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.

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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.

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.

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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.

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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 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.

14_22 Retail Sales small graph

  • 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.

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