January Jobs Report Is Harbinger of Good News for Commercial Real Estate Landlords

The accelerating labor market is bound to stoke tenant demand for all types of commercial real estate, says Robert Bach, director of research for the Americas at brokerage services firm Newmark Grubb Knight Frank.

The veteran economist’s assessment comes on the heels of a better-than-expected Bureau of Labor Statistics (BLS) report released last Friday that shows U.S. employers added 257,000 net new payroll jobs in January, beating the 230,000 jobs forecast by Bloomberg in its survey of economists. In another sign of momentum, the November and December totals were revised upward by a combined 147,000 jobs.

Monthly revisions result from additional reports received from businesses since the last published estimates and the monthly recalculation of seasonal factors, according to the BLS. The annual benchmark process also contributed to these revisions.

The strong performance in January and revisions to the prior two months lifted the three-month moving average to 336,000, its highest level since November 1997, according to Bach. The annual benchmark revisions to the data, completed every January, raised 2014 job growth from 2.9 million to a 15-year high of more than 3.1 million jobs.

“Job growth last month beat analysts’ forecasts, which was unexpected given that analysts had overestimated the January number in nine of the past 10 years due to the volatility of holiday hiring trends and seasonal adjustment calculations,” says Bach.

One big takeaway from the January employment report is that the surge in hiring most likely keeps the door open for the Federal Reserve to begin raising interest rates in the middle of this year, according to Bach, even though falling oil prices and the surging dollar will keep inflation below the Fed’s target rate of 2 percent.

It’s also clear that wage growth is beginning to stir. In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents over the prior month to $24.75. Wage growth has jumped 2.2 percent over the past year, the upper end of the range where it has resided since the recession.

“Some of the gain could be due to the increase in the minimum wage implemented by nine states beginning in January,” says Bach. “In a normal recovery cycle, wage growth should be in the range of 3 percent to 3.5 percent.”

Minimum wage hikes went into effect this year in Arizona, Colorado, Florida, Missouri, Montana, New Jersey, Ohio, Oregon and Washington, according to the National Conference of State Legislatures.

Here’s a closer look at some other highlights of the January nonfarm payroll report:

* Education and health services led all sectors with a one-month gain of 46,000 jobs, followed closely by retail trade with 45,900. The gains in retail were likely overstated due to the aforementioned seasonal adjustment issues, Bach points out.

* Office-using job sectors gained 71,000 jobs, and industrial added 26,100.

* Leisure and hospitality employers added 37,000 jobs, concentrated in restaurants and bars.

* The goods-producing sectors continued to expand, as manufacturers added 22,000 jobs and construction added 39,000 jobs. “The gain in manufacturing employment defied the twin headwinds of the rising dollar and slowing growth among our trading partners that are weighing on exports,” points out Bach.

* The mining and logging sector lost 3,000 jobs due to layoffs at companies engaged in oil drilling and exploration.

The national unemployment rate ticked up by one-tenth of a percent to 5.7 percent, as more people entered the labor force in search of a job. The U-6 rate, which includes people marginally attached to the labor force and those working part time who want a full-time job, also moved a notch higher to 11.3 percent.

— Matt Valley

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