Broad-Based May Job Gains Highlight Economic Strength; Rising Momentum Raises Potential of Fed Tightening

June 8, 2015

  • Hiring in May spotlighted a U.S. economy that is finding its footing and gathering momentum following the weather-induced lackluster results of the first quarter. With the jump in job creation last month and upward revisions to prior months, growth in U.S. payrolls is back on track to align with last year’s robust pace. Higher employment levels, evidence of a more substantial pace of wage growth and broadening economic strength are converging to keep the Federal Reserve on course to raise its benchmark short-term interest rate by the end of 2015.

  • U.S. employers added 280,000 positions last month, including 262,000 new hires in the private sector. With these gains, total employment is 3.3 million jobs above the pre-recession peak. Not all employment sectors have contributed to the growth, however, as construction payrolls are still 1.1 million lower than their pre-downturn peak, but new residential and commercial projects have begun to pick up. Government and manufacturing jobs also face substantial deficits from prior levels, whereas education and health services expanded throughout the economic downturn, adding nearly 3.1 million positions. The shale oil boom lifted natural resources and mining staffing, but so far this year the sector has lost 68,000 jobs due to lower oil prices.
  • The unemployment rate ticked up to 5.5 percent last month, but the tightening in labor market slack over the past year is supporting the Federal Reserve’s intent to raise interest rates. While slack has been absorbed by the overall labor market, disparities between specific segments of the population have sharpened. The unemployment rate for 20- to 24-year-olds, for example, jumped to 10.1 percent last month, underlining the persistent difficulties young workers face in starting careers. At the other end of the age scale, older workers are remaining in the workforce longer to build retirement savings, as evidenced by growth in the labor force participation rate of the 65-years-plus segment and this group’s unemployment rate of 3.2 percent.

    Impact on Commercial Real Estate

  • The continuing inability of the youngest parts of the population to find work and form households represents a source of untapped demand for rental housing. Despite the modest contribution from 20- to 24-year-olds, the U.S. apartment sector is nonetheless flourishing. Demand is growing, but with completions rising to 250,000 units this year, the national vacancy rate will increase 10 basis points to 4.8 percent.
  • Among the employment sectors that have far surpassed their prior peak, professional and business services payrolls are 1.6 million workers above the previous high point in U.S. employment. Further growth in payrolls, plus a greater contribution from financial services employment, is beginning to translate into more significant reductions in the U.S. office vacancy rate. This year, minimal completions and growing demand will slice the U.S. vacancy rate 80 basis points to 14.5 percent.

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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.

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