Hiring Thaws in March; Private-Sector Staffing Fully Recovered From Recession

April 4, 2014

  • Overcoming interruptions from harsh winter weather earlier this year, U.S. employers regained their stride in March and added workers at a moderate pace. The expansion of payrolls affirms that the U.S. economy is charting a steady rate of growth and assures that the Federal Reserve will remain committed to its pledge of tapering its stimulus program. The labor market should build momentum during the coming months and accelerate growth to add 2.7 million jobs this year.

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  •  U.S. employers hired 192,000 workers in March, and revisions to the preceding two months lifted job growth in the first quarter to 533,000 positions. Factories trimmed payrolls and government staffing was flat, but all other employment sectors added workers last month. One-half of the 57,000 positions added in the professional and business services sector were attributable to growth at temporary employment agencies. The termination of long-term unemployment benefits last December will spur temporary hiring over the next several months. In addition, trade, transportation and utilities establishments hired 38,000 workers last month, primarily in retail, as additional store openings generated new positions.
  • Private-sector payrolls have recovered their prior peak, as approximately 8.9 million workers have been added since hiring resumed in 2010. Professional and business services staffing accounts for more than one-quarter of the gain, and several relatively small employment sectors have also made disproportionately large contributions. Natural resources and mining, which includes oil and gas activities, added 224,000 jobs, accounting for 2.5 percent of the increase over the past four years despite the sector representing less than 1 percent of total private employment. The leisure and hospitality sector contributed 18 percent of all private-sector jobs added, despite only accounting for 12.5 percent of total private-sector payrolls. The gain principally occurred in bar and restaurants, which often bring customers to shopping centers and also expands the universe of single-tenant concepts for investors.

Impact on Commercial Real Estate

  • The primary office-using employment sectors have recovered all of the jobs lost during the recession, positioning the national office sector for a vigorous recovery. Tenant expansions and new businesses will generate an increase in occupied space this year in excess of 2 percent, yielding a 120-basis point drop in vacancy to 14.8 percent. Rents are also on pace to rise 3.5 percent, with more significant growth projected as vacancy tumbles.

  • Much of the increase in construction payrolls last month occurred in residential construction. A considerable portion of residential building is occurring in the multifamily segment, and developers are on pace to bring online 215,000 apartments this year. The increase in supply will exceed a projected rise in demand, leading to a 20-basis point uptick in national vacancy to a still-tight 5.2 percent.

The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published weekly by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

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The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.

 

Retail Sales Begin to Thaw; Modest but Broad-Based Gains in February

March 14, 2014

  • Consumer spending thawed a bit in February, lifting retail sales for the first time in three months. A long, cold winter has kept shoppers at home over the past few months, particularly in the Northeast and Southeast. Some of the pent-up demand for retail goods was released in February, though revisions to the prior two months cut deeper than anticipated. As the weather improves and the job market maintains a steady growth trajectory, retail sales should gain solid footing. March, however, could prove to be another challenging month for year-over-year comparisons as Easter retail sales will shift to April this year. Nonetheless, most indicators point toward economic improvement as 2014 progresses, which will boost spending, albeit at a more modest pace than during the initial stages of the recovery.

  • Retail sales inched up 0.3 percent during February, which is an encouraging sign after declines in the prior two months. Most of the gains recorded last month were payback from cuts in January, with broad-based gains in eight of the 11 components. The largest advances favored sporting goods and hobby stores, and non-store retailers including the Internet, which climbed 2.5 percent and 1.2 percent, respectively. Food and beverage, general merchandisers, and electronics and appliance stores recorded the only losses last month. All three segments recorded only modest declines and only general merchandisers are in the midst of an ongoing trend toward tightening.

  • Several important economic indicators support retail sales growth going forward, though some headwinds are looming on the horizon as well. Employment growth in February was above expectations as more people entered the job market. Initial jobless claims are also lower, lending credence to a stronger economy. Two major unknowns could dampen consumer spending in the coming months and need to be monitored closely. Mandatory health insurance will pull more than $1 billion out of the economy per month by April, and that number will rise as penalties stiffen over the coming year. Rising interest rates are also a concern as revolving debt becomes more expensive and thousands of homeowners enrolled in the Home Affordable Modification Program face higher monthly mortgage costs.

Impact on Commercial Real Estate

  • Retail operations will continue to improve this year, though new entrants into the “bricks-and-mortar” arena will need to emerge to overcome store closings. Staples will close more than 200 stores, while Radio Shack shutters more than 1,000 units, bringing millions of square feet of dark space onto the market. Nonetheless, demand from healthy retailers will drag down vacancy 70 basis points to 6.5 percent while asking rents progress 2.5 percent to $16.77 per square foot.
  • The industrial sector is highly dependent on retail spending, particularly sales at non-store retailers such as Amazon. Even traditional stores are elevating their presence in the digital arena, including Sears, Wal-Mart and Target. As leases are signed for warehouse space that is conducive to overnight delivery by the Internet retailers, industrial vacancy will dip below the pre-recession rate. This positive momentum will lift average rents by 5 percent.

The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published weekly by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

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The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.

February Hiring Beats Expectations Despite Winter Severity;

March 11, 2014

  • Once again displaying surprising resiliency and underlying strength, U.S. employers shook off weather-related disruptions last month to add workers at a solid pace. Gains occurred in nearly all employment sectors, dispelling doubts that staffing levels in a number of industries would suffer as businesses temporarily closed and workers stayed home. Continuing growth in payrolls will be one factor encouraging the Federal Reserve to adhere to its strategy of reducing monthly bond purchases.

  • U.S. employers added 175,000 jobs last month, including 162,000 positions in the private sector. Among the private-employment sectors, only information services, dominated by media publications and newspapers, failed to record a gain. Professional and business services led the increase in payrolls, hiring 79,000 workers, while a sizable gain was also recorded in education and health services. Despite supply chain and production disruptions arising from adverse weather, manufacturers added 6,000 jobs last month, primarily in durable goods segments transportation and machinery. Growth in these segments points to greater spending by consumers seeking to replace older vehicles and an increase in capital spending by businesses. With the rise in private sector payrolls last month, more than 98 percent of the positions cut during the recession have been recovered. The pre-recession peak of private-sector employment will soon be surpassed.
  • Construction employment continues to stage a comeback, as 15,000 positions were added last month and gains were posted in 10 of the past 12 months. The increase in building trade payrolls last month was fueled by the addition of 12,300 heavy construction and civil engineering positions, indicating that state and local governments are proceeding with capital improvement projects delayed by the economic downturn. Residential contractor payrolls rose for the ninth consecutive month in February, reflecting the recovery in homebuilding. Multifamily construction is especially robust, with approximately 215,000 new units slated for completion this year – the highest level since 2000.

Impact on Commercial Real Estate

  • The multifamily sector remains the strongest of the commercial property sectors. Nationwide, vacancy declined 10 basis points in 2013, but rising completions will push up the rate 20 basis points this year to 5.2 percent. Several markets have a considerable development pipeline slated for delivery this year, including the Texas metros, Washington, D.C., and Seattle. Because development will be concentrated in core areas of some of the strongest employment markets, few cities will face significant rise in apartment vacancy rates during 2014.

  • Operating conditions in the retail sector will further improve as the strengthened job market buoys consumer confidence and spending. Retail construction remains constrained, and generally consists of single-tenant concepts or significantly pre-leased small multi-tenant properties. As space demand builds momentum over the course of the year, the nationwide vacancy will slip 70 basis points to 6.5 percent, and average rents will advance 2.5 percent.

The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published weekly by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

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The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.

Rough Weather Restrains January Retail

February 14, 2014

  • Retail spending eased back in January as myriad factors influenced consumption. Poor weather was the largest culprit in the decline, though other hurdles kept shoppers at home and offline. The expiration of long-term unemployment benefits for 1.3 million people at the end of December curtailed spending, while evidence suggests that the slowing pace of personal income growth is beginning to weigh on the rate of retail sales gains. As a whole, however, the economy is on solid footing and the setback in retail sales and job growth over the last two months is likely temporary rather than a long-term trend. Consumers are juggling new priorities, including the cost of government-mandated health insurance, rising interest rates resulting from the Fed “taper” of Quantitative Easing, and a correction in the equity markets. When strong employment growth resumes and the skies clear, shoppers should return.

  • In January, retail sales declined 0.4 percent, while core retail sales (excluding autos and gas) dipped 0.2 percent. The retrenchment was fairly broad-based, and led by motor vehicles and parts (2.1 percent), sporting goods (1.4 percent), and clothing and accessories (0.9 percent). The most shocking decline was in the nonstore segment including Internet sales, which dipped 0.6 percent and is not easily explained by inclement weather. Although the overall report is weaker than anticipated, some bright spots emerged last month. Sales at building supply stores expanded 1.4 percent as consumers sought tools to combat the cold and snow. Grocery stores also benefited from residents hunkering down in January, though the 0.2 percent increase came at the expense of restaurants, which posted a 0.6 percent decline in sales.

  • The impact of weak income growth is becoming a larger concern for the long-term prospects of retail sales. Shoppers’ budgets are increasingly stretched to maintain current consumption levels, which will only be maintained through income growth or the accumulation of debt. Core retail sales are 14 percent above the pre-recession level while household debt is more than 10 percent below the previous peak. Revolving credit surged at the end of last year, an indication that consumers are confident in their prospects and could support retail spending levels.

Impact on Commercial Real Estate

  • While retail spending has returned, the impact on operating fundamentals at “brick-and-mortar” stores has been muffled by the sheer size of the space overhang and number of retailers going dark. Even now, more than four years after the end of the recession, several national chains remain in jeopardy, including Red Lobster and JCPenney. Nonetheless, retail vacancy will drift down 70 basis points to 6.5 percent.

  • Warehousing and manufacturing are highly dependent on the retail sector, so a pause in spending could cool the impressive gains in the industrial commercial property sector over the past few years. Industrial vacancy stands at 8.2 percent, approximately the same rate as prior to the recession. If the U.S. economy expands by more than 3 percent this year, vacancy will retreat another 100 basis points into the low-7 percent range.

The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published weekly by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

Follow Marcus & Millichap Research Services on Twitter!

The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.

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