U.S. Employers Lift Payrolls, Maintain Solid Pace of Job Creation

August 4, 2014

  • Hiring maintained momentum in July, with U.S. employers displaying a considerable measure of resilience amid a challenging and shifting global scene. Last month’s continuation of the strong hiring trends recorded in the preceding quarter occurred amid higher risk stemming from tensions in the Middle East and Ukraine, and weakening global equity markets. However, several economic indicators, including a strong initial reading of second quarter GDP, point to a U.S. economy that continues to generate new business opportunities for U.S. companies. Accordingly, hiring will remain steady over the near term barring an unanticipated shock to the economy.
  • Private-sector employers added 198,000 positions in July, combining with rising government payrolls to yield a total gain of 209,000 workers for the month. All 10 private-employment sectors created jobs last month, led by a sizable increase in professional and business services payrolls. This sector includes a wide range of office-using positions, temporary employment and building maintenance. Elsewhere, ongoing apartment construction and a modest level of single-family development contributed to a gain of 22,000 construction jobs in July. Nevertheless, subdued building in other commercial property sectors leaves construction payrolls nearly 1.7 million positions short of the previous peak. Other leading sectors include trade, transportation and utilities, which added 39,000 workers in July, primarily at retail outlets, while expanding medical practices contributed to growth in education and health services staffing.

  • The Federal Reserve announced its intention to continue its tightening of monthly bond purchases to $25 billion this month, citing labor market slack as justification for maintaining its accommodative monetary policy. In the near term, the central bank will closely monitor the labor force participation rate and the underemployment rate, which has been stuck in the low-12 percent range for the past four months. Sustainable improvements in both measures would indicate the economy is running closer to full potential and provide justification for the Fed to modestly tighten its highly accommodative positioning.

    Impact on Commercial Real Estate

  • Increased merchandise inventory passing through warehouses and distribution buildings supported additional hiring for warehouse positions. Year to date, more than 19,000 posts were created, far outpacing the less than 3,000 jobs added in the corresponding period last year. The need to expand staffing underlines the improving operations and near-term prospects for the industrial property sector. Construction of new space is muted, and growing space demand will reduce the national industrial-property vacancy rate 100 basis points in 2014 to 7.1 percent.

  • Growth in employment sectors with significant office-using functions, including professional and business services, and financial activities, is driving a broad-based improvement in operations in the U.S. office sector. Tenant expansions drove the national vacancy rate 30 basis points lower to 15.6 percent in the first two quarters of 2014. Continued employment growth will encourage businesses to expand footprints, boosting space demand through the remainder of the year while construction remains limited in most markets. As a result, the national office vacancy will tighten further to 15.3 percent by year end.

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.

Moderate Retail Sales Mask Positive Underlying Trends; Robust Growth on the Horizon

July 21, 2014

  • The bevy of recent economic indicators has mostly fallen into two camps; one suggesting the economy is poised to break out of the slow-growth slumber recorded since the recession and another signaling cautious expansion will continue to reign. The pace of job growth and consumer confidence, for example, are near post-recession highs, while a disappointing first-quarter GDP report and slipping home sales paint a bleaker outlook. At first glance, June’s modest retail sales growth lends support to the latter argument; however, the underlying fundamentals suggest stronger retail sales are on the horizon. Historically low debt burdens, the wealth effect, relaxing lending standards and pent-up demand all point to stronger improvement once wage growth finally gains traction, which could happen in the second half of the year.
  • Excluding autos and gas, total retail sales advanced 0.4 percent in June, and figures from the previous two months were revised significantly higher. The largest drag on overall retail spending during June was from auto sales, though unit sales increased. Discounting by dealerships to make room for 2015 models likely contributed to the decline, which should be a temporary setback. Segment leaders for the month include nonstore retailers, general merchandisers, and clothing and apparel stores. Internet sales show no indication of losing momentum after advancing more than 8 percent over the past year, nearly double the overall rate of growth.

  • Although some headwinds persist, such as the conflicts in Ukraine and the Middle East, modest wage growth is the primary deterrent to more robust consumer spending. Year over year, wages have climbed 3.8 percent, and they are now 12.2 percent above the pre-recession peak. As unemployment continues to fall and employers compete for potential hires, wage growth should accelerate. The impact of a tightening job market will also create opportunities for younger workers and encourage some of the extra 3.3 million young people living at home to create new households, which could be a boon for retail sales.

    Impact on Commercial Real Estate

  • Operations are improving despite a shifting retail landscape that rewards retailers with an effective storefront and online presence. By year-end 2014, retail vacancy will fall to 6.5 percent, just 20 basis points above the rate at the beginning of the recession. Despite the gain in occupancy, operators have been slow to lift asking rents, which will finish the year 10 percent below the previous peak.

  • Supported by growing online sales, the industrial market is performing well as retailers position fulfillment centers closer to population centers. Amazon, in particular, is collecting sales tax in more than 20 states and rapidly expanding to compete on timeliness in areas where the pricing competitive edge has eroded. Overall, industrial vacancy will decline to 7.1 percent this year, nearly 100 basis points below the pre-recession rate.

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.

Employers Pick Up Pace in June; Elevated Job Creation Points to Robust Growth in 2Q

July 7, 2014

  • Robust job creation in June exceeded expectations and effectively extinguished concerns that the negative reading in first-quarter gross domestic product was more than an aberration. The increase in U.S. private sector and government payrolls in June, combined with favorable trends in business investment, and manufacturing and service sector activity, signal that economic growth accelerated in the April-to-June quarter. The Federal Reserve has significantly tapered its purchases of bonds this year and will continue to keep a mindful eye on inflation as the economy grows in the months ahead.
  • 14_07 Employment smallPrivate-sector employers created 262,000 jobs last month, and government agencies chipped in 26,000 new posts for a net gain of 288,000 positions. During the second quarter, an average of 272,000 total positions were added monthly, surpassing the average monthly gain of 190,000 new hires in the first three months of 2014. Professional and business services, and education and health services were the big gainers in June, while hiring at stores underpinned an increase of 72,000 trade, transportation and utilities positions. Reflecting recent positive reports on factory orders and manufacturing, the nation’s plants added 16,000 posts last month, while construction payrolls grew by 6,000 positions. Employment in specialty trades, a segment related to home building, grew only nominally in June following significant gains early in the year. Quarterly earnings calls from publicly traded home builders will provide clearer insights into residential construction trends.

  • The unemployment rate decreased to 6.1 percent last month, with two other key measurements also tightening. The underemployment rate, a measure widely cited as an indicator of labor market slack, dipped 10 basis points to 12.1 percent, the lowest reading in nearly six years. Also, the rate for individuals 20 to 24 years old fell 60 basis points to 10.5 percent. Young adults have had difficulty entering the workforce, resulting in only a gradual drop in the unemployment rate in the 20- to 24-year-old segment from a high of 17.2 percent more than four years ago. However, job creation in degreed fields is improving while older workers are leaving the workforce more frequently, both factors that will expand opportunities for youthful workers in the months ahead.

    Impact on Commercial Real Estate

  • Brighter employment prospects for the youngest workers will potentially lead to the creation of new households, unleashing new demand for rental housing. National apartment vacancy was flat in the first quarter, and elevated completions in select markets will underpin a 20 basis-point rise this year to 5.2 percent. The possibility that newly formed households can generate demand greater than currently projected, however, may further minimize the forecast increase in nationwide vacancy this year.

  • Growth in degreed professional and business services fields, and the addition of 34,000 financial services positions in the second quarter, will fill unused office space and generate new demand in the near term. An upward swing in office property operations will result in a 120 basis-point drop in U.S. vacancy to 14.8 percent this year. Pressures from speculative supply growth are minimal and will remain so through 2015, leading to additional demand-driven drops 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.

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.

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.

14_06 Employment SMALL

  • 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.

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.

Follow

Get every new post delivered to your Inbox.

Join 189 other followers