The pleasant surprise in an otherwise disappointing U.S. nonfarm payroll report for May was the healthy increase in jobs tied to the industrial sector, says Bob Bach, chief economist for Grubb & Ellis. The manufacturing, wholesale trade, and transportation and warehousing sectors added a combined 63,500 jobs in May compared with just 3,600 in April.
“The surprising surge in jobs important to industrial real estate indicates the continued health of the manufacturing sector and the strong volume of goods flowing through corporate supply chains,” says Bach.
His analysis is based on the latest employment figures released by the Bureau of Labor Statistics (BLS) last Friday, June 1. Overall, the U.S. economy added 82,000 private-sector jobs in May while the government shed 13,000 positions, resulting in a net gain of 69,000 nonfarm payroll jobs, well below economists’ consensus forecast of 150,000.
In another setback,the BLS revised the March and April figures lower by a combined 49,000. Meanwhile, the unemployment rate climbed one-tenth of a percent in May to 8.2 percent.
Victor Calanog, director of research for New York-based Reis, says a slowdown in job creation had been expected but not at such a rapid pace. “It is disheartening that almost three years after the recession ended, recovery can be so lukewarm and precarious. External factors like the European debt crisis aside, domestic conditions are improving — but oh so painfully slowly.”
May marked the fourth consecutive month in which payroll growth has slowed, and is the smallest gain since May 2011 when 54,000 jobs were added, according to Calanog.
Some 823,000 jobs have been added, year-to-date, for a monthly average of 164,600. At this time last year, 881,000 jobs had been added at an average rate of 176,200 per month.
On the bright side, the fact that Treasury yields have fallen to historic lows implies that investors still perceive U.S. government debt as a safe haven, says Calanog. The 10-year yield hit 1.46 percent minutes after the jobs report was released.
Borrowers are benefitting greatly from falling yields, emphasizes Bach. “Slowing growth in the U.S. and overseas has resulted in record low interest rates and mortgage rates, which is providing a bit of a tailwind for the housing market.”
The Commerce Department estimates that the economy grew at a 1.9 percent pace in the first quarter of this year, a downward revision from its initial estimate of 2.2 percent. Low levels of job creation and GDP growth leave the Federal Reserve with more room to provide additional stimulus, says Calanog.
The good news for retailers perhaps is that sinking oil and gas prices are providing extra spending money for consumers, says Bach.Crude oil for July delivery settled at $83.23 a barrel on the New York Mercantile Exchange on June 1, down $3.30, or 3.8 percent. The price per barrel has dropped 24 percent from the closing high of $109.77 on Feb. 24.
Dissecting the numbers
A breakdown of employment tied to the industrial sector shows transportation and warehousing posted a net gain of 35,600 jobs in May, followed by wholesale trade (+15,900) and manufacturing (+12,000).
The education and health services sector was the big winner overall with a net gain of 46,000 jobs in May. At the other extreme, the construction industry shed 28,000 jobs.
“Some of the job losses, such as the construction sector, could be due to seasonal adjustment factors skewed by the warm winter, although this argument gets more difficult to sustain as the year progresses,” says Bach.
Some other notable highlights from the May jobs report for the commercial real estate industry:
• The office-using sectors of professional and technical services, information and finance together lost 3,000 jobs last month versus a gain of 21,800 in April.
• Retailers added 2,300 positions last month, a sharp deceleration from the 27,000 new jobs created in April.
• The leisure and hospitality sector axed 9,000 positions last month versus a decline of 6,000 in April.
The average workweek for all private employees fell from 34.5 hours in April to 34.4 hours in May, points out Bach, suggesting that employers are making do with existing staff.
— Matt Valley