Doomsday forecasters continue to be disappointed by a resilient U.S. economy that is generating jobs at a modest clip, says Hessam Nadji, managing director of research and advisory services for Encino, Calif.-based Marcus & Millichap Real Estate Investment Services.
Nonfarm payroll employment, an indicator of future demand for commercial real estate space and absorption,rose by 120,000 in November on a seasonally adjusted basis, the Bureau of Labor Statistics reported last Friday.
The agency also revised the job figures upward for September and October by a combined 72,000, an indication that employment growth was a bit stronger than first believed.
“The November jobsnumbers were more welcome news for commercial real estate, on top of strong post-Thanksgiving holiday sales and recent progress in alleviating the macro global risks,” says Nadji, referring to the sovereign debt crisis in Europe.
U.S. retail sales on Black Friday totaled $11.4 billion, up 6.6 percent from a year ago, according to ShopperTrak, a Chicago-based research firm.
“[The jobs data] confirms and validates our view that a recession would not re-emerge” says Nadji, “and that the economy and commercial real estate fundamentals would remain in a gradual recovery through 2012 and pick up pace in 2013 after the elections.”
Still, the gain of 120,000 net new jobs in November is “unspectacular,” considering that the average monthly increase in 2011 has been 132,000 and the population is expanding by 172,000 monthly, says Sam Chandan, president of New York-based Chandan Economics and professor of real estate at the Wharton School of Business.
“Ultimately, the nature of the jobs we are creating matters critically, not just the aggregate result,” emphasizes Chandan.
The retail sector posted the biggest gain in jobs in November (+49,800), followed by professional and business services (+33,000), and education and health services (+27,000), temporary help services (+22,300), and leisure and hospitality (+22,000). Conversely, the government sector shed 20,000 jobs.
Most of the jobs created in the retail sector were primarily in clothing, electronics and appliance stores, points out Victor Calanog, head of research and economics for New York-based Reis.
“It’s very uncertain as to whether this hiring is simply the usual ramp-up in preparation for fourth-quarter efforts at boosting revenues. These jobs — much like Halloween costume stores —may not be present early next year,” says Calanog.
The U.S. economy shed approximately 8.3 million jobs during the most recent downturn. At the current pace of job creation, the economy is on track to recover all those job losses by the end of 2015, says Calanog.
Expect multifamily vacancies to dip below 5 percent in 2012 as the single-family housing market continues to struggle, says Calanog. The national apartment vacancy rate in the third quarter registered 5.6 percent, according to Reis.
Calanog is less optimistic about the retail sector, however. “Retail, which didn’t benefit from limited new supply in the last cycle, will probably have vacancies moored at 20-year highs for the next 12 to 18 months,” he says. In the third quarter, the vacancy rate at U.S. malls averaged 9.4 percent, for example, according to Reis.
Marcus & Millichap, however, is more bullish on the retail sector, ranking the grocery-anchored retail segment right behind apartments as a top investment choice in the year ahead.
The November job gains won’t do much to help cut into office vacancy rate, says Chandan. “Information and financial services employment trends remain weak while hiring of temporary workers dominates professional and business gains.” The national office vacancy rate stood at 17.4 percent in the third quarter, according to Reis.
Assessing the big picture
The sharp drop in the national unemployment rate, from 9 percent in October to 8.6 percent in November, is generating positive headlines in the media, says Chandan. “But the improvement in that notoriously misleading measure of labor market health largely reflects that 315,000 [people] dropped out of the labor force.”
The labor force participation rate fell by 20 basis points in November to 64 percent, just above the cyclical low of 63.9 percent recorded in July, adds Chandan.
Looking under the hood at employment trends, there are other reasons for optimism. Small businesses hit hard by the recession may be starting to hire again, says Bob Bach, chief economist for Santa Ana, Calif.–based Grubb & Ellis.
The National Federation of Independent Business (NFIB) reported a slight increase in the average number of workers per firm in November, the first gain in nearly half a year.
Moreover, a net 7 percent of small business owners plan to create new jobs over the next three months, the highest reading in 38 months, according to the NFIB.
The ADP National Employment Report, which was released a few days before the nonfarm payroll figures, revealed that the labor market added a better-than-expected 206,000 private sector jobs in November. Small businesses (fewer than 49 employees) added 110,000 of those jobs, according to Bach.
“Although the ADP report, which is based on the company’s proprietary client data, often does not mirror the monthly numbers of the Bureau of Labor Statistics, the two correlate closely over time,” according to Bach.
Approximately one in six employees in the U.S. have their payroll processed by ADP Employer Services.
Ultimately, Bach believes the takeaway on the November nonfarm payroll report can be viewed in one of two ways: “a glass-half-full or glass-half-empty perspective.”
— Matt Valley