April Jobs Report Falls Short of Expectations, But Office-Based Hiring Surges
A modest pullback by U.S employers in April doesn’t signal an end to the recent trend of strong job creation, but it adds to a string of subpar economic reports, says Robert Bach, director of research for the Americas at brokerage firm Newmark Grubb Knight Frank.
The U.S. Bureau of Labor Statistics (BLS) reported a net gain of 160,000 nonfarm payroll jobs in April, well below the 200,000 jobs projected in Bloomberg’s survey of economists.
What’s more, the increase in total nonfarm payroll employment for February was revised from 245,000 to 233,000, and from 215,000 to 208,000 in March. That means the U.S economy added 19,000 fewer jobs in February and March than first believed.
The nation’s real gross domestic product (GDP) grew at an annualized rate of only 0.5 percent during the first three months of 2016, Bach points out, the weakest quarterly pace in two years. Weaker than expected retail sales, softness in business capital expenditures and a pullback in corporate earnings also have raised some red flags.
“Taken together, these data points confirm the economy is navigating a soft patch that merits close observation in the months ahead, particularly with the added uncertainty created by the November elections,” says Bach.
Even so, the April jobs report contained two pieces of good news for commercial real estate, Bach is quick to add. “The surge in office-based hiring last month will support leasing activity for office space, and the restrained growth of the overall labor market gives the Federal Reserve breathing room to keep interest rates low.”
Professional and business services firms added 65,800 jobs in April, and financial firms created 20,000 jobs, both well ahead of their average gains over the past six months.
Healthcare providers also continued to hire at a strong pace, adding 44,000 jobs last month to meet growing demand from aging baby boomers and from the 20 million persons who acquired health insurance since the inception of the Affordable Care Act, according to Bach.
Ryan Severino, senior economist and director of research at Reis, says that although job growth in April fell short of expectations, “nothing in the BLS news release made me feel like the expansion in employment was at risk. Retail might be the one area where you could say it was a bit surprising with the job losses, but that might just turn out to be a seasonal thing. Employment was relatively strong in the first quarter for retail.”
After a period of robust hiring, retailers cut 3,100 jobs in April. Bach says the jobs losses are a reflection of weak sales in March, recent bankruptcies among teen apparel retailers such as Aeropostale, and store closure announcements by Kmart (68 stores) and Sports Authority (the company plans to sell or close 140 stores).
Restaurants and bars, big occupiers of retail space, added 18,200 jobs in April, below the six-month average of 30,500.
Other Job Highlights in April
* The construction sector, recently a star performer, added 1,000 jobs, down from the six-month average of 36,300. This pullback could have been related to colder-than-normal weather in parts of the U.S. last month, says Bach.
* The softest sectors of the labor market remained soft last month. Manufacturers eked out a small gain of 4,000 jobs. But mining and logging lost 8,000 jobs, bringing total losses to 192,000 — 21 percent fewer people working in the sector — since oil prices began to slide in 2014. Government cut 11,000 jobs, mostly in the U.S. Postal Service.
* Wages increased by 0.3 percent in April and have gained 2.5 percent over the past year, on the high side of the post-recession range.
* The unemployment rate was unchanged at 5 percent, and the labor force participation rate pulled back to 62.8 percent from March’s 63 percent, blunting recent improvements created by more people entering the workforce. The broadest measure of unemployment, which includes people employed part time that would prefer to be employed full time,declined one-tenth of 1 percent to 9.7 percent.
Jonathan Smoke, chief economist for realtor.com, says the April jobs report signals a potential shift that could slow growth in demand for housing later this year.
“In many ways the job market is starting to resemble the housing market,” explains Smoke. “It’s tough to create jobs when we have record highs in job openings, and it takes willing, qualified applicants to see openings filled. Similarly, it takes available inventory to satisfy would-be home buyers.
Interest Rate Watch
In the wake of such modest job gains in April, the consensus among economists is that the Federal Reserve won’t raise interest rates during the second quarter of this year. In December 2015, the Fed increased the fed funds rate 25 basis points.
“The Fed certainly won’t make a move before ‘Brexit’ (the June 23 referendum in Britain on whether to leave the European Union), and after Friday’s BLS report, it will likely want to see more evidence that the weakness in the economy in the first quarter was temporary,” says Severino. “It most likely was, but monetary policy movements are once again becoming data driven so the Fed will want better clarity from the data before making a move.”
— Matt Valley