After an underwhelming 148,000 nonfarm payroll jobs were added in September, what should we realistically expect the October numbers to reveal? That's the question many real estate economists are grappling with as the Bureau of Labor Statistics (BLS) prepares to release the latest nonfarm payroll employment report this Friday.
The partial government shutdown during the first half of October only adds to the complexity of the situation.
“I would say to expect a decline in jobs added versus last month’s report — probably in the 100,000 to 125,000 range,” says Ryan Severino, senior economist and associate director of research at Reis Inc. “Uncertainty surrounding the government shutdown and the debt ceiling debacle likely had some impact on the numbers, but we have generally been seeing weakening in the data as the year has progressed.”
According to the BLS, the unemployment rate in September remained flat at 7.2 percent, and the civilian labor force participation rate dipped 30 basis points to 63.2 percent.
“[The September jobs report] was another indicator of a slow fourth quarter and sluggishness rolling into 2014,” says Bob Bach, director of research at Newmark Grubb Knight Frank. He added that average monthly job gains in the third quarter were just 143,000, as compared to a monthly average of 195,000 jobs gained in the first half of 2013.
The deceleration of job growth is in large part due to the end of a seasonal upcycle for the leisure and hospitality industry, says Severino. The sector shrank by 13,000 jobs as summer came to a close and consumers put on the brakes as uncertainty reigned in Washington.
“The leisure and hospitality industry had been one of the main contributors to U.S. employment this year, but this was not sustainable when you look at the strength of the U.S. consumer,” says Severino. “At some point, this was going to have to taper off, and it appears that this occurred in September.”
Indeed, The Conference Board reported that its Consumer Confidence Index fell to 71.2 in October from 80.2 in September. This gauge, tabulated through a mail-based survey of random households and commonly accepted as an important economic barometer, is now at its lowest in six months.
Not All Doom and Gloom
Of course, in a month with positive job growth — as was the case in September — some sectors have to be winners. Fortunately, among the winners were two “core” industries, hopefully signaling tangible, lasting improvement.
The construction sector expanded by 20,000 jobs, and wholesale trade saw a gain of 16,000. Bach analyzes those numbers further, concluding that they bode well for commercial real estate in general and the industrial sector in particular.
“The biggest increase is from nonresidential construction and trade contractors — so commercial is catching up with its residential cousin,” says Bach. “[And] the wholesale trade increase could be related to recent strong demand for warehouses.”
A recent Auction.com Research report authored by Chris Muolo, senior associate and economist, confirms these trends. According to the report, non-residential building construction employment has grown by 0.7 percent in the last three months and by 3.5 percent year-over-year.
The huge jump in transportation and warehousing (+23,400 jobs), however, remains somewhat of a mystery. The 2,500 jobs gained in the warehousing sector correspond with the increase in wholesale trade and e-tailing, but the explosion within transit and ground passenger transportation that accounts for the majority of the total figure (+17,900 jobs) has yet to be illuminated.
“I even called the BLS regarding the matter, and they wouldn’t comment except to say the October report will have more detail,” says Bach. That, along with the aforementioned continuing impact of the government shutdown and ACA, makes for two elements to watch for in this week’s release.
The Temp Work Conundrum
One other sector — business and professional services — saw substantial gains in September, gaining 32,000 jobs, but with a caveat: 20,000 of those jobs were in temporary help services. While this sort of growth is certainly healthy and may lead to future permanent hirings, Severino remains wary.
“If the economy were on more solid footing, we would be seeing more permanent jobs created in this industry,” he says. “However, due to ongoing weakness in recovery and uncertainty over policymaking, job gains occurred on this temporary basis.”
Bach agrees that employers have reason to prefer temporary workers in the current economic climate and also notes that the Affordable Care Act may reinforce the trend. As the rollout continues, companies may hesitate to hire more full-time workers because of the uncertainty of costs of healthcare to the employer.
Indeed, that same concept may further explain the dropoff in the leisure and hospitality, Bach mentions.
“There’s a possibility that the ACA is discouraging full-time hiring in these typically lower-wage categories,” he says. “But this is anecdotal, and not really showing up in the data.”
— John McCurdy