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January 2016 Market Update

Bet you’re wondering what I’m going to talk about this time… OK, I won’t keep you in suspense – or surprise you with anything you aren’t all completely expecting.

Yes, it’s true, you might have heard. The Federal Reserve finally made good on their promise to raise short-term interest rates to something greater than zero. The 0.25% increase was not a lot, and will likely go up further only in very slow and cautious increments. But the increase was nevertheless historic, coming after the longest period of rock-bottom rates the country has ever seen. This seven-year period is completely without precedent or parallel and is a testament to how severe the recession of 2008-2009 really was. The climb back out of the hole we had dug for ourselves was incredibly slow, painful and full of setbacks at every turn.

But climb back out of that hole we did. The sickening hemorrhage of jobs that the country endured during those dark days of 2008 and 2009 are finally behind us. So is the vanishing equity that seemed to evaporate overnight from stock markets and real estate assets alike. It was the double-whammy of spiking unemployment and plunging values that left many of us feeling suddenly poor and extremely vulnerable. It has literally taken this long to recover from the shock, both financially and psychologically. For more than a few of us, that recovery is ongoing and not fully in the past.

But let’s look at what has gone right since those dark days. The economy has added jobs every month since October 2010. Unemployment peaked at 10.0% in October 2009 and stayed stubbornly above 9.0% until October 2011. Today, it is half what it was at its peak – just 5.0% in October and November of 2015. Non-farm employment is actually higher today than it was at its peak before the recession hit. The labor market registered approximately 138.4 million jobs in January 2008, only to see more than 8.7 million of those jobs disappear by February 2010. Today, the non-farm labor force is pegged at 142.9 million (November 2015 estimate), an increase of more than 4.5 million jobs over the previous peak, and 13 million jobs from the 2010 low. Finally, the Dow Jones bottomed out at 6,507 on March 9, 2009, but has since more than doubled to its to its current level in the mid-17,000 range. 

More than the stock markets, it was the decline in home values that hit most Americans closest to home. For many of us, our homes are our primary investment and most important asset. Home values crashed during the recession, and were one of the main reasons the recession was so severe and lasted for so long. Since then, home values have rebounded and, in some areas, surpassed former highs. But this recovery has been uneven. In many areas, values have yet to recover to their pre-recession highs. Generally speaking, the Coasts have done better than the interior; central cities have outperformed suburbs; and just about everywhere has recovered better than the Chicago region.

But all is not lost, even in our struggling city. Don’t look now, but Chicago actually has a thriving tech sector that is adding jobs at a rapid pace. We remain a center for advanced services, particularly in the fields of law, accounting, finance and business consulting. And the city remains a strong magnet for the young and educated, drawing recent college graduates from across the Midwest and beyond to its glitzy and vibrant center. If the rest of the region still lags, there is hope that sustained economic growth can finally spread across a larger swath of our region, benefitting more than just the CBD and neighborhoods within close commuting distance.

So don’t be too depressed about that rate increase. It happened because the Fed decided we could withstand it, and are finally back to something approaching a healthy, balanced economy. It’s been a long time coming. Take it as a good sign for the New Year!


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