SLOW JOB GROWTH IN JANUARY FAILS TO RATTLE REAL ESTATE ECONOMISTS

The latest monthly jobs report released last Friday by the Bureau of Labor Statistics (BLS) is well below expectations, but veteran real estate economists say there is nothing to be alarmed about.

The net gain in nonfarm payroll employment was 113,000 in January. Economists had expected an increase of 190,000. Upon closer inspection, the private sector added 142,000 jobs in January while the public sector shed 29,000 jobs.

The underwhelming net gain marks the second straight month that job gains failed to meet expectations. Employers added 75,000 jobs in December.

“The poor data is predominantly due to the cold weather,” says Ryan Severino, senior economist and associate director of research for New York-based Reis. “Nothing fundamental has changed in the economy over the last two months to think that job growth is migrating to a slower vector. We will have to wait until things warm up to get a clearer reading on the economy.”

Economists looking for upward revisions to previously released nonfarm payroll data got what they were looking for in November 2013, but the revised figure for December reflected little change. The BLS revised the job gains in November from 241,000 to 274,000, and from 74,000 to 75,000 in December.

What’s difficult for economists to figure out is why November’s job growth was so robust, while the following two months were comparatively weak at a time when recovery appeared to be gaining steam.

“The safest and probably most accurate conclusion is that hopes late last year for an economic acceleration were premature,” says Bob Bach, director of research for the Americas at Newmark Grubb Knight Frank.

“The jury is still out,” continues Bach. “The most likely scenario could be another year of moderate economic growth combined with a modest increase in long-term interest rates as the Federal Reserve winds down its quantitative easing program. This recipe has been kind to commercial real estate.”

Some details in the report look more promising than the headline numbers suggest, emphasizes Bach, particularly for commercial real estate. For example, manufacturers added 21,000 jobs in January, which was double the prior six-month average of 10,500.

Construction jobs grew by 48,000 compared with the prior six-month average gain of 7,500, helped by better weather during the survey week.

The unemployment rate dropped from 6.7 percent in December to 6.6 percent in January for the “right” reasons, namely fewer respondents who said they were unemployed, more who said they had worked during the survey week, and an increase in the overall labor force, according to Bach.

Chris Muoio, senior associate and economist with Auction.com Research, points to the energy sector as a pocket of strength in the U.S. economy. The shale oil boom continues to drive massive gains in the sector, with petroleum and coal manufacturing and oil and gas extraction both showing solid employment growth of 2.7 percent over the last three months and 12.3 percent and 4.6 percent, respectively, during the past year, according to Muoio.

On the down side, education and health services, a steady growth engine through the recession and recovery, lost 6,000 jobs in January and 4,000 in December. Looking at only the health care subsector — a demand driver for health care real estate — employers shed 400 jobs in January compared with the prior six-month average gain of 17,500.

“Layoffs at hospitals and nursing and residential care facilities were offset by gains in ambulatory care services, a sign that providers are moving services to less expensive outpatient facilities,” says Bach.

Severino is closely monitoring employment trends in the healthcare sector. “It remains to be seen how the Affordable Care Act is going to impact that sector, and recent results have not been very encouraging. There have been declines in healthcare jobs recently. It’s too early to say it is explicitly due to the ACA, but it bears watching.”

Among other highlights in the latest BLS report:

• Employment in professional and business services continued to trend up in January (+36,000). The industry added an average of 55,000 jobs per month in 2013. Within the sector, professional and technical services added 20,000 jobs in January.

• The leisure and hospitality sector added 24,000 jobs in January, continuing an upward trend. Job growth in the industry averaged 38,000 per month in 2013.

• In January, federal government employment decreased by 12,000; the U.S. Postal Service accounted for most of this decline (-9,000).

• Retailers shed 12,900 jobs, sharply reversing the prior six-month average gain of 38,700 — possibly weather-related.

• Average hourly earnings increased by 0.2 percent, but the 12-month gain remained relatively low at just 1.9 percent.