Rosy Pink Unicorn Employment Numbers

The Real Estate Espresso Podcast

Rosy Pink Unicorn Employment Numbers

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Rosy Pink Unicorn Employment Numbers

Welcome to the Real Estate Espresso Podcast, your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce.

Well, it’s happening again. The headline employment report released today is much rosier than the reality. But first, today’s show is sponsored by the Cost Segregation Guys. If you own investment real estate and have not seriously looked at cost segregation, you could be leaving significant tax savings on the table. The Cost Segregation Guys help investors depreciate, improve near-term cash flow, and make more efficient use of their capital, all without changing the underlying asset. In a business where preserving cash matters, that’s worth paying attention to. If you’re interested in learning more, click on the link in the show notes and you’ll be connected directly with the Cost Seg Guys and qualify for a discount because you came from the show.

On today’s show, we’re talking about the headline employment report. This report, as reported in the media, focused on the headlines and glossed over the details, which reveal a deeper story of weakness in the economy.

Total non-farm payroll employment edged up by 115,000 jobs in April, and the unemployment rate was unchanged at 4.3%. According to the Bureau of Labor Statistics, job gains occurred in health care, transportation, warehousing, and retail. Federal government employment continued to decline.

So let’s first look at the revisions. The change in total non-farm payroll employment for February was revised down by 23,000 jobs, from a loss of 133,000 jobs to a net loss of 156,000 jobs. The numbers for March were revised upward slightly by 15,000 jobs, from 170,000 job gains to 185,000 job gains. Now, with these revisions, employment in February and March, the combined revision is 8,000 jobs lower than previously reported. We are seeing these kind of downward revisions consistently.

These revisions, at least the month-to-month ones, are the result of additional reports being received from the businesses and agencies since the last published estimates, and from the recalculation of seasonal factors.

Now we need to look at businesses that are dependent on workforce to do their work. Another bellwether is Upwork. It’s the gig economy platform that makes it easy to hire casual and even long-term employees to augment roles in your business. Upwork is cutting nearly a quarter of its staff as part of a restructuring plan, citing a desire to build a more efficient and profitable operating model and the evolving nature of work as AI technology improves.

So you can see already which parts of the economy are being impacted the most. Upwork is the latest in a steady drumbeat of companies announcing plans to slash their workforces, driven in part by AI. Cloudflare, PayPal, Coinbase, Freshworks all took similar steps this past week. The tech sector has actually lost 95,000 jobs since the start of the year. Headlining these reductions were Meta with 8,000, Oracle with 14,000, Microsoft with a buyout of 7% of its workforce. Snapchat cut 1,000.

The household portion of the report, which accompanies the employment report, shows that the economy, in fact, lost 226,000 jobs. The unemployment rate did remain unchanged because there were 92,000 people who left the workforce entirely. Now, that’s not a signal of economic strength. We’re getting nearly daily layoff announcements, and the markets shrug them off like this is a booming economy. And, again, this is just not a signal of strength.

In that same month, we lost 424,000 full-time jobs. These were offset by an increase in 123,000 part-time jobs. You can only describe this as a K-shaped economy. Some sectors, like AI, are booming, and the labor market in many other sectors is shrinking. A shrinking labor market does not create economic stimulus. People don’t go out and make large capital commitments in that kind of environment.

When job security is fragile, people don’t rush out and buy a new car with all the bells and whistles. They don’t move into a bigger house. They don’t travel for summer vacation in the same way that they might have at another point in time.

The U6 unemployment number, which includes the discouraged workers, is a much higher number. This metric is what many consider to be the real unemployment number. That jumped from 8% to 8.2% in a single month. That is a meaningful jump in a short period.

So what does it mean for real estate investors? It means the bond market is going to continue to misinterpret the oil shock as inflationary. High consumer prices might translate into higher interest rates to reduce demand. But, as we’ve talked about previously on the show, an oil shock is not inflationary, it’s deflationary.

The employment report looks strong and weak at the same time. Inflation and contraction are present at the same time. And the Fed, I think, will do nothing, even though the major signals point conclusively to economic weakness. It means the bond market will continue to float the yield on the ten-year Treasury. It’s up to 4.36 this week. This is elevated compared to what it was at the start of the year. For us, none of us have a crystal ball. Even if the war in the Persian Gulf ends today, it’s going to be late in 2026 before things start to normalize.

And yet, against this backdrop, the stock market hit another record high this week. Does that mean that shares of all companies were broadly up? Well, no, definitely not. The rally is being powered by companies tied to AI data centers, to semiconductors, to memory chips, to cloud infrastructure, and software.

The Magnificent Seven are still a major driver because of their weight in the index. The largest names, NVIDIA, Microsoft, Apple, Meta, Alphabet, and Amazon, dominate the S&P 500 and the Nasdaq. The notable exception is Tesla, that took a hit this past year because of political backlash against Elon Musk for aligning with Donald Trump. But in the most recent quarter, Tesla is showing a rebound in sales.

The semiconductor index, which is tied very closely to this AI boom, with NVIDIA, Broadcom, Micron, and AMD all contributing to the growth. So when you look at a weighted index, the number keeps going up, but the weighted index is not a bellwether of the broader economy.

You’ve got the entire average of the Mag 7 stocks running at about 84 and a half times earnings. That number is a little misleading because Tesla skews it. Tesla’s trading at 393 times earnings. I mean, think about what that means. Tesla would have to distribute its profits entirely for the next 393 years in order for investors to recover their initial investment out of profits in the company.

NVIDIA’s trading at 52.7 times earnings. Apple at 35 and a half times earnings. All of these multiples are priced to perfection and rely on growth beyond today’s level that simply cannot be achieved. In order for NVIDIA to grow, there would need to be a massive growth in semiconductor manufacturing capacity on a global basis in order to support that growth. It’s just not there.

Understanding the fundamentals of the economy involves getting numbers to add up in a consistent manner, and if they don’t, then something is being misreported.

As you think about that, have an awesome rest of your day. Go make some great things happen. I’ll talk to you again tomorrow.

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