased indicating people, who had dropped out of the workforce, are now looking for work.
Fortunately for us, the coronavirus has yet to make inroads in the United States. As of this writing, there are only 12 confirmed cases with another 100 pending lab results. I say fortunately because China is reported to have 31,532 cases. As a result, two-thirds of China’s economy has been shut down. The areas quarantined account for almost 69% of China’s gross domestic product (GDP) in 2019, according to Bloomberg estimates. China’s GDP has been slowing, of its own accord, from 10% to just over 6% in the past decade. This year it could fall considerably more.
However, our focus is how this might affect the U.S. economy. At the moment, no one knows for sure. This is largely since China’s share of the global economy has surged from 8% in 2002 to 19% today, and now represents the world’s second largest economy. Companies in other countries dependent on Chinese supply chains are already facing a slowdown. Then we have oil prices which have fallen 20% over the past month on expectations of lower demand from China and reduced sales of jet fuel as flights are grounded. OPEC and Russia are debating whether to cut oil production to support prices. Lastly, this is also a hit to the phase one trade deal the U.S. and China agreed to last month. China was already unlikely to purchase the additional $200 billion of U.S. goods that it committed to buying. This slowdown will make that figure even harder to achieve.
But in the face of this adversity, the stock market gained this week. We can point to solid economic data like the jobs report mentioned above. However, it is not the only favorable piece of data. ISM manufacturing rebounded from a ten-year low in January with new orders and production jumping higher. December factory orders increased beyond expectations. And mortgage rates declined for the third straight week fueling the already hot housing market. At least this week, investors believe the global economy is resilient enough to deal with the effects of the coronavirus.
In closing, I turn to a way to make money that I first heard about last year. It seems some states, and more recently cities, are willing to pay you to move there. Now none of these places would be considered up-and-coming or chic. But they are charming in their own way and if the fit is right, why not? The following are those states/cities which offer incentives.
- Maine: Workers can deduct the total amount of money they paid in student loans for the year from their state income tax bill, up to $377 per month.
- Vermont: The state offers incentives to full-time remote workers who moved to Vermont after January 1, 2019. It will reimburse workers up to $10,000 for relocation expenses over two years.
- Tulsa, Oklahoma: Full-time remote workers are eligible for $10,000 and a $1,000 housing stipend to relocate and work from the city, paid out over the course of a year.
- North Platte, Nebraska: The city will match sign-up bonuses for new hires up to $5,000, which means a potential $10,000 signing bonus. The only catch is you must earn at least $20 per hour, must live in the city for three years, and the employer must be a member of the town’s chamber of commerce.
- Alaska: Permanent residents can qualify for the Permanent Fund Dividend, which cuts an annual check. In 2018, permanent residents received $1,600.
- Newton, Iowa: Since 2014, it has offered $10,000 in cash to new home buyers and builders through its housing initiative, plus a welcome package worth $3,000.
Bruce J. Mason, MBA