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.

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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 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.

4-4-14-Employment_small

  •  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.

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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 Begin to Thaw; Modest but Broad-Based Gains in February

March 14, 2014

  • Consumer spending thawed a bit in February, lifting retail sales for the first time in three months. A long, cold winter has kept shoppers at home over the past few months, particularly in the Northeast and Southeast. Some of the pent-up demand for retail goods was released in February, though revisions to the prior two months cut deeper than anticipated. As the weather improves and the job market maintains a steady growth trajectory, retail sales should gain solid footing. March, however, could prove to be another challenging month for year-over-year comparisons as Easter retail sales will shift to April this year. Nonetheless, most indicators point toward economic improvement as 2014 progresses, which will boost spending, albeit at a more modest pace than during the initial stages of the recovery.

  • Retail sales inched up 0.3 percent during February, which is an encouraging sign after declines in the prior two months. Most of the gains recorded last month were payback from cuts in January, with broad-based gains in eight of the 11 components. The largest advances favored sporting goods and hobby stores, and non-store retailers including the Internet, which climbed 2.5 percent and 1.2 percent, respectively. Food and beverage, general merchandisers, and electronics and appliance stores recorded the only losses last month. All three segments recorded only modest declines and only general merchandisers are in the midst of an ongoing trend toward tightening.

  • Several important economic indicators support retail sales growth going forward, though some headwinds are looming on the horizon as well. Employment growth in February was above expectations as more people entered the job market. Initial jobless claims are also lower, lending credence to a stronger economy. Two major unknowns could dampen consumer spending in the coming months and need to be monitored closely. Mandatory health insurance will pull more than $1 billion out of the economy per month by April, and that number will rise as penalties stiffen over the coming year. Rising interest rates are also a concern as revolving debt becomes more expensive and thousands of homeowners enrolled in the Home Affordable Modification Program face higher monthly mortgage costs.

Impact on Commercial Real Estate

  • Retail operations will continue to improve this year, though new entrants into the “bricks-and-mortar” arena will need to emerge to overcome store closings. Staples will close more than 200 stores, while Radio Shack shutters more than 1,000 units, bringing millions of square feet of dark space onto the market. Nonetheless, demand from healthy retailers will drag down vacancy 70 basis points to 6.5 percent while asking rents progress 2.5 percent to $16.77 per square foot.
  • The industrial sector is highly dependent on retail spending, particularly sales at non-store retailers such as Amazon. Even traditional stores are elevating their presence in the digital arena, including Sears, Wal-Mart and Target. As leases are signed for warehouse space that is conducive to overnight delivery by the Internet retailers, industrial vacancy will dip below the pre-recession rate. This positive momentum will lift average rents by 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 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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