Economic Momentum Accelerates Behind Broad-based Hiring in July

August 9, 2016

  • Exceptional payroll growth in July and upward revisions to job gains in the preceding two months underline the persistent strength of the U.S. economy, which is now in its seventh year of expansion. Secondary indicators of labor market activity, including unemployment claims, the unemployment rate and wage growth, reinforce the strengthening trend and diminish some of the negative mixed signals in other economic data points. The combination of positive labor market trends will support additional spending by U.S. households in the coming months and maintain a modest pace of economic growth.
  • U.S. employers added 255,000 jobs in July and the combined total of the preceding two months was revised upward 18,000 positions. Office-based businesses Employment-by-sectorcontributed significantly in July, adding 70,000 workers in professional and business services and a respectable increase in financial services staffing. Job gains last month were also broadly distributed, with bars and restaurants accounting for most of the 45,000 positions created in leisure and hospitality. A change in consumers’ dining habits that favors more frequent dining out will maintain hiring in the sector. The addition of approximately 15,000 retail positions rounds out a solid month of hiring in industries with direct contact with consumers. Only natural resources and mining among the private employment sectors posted a loss of jobs last month. The decline comes amid greater downward pressure on oil prices.
  • Wage growth appears to be gaining traction, with the average hourly wage advancing 2.6 percent over the past year following a respectable increase in July. The pace of wage growth in excess of the rate of inflation will underpin real gains in consumer spending in the coming months. In addition to higher pay, the unemployment rate held steady at 4.9 percent, near the Federal Reserve’s measure of full employment, and the underemployment rate was beneath 10 percent for the tenth consecutive month. Both trends raise the potential of action by the central bank on its benchmark rate when it meets next month.
  • The expansion in professional and business services included more than 37,000 new hires in fields that include architects, accountants and attorneys. An additional 17,000 temporary positions were also created. Rising temporary employment is a forward-looking indicator of continued strength in hiring. Expanding office-using payrolls will drive net absorption of 86.5 million square feet this year to reduce vacancy to 14.8 percent.
  • Staffing gains in the retail sector in July occurred after U.S. retail vacancy hit a multiyear low in the second quarter. New openings by retailers and other shopping center tenants underpinned net absorption of more than 24 million square feet in the period and reduced the U.S. vacancy rate to 5.8 percent. Growing demand and subdued construction will maintain the vacancy rate near 6 percent this year.

Brick-and-Mortar Retail Incorporates More Services with Products as E-Commerce Proliferates

July 22, 2016

  • The rise of Internet shopping as a destination hub is reshaping the economy, steering spending toward new sellers and platforms as product selection, delivery times and convenience improve. The ascent of this trend is spawning the creation of Internet-based businesses and pressuring traditional retailers to adapt as mobile commerce and online portals claim a larger share of retail spending. While these changes have been underway for more than a decade, the impacts continue to reshape the role and function of shopping centers. This has resulted in a higher mix of service-oriented offerings with key product-selling anchors, pushing the retail vacancy rate to 10 year lows.
  • The shift of retail dollars to online destinations has been substantial, with sales reaching a record $46.9 billion for the month of June. The category now accounts for nearly 13 percent of core retail sales, up from 8.4 percent a decade ago. Over the 12 months ending in June, receipts at non-store retailers jumped 14.2 percent, a robust pace that eclipses other retail categories. Promotions such as Amazon’s recent Prime Day, which was countered by several other E-Commerce-Attracting-More-Consumer-Dollars-MMretailers including Wal-Mart, helped draw additional consumers to online portals.
  • As e-commerce makes deeper inroads, the composition of shopping center tenancy has evolved dramatically. Tenant mixes have begun to shift toward service-related businesses. Restaurants and bars now make up an extremely strong presence, as sales vaulted 4.9 percent over the past year. Grocery stores also remain stalwarts, with several chains such as Kroger, Wegman’s and Publix all announcing plans for additional locations to meet consumer demand over the coming years. The category has seen a steady growth in sales over the past several years, logging a 2.5 percent rise over the last four quarters.
  • Several areas of retail are performing well, particularly the healthcare and home improvement sectors, even as digital grabs a larger share of consumer spending. Due to the impracticality of purchasing building materials online, retailers in the category registered a 7.7 percent jump in receipts over the past year. Although online pharmacies are gaining business, the multitude of local drugstores, combined with a larger selection of offerings that includes convenient food and beverage options, contributed to an 8.4 percent surge in healthcare sales volume over the past year. The aging baby boomer population and the rise of urgent care facilities in shopping centers has also bolstered this trend.
  • The emergence of digital shopping continues to generate new demand for industrial assets in order to shorten delivery times to customers who shop online. As a result, the nationwide vacancy rate ended the first quarter at 6.3 percent, down 50 basis points over the past year. Demand for retail floorplates also remains robust, driving the national vacancy rate down 30 basis points to 6 percent during the same time period as builders focused primarily on net-leased quick-service restaurants and mixed-use projects.

Single-Family Home Sales and Building Advance; Hurdles to Faster Growth Persist

July 12, 2016

  • A modest advance in sales activity during the month of May put additional strain on for-sale inventory as the single-family housing market seems to remain caught in a loop that continues to prevent many prospective homebuyers from making a purchase. Sales of existing single-family homes are rising, but the low level of homes available for purchase leaves many would-be buyers unable to transact and is exerting upward pressure on prices. Some of the bottleneck is attributable to the new-home segment, where high prices and a lack of building across a wide range of prices is restricting potential move-up buyers from acquiring new homes. A reduction in the completion of starter homes, in particular, continues to sustain tight vacancy in the multifamily sector as tenures extend for some rental households.
  • With limited inventory of existing single-family homes on the market, some buyers Sales-Riseare turning to the new-home segment, supporting additional building. Single-family home completions recently reached their highest level in the current economic cycle as steady buyer traffic enables builders to pre-sell units, triggering a jump in new-home sales of 9 percent over the past year. However, first-time homebuyers have been virtually shut out as builders focus on higher-end housing. The median price of a newly constructed single-family residence advanced over the past year to $290,100, well above the levels posted prior to the downturn, when builders constructed more starter homes.
  • The supply of existing single-family homes continued to shrink during May, maintaining upward pressure on pricing. For-sale inventory dropped to 4.4 months, the lowest level since 2005. While velocity accelerated from the year-earlier level, the tight inventory underpinned a 5 percent rise in the median price of a pre-owned single-family residence to $231,500, surpassing the prior peak.
  • A tight housing market driven largely by limited for-sale inventory is generating strong renter demand as many would-be homebuyers wait on the sidelines. As a result, apartment demand in the second quarter remains robust while vacancy for single-family residences, according to the U.S. Census Bureau, is hovering near 7 percent, down 400 basis points from the peak achieved in August 2009 and at a rate not realized since the early ‘90s. The addition of thousands of apartments to inventory across the nation this year will continue to fill the void as these potential buyers face a competitive purchasing market, keeping vacancy tight as nearly 258,000 units are absorbed.
  • Sales of single-family homes are fueling an increase in consumer purchases of items associated with the formation of new owner-occupied households and the replacement of older items as other homeowners move into new residences. Spending at furniture and home furnishings stores, as well as home improvement stores, rose nearly 4 percent each in the last 12 months. Furniture and home furnishings retailers will continue to play an important role as traffic drivers for retail property owners, since consumers prefer to physically inspect many items prior to purchase. This year, U.S. retail property vacancy will decline 30 basis points to 5.8 percent.

Employers Maintained Hiring Trend in April; Underemployment Rate Tightening

July 11, 2016

  • The substantial jump in hiring during June to the highest monthly level this year suppresses talk of a sharp slowdown in job creation and strongly reaffirms that the U.S. economy remains on a growth track. Although last month’s survey occurred before the unexpected outcome of the Brexit vote, secondary employment indicators including initial unemployment claims and elevated job openings point to a stable labor market and prospects for further growth. Employers’ ability to add staff to pursue expansion opportunities, however, could be complicated by tightness in the labor pool that may taper the pace of job creation from the heightened levels of the past two years.
  • Strong hiring in the service sector and a modest contribution from manufacturers generated a gain of 287,000 jobs in June, the highest monthly total since last October. The return of Verizon employees to work accounted for most of the gain of 44,000 information positions, while expanding consumer and personal services sectors also posted solid increases. Healthcare practices grew and retailers created nearly 30,000 posts as out-of-school students took summer jobs. Leisure and hospitality payrolls swelled by 59,000 positions, principally at hotels, bars and restaurants. Some of the hiring may be attributed to preparations for the major political party conventions scheduled later this month in Cleveland and Philadelphia.
  • Employers added an average 172,000 positions monthly in the first half of 2016, and the aggregate gain during the period marked a moderation from levels recorded in the first six months of the preceding two years. Nonetheless, employers remain on pace to create 2.1 million positions this year, which will further reduce excess capacity in the labor market. Last month’s unemployment rate of 4.9 percent nearly matches the Federal Reserve’s targeted level of 4.8 percent, while the more encompassing underemployment rate tumbled to 9.6 percent, the lowest recorded in more than eight years.
  • Office-using staffing continues to grow and push the limits of existing workplaces. Financial services payrolls are expanding, reflecting additional hiring in real estate fields, and professional and business services establishments created 38,000 positions in June. Included in the total are more than 15,000 temporary positions to fill short-term needs of establishments with fiscal years ending June 30. The growth in permanent office-using employment, however, will generate net absorption of 86.5 million square feet this year and reduce the national office vacancy rate to 14.8 percent.
  • Retailers added 192,000 positions in the first half of the year as many national chains continue to build an online presence to complement physical stores. This year, retailers will absorb 67 million square feet of space to lower the national vacancy rate and support growth in the average rent of 2.8 percent. Additionally, growing needs for warehouse space to service online operations will contribute to a 40-basis-point dip in the national industrial vacancy rate to 5.9 percent.