October Payrolls Surpass 200,000 for Ninth Month; Tepid Wage Growth Keeps Lid on Inflation

November 11, 2014

  • Employers stared down pre-election anxiety and tensions in the Middle East to significantly expand payrolls in October. Following last month’s hiring, total employment exceeds the pre-recession peak by 1.3 million jobs. With the U.S. economy gathering momentum and the Federal Reserve recently ending its stimulus campaign, the focus will increasingly shift to the timing of the central bank’s initial hike in its short-term interest rate. Inflation pressures have been tame thus far, but should inflationary pressures rise, including wages, the Fed may begin to take action.

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  • U.S. employers added 214,000 jobs in October, the ninth consecutive month of payroll gains to exceed 200,000 workers. Consumer-oriented sectors made significant contributions. Traffic at bars and restaurants continued to grow, and hiring at these establishments accounted for 52,000 leisure and hospitality positions in October. Retailers also geared up for the holiday shopping season, adding 27,100 jobs during the month. Th e recent drop in gas prices will potentially supplement consumer spending in the months ahead. Oil and gas companies, though, have not curtailed production despite the fall in prices. Oil and gas extraction payrolls added 2,500 workers last month, and no reduction in drilling is expected unless oil falls below $70 per barrel for an extended period.
  • Labor market slack is easing as employers step up hiring. The unemployment rate slipped to 5.8 percent in October, the lowest level in more than six years, and the so-called underemployment rate also receded dramatically, falling to 11.5 percent. Significant wage gains have yet to accompany the reduction in slack, though, as hourly earnings rose nominally in October and are up barely more than the pace of inflation over the past year. Further tightening in the labor market, however, could pressure wages and potentially cue the Fed to consider raising rates. Most indicators point to the second quarter 2015 for when the Fed will begin to edge rates higher.

    Impact on Commercial Real Estate

  • More than two-thirds of individuals ages 20 to 34 rent apartments, and the employment market for this group continues to improve. Following a drop last month, the unemployment rate for 20- to 34-year-olds sits at 7.5 percent, down from more than 12 percent four years ago when the U.S. economy started adding jobs. New tenants will emerge as additional individuals enter the workforce in the months ahead, maintaining downward pressure on the vacancy rate. This year, the U.S. vacancy rate will decline 30 basis points to 4.7 percent.
  • The movement of goods from U.S. ports to manufacturers, retailers and distributors is supporting a significant increase in transportation and warehouse staffing. Including the addition of 13,300 positions in October, more than 100,000 workers have been hired year to date to handle the stocking and movement of goods. New space needs are also arising in warehouse and distribution properties, keeping the national industrial vacancy rate on course to fall 100 basis points this year to 7.1 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.

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 Ease Back in September; Broader Economic Momentum Still Advancing

October 15, 2014

  • The softer than anticipated economic news of recent weeks aligned with economic weakness emanating from European and Asian markets to drive investment capital into U.S. Treasurys and other safety vehicles. Recent volatility in the equity markets had already placed investors on edge, and the slight downturn in retail sales together with a decline in a major manufacturing index sent a shock through the stock markets. However, other economic indicators such as employment growth and consumer confidence have demonstrated some durability, offering healthy, if not spectacular, growth outlooks. Furthermore, Treasury rates, now flirting with 2.0 percent, will extend support for the housing market as the Fed potentially hesitates in lifting the Federal Funds rate. Overall, the national economy remains on a growth trajectory despite recent volatility in the equity markets.
  • Retail sales declined 0.3 percent in September as a pullback in store receipts was broad based and impacted nearly every segment of the industry. Although automobile sales declined, per-unit prices inched higher, mitigating the impact of fewer shoppers on car lots. Gasoline prices have retreated 13 percent since the end of June, which generated fewer trips to retailers that sell gas. Core retail sales, which excludes autos and gasoline, dipped 0.1 percent last month. Softness in the housing market dragged down sales 1.1 percent at building materials stores and 0.8 percent at furniture and home furnishing establishments. It should be noted, however, that on an annual basis, retail sales are still up 4.3 percent from last year — on track with the long-term average growth rate.

  • While the monthly retail sales release was weaker than anticipated, some positive signs emerged. Store receipts at electronics and appliance retailers soared 3.4 percent behind the release of the iPhone 6. Nonstore/Internet retailers, which record finalized sales upon delivery rather than the initial transaction, will also likely recoup their 1.1 percent decline posted in September as their iPhone sales predominantly post in October. Restaurants also demonstrated positive momentum, posting 0.6 percent growth and reiterating that discretionary spending remains on track.

    Impact on Commercial Real Estate

  • Although nonstore/Internet retail sales have significantly increased their share of total retail receipts since the recession, bricks-and-mortar retail continues to trend toward pre-recession performance levels. Vacancy will approach the previous low of 6.3 percent by year end, while space demand will finish 2014 at 5.7 percent above the level at the onset of the downturn.

  • Nonstore/Internet retail sales have soared by 60 percent since the recession as buyer behavior has shifted. Most retailers anticipate this trend to be permanent, which is the driving force behind omni-channel retailing. This blend of showroom and stockroom space targets this new shopping experience, and it will lift industrial demand by 2.1 percent this year and help tighten vacancy to nearly 7 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.

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 Bounces Back in September, Supports Broad-Based CRE Momentum

October 9, 2014

  • Reinforcing the broadening economic momentum, U.S. employers added workers at a brisk pace in September, alleviating disappointment in August’s lackluster hiring report. The steady job gains stand in stark contrast to last year when the looming government shutdown restrained employer additions. Since last year’s shutdown, however, uncertainty has eased dramatically. The establishment of a federal budget and debt ceiling have helped support both business optimism and consumer confidence. Aside from the still-limited wage growth trends, the U.S. economy appears poised to finally begin an accelerated growth trajectory. The economy still faces hurdles, however, as election year politics could once again destabilize fiscal policies and fears of contagion from European economies teetering on the edge of recession erode confidence.
  • U.S. employers added 248,000 jobs in September, with the growth dispersed across nearly all sectors. Gains in trade, transportation and utilities, and professional and business services accounted for nearly half of the job additions, but other segments also made sizable contributions. Broader availability of healthcare boosted hiring by medical practices and healthcare facilities, which added 32,000 workers. Meanwhile, significant increases in multifamily development contributed 16,000 construction jobs. The manufacturing sector has also supported hiring, with 4,000 new positions last month. The broad-based nature of hiring throughout the recovery reiterates the diverse range of business segments contributing to the momentum, reinforcing the belief that this growth cycle will be sustainable for several years.

  • Through the first three quarters of 2014, nearly all private employment sectors added staff at a faster pace than they did in 2013. Two retail-related segments, however, slowed their pace of hiring — just 222,000 jobs were created at bars and restaurants in the first three quarters of this year, a decline of about 20 percent from their 2013 pace. Hiring in retail trade also slowed, falling 35 percent from last year’s rate of job creation to 148,000 new positions year to date. Both of these segments led the hiring recovery last year, so the tapering growth rate may simply signal that these fields are finally approaching capacity. Despite this slowing hiring pace, retail assets and restaurant locations both continue to benefit from rising occupancy and rent.

    Impact on Commercial Real Estate

  • Professional and technical services, a leading user of office space, led the employment recovery and maintained steady additions this year. Through September, 217,000 workers were added by this sector, contributing to positive net absorption of office space and a decline in U.S. office vacancy in the first half of 2014 to 15.6 percent. This performance has been further supported by the slow ramp-up of office construction. By year end, national office vacancy will fall an additional 30 basis points to 15.3 percent, lifting rents 3.7 percent for the year.

  • The majority of the construction payroll gains was supported by accelerated multifamily development across the country. With nearly 240,000 new units expected in 2014 and another 210,000 forecast for 2015, the apartment sector is in the midst of its strongest building boom in 15 years. Demand, however, remains vigorous as employers have stepped up hiring. National apartment vacancies fell 60 basis points in the first half of the year and appear to have tightened an additional 10 basis points in the third quarter, reaching 4.3 percent — the tightest national rate since 2006.

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.

Broad Based Retail Sales Growth Lifts Commercial Real Estate Performance

September 19, 2014

  • August’s retail sales performance reaffirmed the notion that the U.S. economy is on the precipice of a breakout. Most notably, limited wage growth has continued to restrain consumers from stomping on the economic accelerator. Additionally, Americans have developed a thriftier mindset in the aftermath of the recession that has led to a higher savings rate and reserved borrowing patterns despite elevated consumer sentiment. These headwinds should dissipate in the coming months as positive economic news broadens. Year-over-year wage growth is trending near the post-recession high, and household income in strong technology markets has surged. The improving job market will entice discouraged workers back into the labor market, and as a greater portion of the population is employed, new households will be created, in turn boosting retail sales.
  • As expected, retail sales jumped in August as consumers went back-to-school shopping, though the welcome surprise was an upward revision to June and July’s previously announced figures. Overall, retail sales jumped 0.6 percent last month, lifting the annual gain to 5.0 percent, which reversed a trend of slowing growth. Excluding autos and gas, retail sales advanced 4.8 percent over the past 12 months. Nearly all of the discretionary spending categories landed on the positive side, indicative of healthy consumption patterns. Only gas stations were a major detractor, though falling fuel prices predicted last month’s result.

  • Inflationary pressure could be looming, potentially posing a threat to retail sales and the broader recovery. The seven-year run of low interest rates has significantly expanded the money supply, while the pace of inflation has remained lethargic. If the Fed maintains its growth-centric stance when considering interest rate hikes, inflationary pressure could outdistance the Fed’s ability to apply the brakes without upending the economy. Other than August’s somewhat weak job report and still-high underemployment, few justifications to stimulate growth through asset and bond purchases or an early 2015 rate hike remain.

    Impact on Commercial Real Estate

  • The prolonged low-interest-rate environment has reshaped the single-tenant, net-leased investment market. Capital preservation has become a much greater motivator for purchases, particularly from retiring baby boomers. The alternatives to single-tenant properties leased by corporate-backed tenants are limited and generally riskier. As interest rates climb, investors will find other safe havens for retirement funds, bringing balance back to the single-tenant market.

  • Retailers are relying on technology rather than people to drive retail sales higher, though employment in the retail trade sector is advancing as space is absorbed. This year, retailers will add 270,000 workers, lifting payrolls to within 60,000 jobs of the pre-recession level. Retail vacancy, meanwhile, will decline to 6.5 percent on space demand growth of 1.2 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. 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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