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.
Private-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.
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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.