Broad-Based May Job Gains Highlight Economic Strength; Rising Momentum Raises Potential of Fed Tightening

June 8, 2015

  • Hiring in May spotlighted a U.S. economy that is finding its footing and gathering momentum following the weather-induced lackluster results of the first quarter. With the jump in job creation last month and upward revisions to prior months, growth in U.S. payrolls is back on track to align with last year’s robust pace. Higher employment levels, evidence of a more substantial pace of wage growth and broadening economic strength are converging to keep the Federal Reserve on course to raise its benchmark short-term interest rate by the end of 2015.

  • U.S. employers added 280,000 positions last month, including 262,000 new hires in the private sector. With these gains, total employment is 3.3 million jobs above the pre-recession peak. Not all employment sectors have contributed to the growth, however, as construction payrolls are still 1.1 million lower than their pre-downturn peak, but new residential and commercial projects have begun to pick up. Government and manufacturing jobs also face substantial deficits from prior levels, whereas education and health services expanded throughout the economic downturn, adding nearly 3.1 million positions. The shale oil boom lifted natural resources and mining staffing, but so far this year the sector has lost 68,000 jobs due to lower oil prices.
  • The unemployment rate ticked up to 5.5 percent last month, but the tightening in labor market slack over the past year is supporting the Federal Reserve’s intent to raise interest rates. While slack has been absorbed by the overall labor market, disparities between specific segments of the population have sharpened. The unemployment rate for 20- to 24-year-olds, for example, jumped to 10.1 percent last month, underlining the persistent difficulties young workers face in starting careers. At the other end of the age scale, older workers are remaining in the workforce longer to build retirement savings, as evidenced by growth in the labor force participation rate of the 65-years-plus segment and this group’s unemployment rate of 3.2 percent.

    Impact on Commercial Real Estate

  • The continuing inability of the youngest parts of the population to find work and form households represents a source of untapped demand for rental housing. Despite the modest contribution from 20- to 24-year-olds, the U.S. apartment sector is nonetheless flourishing. Demand is growing, but with completions rising to 250,000 units this year, the national vacancy rate will increase 10 basis points to 4.8 percent.
  • Among the employment sectors that have far surpassed their prior peak, professional and business services payrolls are 1.6 million workers above the previous high point in U.S. employment. Further growth in payrolls, plus a greater contribution from financial services employment, is beginning to translate into more significant reductions in the U.S. office vacancy rate. This year, minimal completions and growing demand will slice the U.S. vacancy rate 80 basis points to 14.5 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 by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

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.

April Hiring Revives Following Severe Winter; Job Creation Raising Commercial Real Estate Demand

May 11, 2015

  • Solid additions to payrolls in April put the U.S. labor market back on track and eased concerns that may have arisen following the poor hiring results in March and a weaker than anticipated initial reading of GDP. The further tightening of the labor market and the likelihood that economic growth will accelerate as 2015 progresses will likely encourage the Federal Reserve to raise its benchmark lending rate in the fourth quarter this year. In the meantime, low interest rates and subdued inflation will continue to support consumers’ spending power and will underpin a respectable pace of economic growth in the months ahead.

  • U.S. employers added 223,000 jobs last month, including 213,000 positions in the private sector. Most private-employment sectors accelerated hiring in April from the prior month, a trend exemplified by the creation of 45,000 construction jobs following staff cuts in March. Warmer weather allowed developers to initiate several projects, elevating multifamily development from its already strong pace, and sparking additional office, retail and lodging building. Professional and business services employment also grew by 62,000 positions in April; workers have been added each month for the past five years. Manufacturing payrolls have been flat for the past two months as exports were curtailed by the stymied West Coast port activity and the strong dollar. However, rising factory orders may lead to increased hiring.
  • The U.S. labor market is tightening, drawing down the overall unemployment rate to its lowest level in nearly eight years in April, to 5.4 percent. The underemployment rate that counts part-time workers seeking full-time positions continued to tighten, slipping to 10.8 percent, also a post-recession low. A shrinking pool of the unemployed, however, has yet to translate to substantial wage growth, with the average hourly wage in the private sector up a nominal 2.2 percent year over year through April. Wages have grown an average 1.9 percent over the past two years, but a faster pace of growth will slowly manifest over the coming year.

    Impact on Commercial Real Estate

  • Retailers created more than 12,000 positions in April, about half of the total recorded in the preceding month. The retail sector still has not received a significant bump from the lower gas prices that have persisted throughout this year, although a recent increase in credit-card debt suggests that consumers may be loosening up. Despite the missing surge in consumption, the retail sector continues to log solid performance, with U.S. vacancy forecast to tumble 60 basis points this year to 6.0 percent. Completions will total just 47 million square feet and will be inadequate to meet retailer needs, so an upswing in development may finally be forming.
  • Steady employment gains are sparking the formation of new households and sustaining the vigorous performance of the U.S. multifamily market. This year, national vacancy will edge up to 4.8 percent as 250,000 new units marginally outpace net absorption. Approximately half of the construction will be in 10 key metros, which could face short-term vacancy increases, but other markets will see little slowing.

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 by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

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.

Hiring Steady in First Quarter Despite Headwinds; Supports Broadening Demand for Real Estate

April 6, 2015

  • Following months of robust gains, U.S. employers tempered hiring in March. The modest pace of job creation, though, is consistent with slower economic growth in the first quarter that partly reflects a strong U.S. dollar, harsh winter weather and the shutdown of West Coast ports. Other economic trends, however, indicate that the slowdown in hiring will be only a temporary setback and the economy will regain momentum over the remainder of 2015. Last month’s hiring will also ease pressure on the Federal Reserve to raise its benchmark lending rate in the immediate term.

  • U.S. employers created 126,000 jobs last month, entirely in the private sector. A slower pace of expansion, and not widespread layoffs, accounted for the moderation in hiring. Bars and restaurants, for example, after adding nearly 66,000 in February, throttled back to just 8,700 workers last month. New bar and restaurant openings appear to be leveling off after climbing over the past four years, indicating potentially slower growth in the months ahead. Retailers continued to add to staffing last month following February’s 4.5 percent gain in core retail sales, though retailers’ pace of hiring moderated to 25,900 positions in March. Three sectors shed workers last month, led by a loss of 11,000 positions in natural resources and mining related to the idling of oil and gas rigs. Manufacturers and builders also trimmed payrolls nominally.
  • Although hiring slackened last month, more than 3.1 million jobs were created over the past year and average hourly earnings also increased. Inflation-adjusted disposable income, a broader measure of purchasing power, is also up 3 percent from one year ago, providing a substantial lift to households that will translate to greater spending and near-term economic growth. Recent indicators of growing consumer confidence include a rise in pending sales of single-family homes. Sales of single-family homes often lead to greater spending as homeowners purchase new furniture and appliances. Consumers also continue to buy other long-lasting goods in greater numbers.

    Impact on Commercial Real Estate

  • Additional trips to the mall and shopping centers by consumers will continue to support a strong retail property market and contribute to steady hiring in retail trade. U.S. retail vacancy was 6.6 percent at the end of 2014 and new store openings will trim the rate further this year, to 6.0 percent, behind net absorption of nearly 88 million square feet. Completions will total only 47 million square feet, but additional multi-tenant space may be required after 2015 to accommodate the expansion plans of national chains and other in-line retailers.
  • Professional and business services employment also continues to grow, with employers adding 40,000 workers last month. All told, primary office-using employment sectors including professional and business services added 871,000 positions over the past year, contributing to an increase in occupied space in the U.S. office sector. Minimal construction will divert additional rises in space demand to existing properties this year, underpinning net absorption of 107 million square feet and slicing vacancy 80 basis points to 14.5 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 by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

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.

Hiring Escalates Amid Heightened Corporate Confidence; Job Openings Surpass 2007 Peak

February 18, 2015

  • The number of job openings in the U.S. recently surpassed its pre-recession peak and reached a 14-year high as employers accelerated hiring, culminating in a robust month of job creation in January. Momentum has been broad as corporate caution has finally relaxed and companies have started to funnel profits back to work in the form of investments in equipment and additions to staff. Inexpensive gas prices and particularly low interest rates will sustain economic growth in 2015 and lend additional momentum to the positive hiring trends

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  • The private sector led hiring last month, and despite a modest reduction of government staff, the economy added 257,000 jobs. New employment was diversified, with substantive gains in both the education and health services, and trade, transportation and utilities sectors. Manufacturing also made headway, with durable-goods producers hiring 18,000 workers in January. Consumer purchases of long-lasting items such as automobiles are rising and will sustain manufacturing activity. Leisure and hospitality staffing expanded by 37,000 workers, primarily at bars and restaurants. Overall, hiring has been remarkably steady with the combined total of the last three months exceeding 1 million jobs — the first time that has happened since 1997.
  • Falling oil prices, a boon to the broader economy as consumers pay less to fill gas tanks, weighed on natural resources and mining employment. The sector lost 3,000 workers last month, with losses concentrated in oil and gas extraction, and drilling support activities. Should the price of oil remain low, companies will likely decommission more rotary rigs following last month’s shutdown of 200 facilities. U.S. oil production, however, remains elevated compared with years past, a trend that will persist in the near term as producers work their most cost-effective wells.

    Impact on Commercial Real Estate

  • Retailers hired nearly 46,000 employees last month as consumption maintained momentum. Retail job openings have reached an all-time high, signaling additional store openings in the coming months as retailers step up the pace of expansion. This year, retailers will absorb nearly 88 million square feet of space to slash nationwide vacancy 60 basis points to 6.0 percent, a level on par with the peak of the last cycle. Average rents will advance 2.5 percent as leases set during the recession come up for renewal and adjust to market rates in a much lower vacancy environment.
  • Professional and business services, and financial services payrolls continue to expand, helping to fill additional office space. More than 1 million positions are unfilled, signaling increased demand for space. As companies grow, they will need larger office layouts, lifting absorption trends. The tight construction pipeline, dominated by build-to-suits and generally only occurring in the healthiest markets, will help support performance trends. This year, the national office vacancy rate will tighten by 80 basis points to 14.5 percent, the lowest year-end level since before the recession.

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 by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.

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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