Matt Valley
U.S. labor market trends are following a “stunted Goldilocks pattern” — neither too strong nor too weak — which means it is unlikely the Federal Reserve will offer more support through monetary policy, says Victor Calanog, head of research and economics for New York-based Reis.
Nonfarm payroll employment rose by 163,000 in July, the Bureau of Labor Statistics reported last Friday, easily surpassing expectations of 95,000. The private sector generated 172,000 jobs while government jobs declined by 9,000.
“July's jobs figure is an overwhelmingly positive development,” says Calanog. “The only ones who will be disappointed at this minor surge in hiring are those banking on a weakening economy that would prod the Federal Reserve to consider more [quantitative] easing when it meets in September.” (Quantitative easing occurs when the Fed buys assets from banks in an effort to drive down yields and interest rates.)
Even so, it's hardly time to take a victory lap, points out Calanog. If the economy continues adding jobs at the current pace, it won't be until early 2015 that it recovers the remainder of the 8.4 million jobs lost during the downturn.
U.S. commercial real estate valuations should continue to benefit from investor interest, despite the sluggish economic recovery, says Calanog.
“Low interest rates and souring investment opportunities in Europe as well as the emerging markets imply that investors searching for higher yields versus U.S. Treasuries will favor real assets. Income -generating assets offered by commercial real estate will also trump commodities,” predicts Calanog.
With the labor market healing slowly, commercial real estate fundamentals will continue to recover at a measured pace, according to Calanog. The exception is the multifamily market, which is still benefiting greatly from the doldrums of the for-sale housing market. The national apartment vacancy rate is currently 4.7 percent.
Looking Under The Hood
The sectors of the labor market most important to commercial real estate saw employment growth accelerate in July, says Bob Bach, national director of market analytics for Newmark Grubb Knight Frank. Among the positive signs noted in the jobs report:
- The office-using sectors of professional and technical services, information, and finance together added 29,900 jobs in July versus a gain of 17,100 in June.
- The sectors of the economy most vital for the industrial market — manufacturing, wholesale trade, and transportation and warehousing — added a combined 41,100 jobs in July, up sharply from the 17,400 jobs gained in June.
- Retailers gained 6,700 positions last month compared with a loss of 3,200 in June.
- The leisure and hospitality sector added 27,000 positions last month versus 10,000 in June.
Among all employment sectors, professional and business services led with a net gain of 49,000 jobs, followed by education and health services with 38,000, leisure and hospitality with 27,000, and manufacturing with 25,000.
Newly revised figures from the Bureau of Labor Statistics show the economy generated 87,000 jobs in May and 64,000 in June, making the July employment gains seem even more robust by comparison.
In many ways, 2012 is a case of déjà vu for the U.S. labor market, according to Bach. “Payroll employment gains dipped in the summers of 2010 and 2011, raising the specter of a recession, only to rally in the fall of those years. True to form, employment in 2012 was strong in the first quarter before trailing off in the second quarter (see chart).”
Bach says it remains too early to call the July jobs report the end of the summer dip. “This is especially true given that other economic indicators such as factory orders and retail sales are weak. Nevertheless, the jobs report sets the tone of economic discourse for the ensuing month, so we're off to a good start.”
— Matt Valley