Job Market Surpasses Previous Peak; Economy Shifts to Sustainable Growth

June 10, 2014

  • Supported by positive manufacturing and service-sector activity, the U.S. economy has settled into a steady pace of economic growth with strengthened hiring trends. Total employment has passed its pre-recession peak, adding back the 8.7 million jobs lost during the recession. This will be regarded as a positive sign by the Federal Reserve, which will likely continue tapering monthly bond and securities purchases. Interest rates remain low, but the central bank’s public comments and deliberations may increase upward pressure on rates in coming months.

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  • U.S. employers added 217,000 jobs in May, as nine of 10 private employment sectors expanded and the government sector contributed 1,000 positions. Professional and business services employment continued to grow in May, while the rising number of people with health insurance lifted healthcare demand and created 54,900 health-services jobs. The trade, transportation and utilities sector also added 39,000 positions last month. Hiring at stores continued, and gains in wholesale trade, and warehouse and transportation payrolls reflect ongoing growth in U.S. imports.

  • Leisure and hospitality employers readied for the peak summer travel season, which unofficially begins on Memorial Day and runs for three months through August, by hiring 39,000 workers last month. Nearly all of the gain was recorded at bars and restaurants, but amusement parks and gambling and recreation establishments also added 3,200 employees. U.S. hotels continue to experience an upswing in room demand and occupancy, but accommodations employment rose by only 2,700 positions in May. The hotel industry is also in the midst of an increase in construction, but new building is concentrated in less labor-intensive lodging brands.

    Impact on Commercial Real Estate

  • Growth in professional and business services and other employment sectors with significant office-using functions are laying the foundation for a quicker pace of recovery in the national office sector. Tenants expanded into an additional 17.6 million square feet of office space in the first quarter this year, trimming vacancy 10 basis points to 15.9 percent. Speculative construction remains minimal, which will contribute to a 120 basis-point drop in vacancy this year to 14.8 percent and support a 3.5 percent gain in the average rent.

  • Recent job growth will generate additional spending at retail establishments over the remainder of 2014, boosting foot traffic at shopping centers around the country. National retail vacancy slipped to 7.1 percent in the first quarter and remains on track to decline to 6.5 percent this year. Retail construction consists of primarily single-tenant concepts and small, heavily pre-leased multi-tenant properties that will not hinder further declines in vacancy.

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.

Hiring Hits Breakout Pace in April as Total Employment Flirts with Pre-Recession Peak

May 6, 2014

  • Job creation accelerated in April, with private-sector industries and government agencies combining to lift payroll gains to their highest monthly level in more than two years. The aggressive pace of hiring signals that economic expansion could accelerate despite the weak initial first quarter GDP reading. The improvement in the labor market also validates the Federal Reserve’s decision this week to reduce its monthly asset purchases by an additional $10 billion, cutting its monthly investments to $40 billion per month — half the levels of last year.

  • Nearly all private-employment sectors expanded in April and government staffing also rose, yielding a total of 288,000 new positions during the month. Professional and business services led the way, creating 75,000 positions, while rising retail spending and new store openings supported an expansion in the retail sector. Warmer weather enabled work on residential and commercial development to gain traction, contributing to a gain of 32,000 jobs in construction trades, while the spring thaw also helped manufacturing add 12,000 workers. Only the information sector, primarily comprising media establishments, shed workers in April.

  • Following steep staff reductions two years ago, job cuts in the government sector continue to ease. Government employers added 15,000 workers last month, as hiring at the state and local level offset a cut in federal payrolls. Job creation is especially strong in local government, where 17,000 new hires were made in April and 68,000 positions were created over the past year. Improving single-family home sales, growth in retail spending, higher hotel occupancy tax collections, and construction of residential and commercial structures helped lift local government budgets and supported the creation of new government positions.

    Following steep staff reductions two years ago, job cuts in the government sector continue to ease. Government employers added 15,000 workers last month, as hiring at the state and local level offset a cut in federal payrolls. Job creation is especially strong in local government, where 17,000 new hires were made in April and 68,000 positions were created over the past year. Improving single-family home sales, growth in retail spending, higher hotel occupancy tax collections, and construction of residential and commercial structures helped lift local government budgets and supported the creation of new government positions.

    Impact on Commercial Real Estate

  • The continued expansion of construction payrolls reflects an increase in multifamily building. Developers brought more than 41,000 rentals online nationwide in the first quarter, which left vacancy unchanged at 5.0 percent. Leasing traffic during the first three months of 2014 may have been adversely affected by bad weather in many parts of the county. This year, the projected completion of 215,000 apartments will further lift construction payrolls but also raise vacancy 20 basis points to 5.2 percent.

  • As a result of the gain in professional and business services workers last month, office-using employment has recovered all of the jobs lost during the recession. Financial services employment, however, remains well below its former peak and the subdued pace of growth is keeping the national office sector from gaining momentum. Other employment sectors with office-using functions, such as education and health services, continue to expand at a healthy clip and will contribute to a 120-basis point plunge in U.S. vacancy this year, to 14.8 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.

Retail Sales Thaw in March as Economic Momentum Broadens

April 23, 2014

  • Consumer activity accelerated in March as pent-up demand for retail goods was released following the colder-than-normal winter. The resurgence in spending is one of several indicators that the world’s largest economy is poised to break out this spring after a lackluster first quarter. Over the past two months, nearly 400,000 jobs have been created and jobless claims are close to pre-recession levels, trends that should fuel the economy growth in coming months. Annualized GDP growth is anticipated to accelerate to the mid-3 percent range in the second quarter, which will encourage the Fed to continue tapering the latest round of quantitative easing.

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  • Excluding autos and gas, retail sales climbed 1 percent in March, surprising to the upside. Receipts across nearly every category increased as consumers opened their wallets to make up for lost time. General merchandisers, building material stores, and food service and drinking retailers posted the largest increases among bricks-and-mortar stores. Non-store retailers, including Internet retailers, also recorded healthy gains, with sales jumping 1.7 percent. Only electronics and appliance stores, and gasoline stations faced weaker demand, losing 1.6 percent and 1.3 percent, respectively. Softening home sales pulled down big-ticket appliance purchases, while gasoline stations face increased competition from drugstores.

  • Although auto sales are excluded from core retail sales, they are indicative of consumers’ outlook. In March, consumer confidence reached a six-year high fueled by the future outlook component. The major auto manufacturers posted impressive growth during February and March, boding well for the broader economy. The pace of auto sales surged to an annualized 16.3 million units in March, up from 15.3 million during February. The Big Three, Toyota and Nissan all surpassed expectations during the month.

Impact on Commercial Real Estate

  • Retail sales are well above pre-recession levels, both in absolute terms and on a per-capita basis. However, retail sales gains have yet to translate into occupancy at smaller retail centers due to the supply overhang that many metros still face. Many of these smaller retail centers are dependent upon local businesses to fill their space. As consumption accelerates and demand intensifies this year, particularly in outlying suburbs, leasing activity is anticipated to accelerate and fill much of the dark in-line space still on the market.

  • The industrial sector is largely dependent on consumer spending, particularly with the growth of online shopping. Since the beginning of the recession, online retailers have picked up an average of 1 percent of total retail sales each year. Internet retailers continue to seek local space to support faster delivery models. As a result, industrial vacancy finished 2013 at the pre-recession level and is anticipated to decline 100 basis points this year to 7.2 percent than backfilling empty cubes. As office users seek space in secondary office districts, nearby retailers should finally enjoy foot traffic on par with pre-recession levels.

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.

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.

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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