Top Economists Weigh In On June's Jobs Report And What It Means For Real Estate
The economy showed signs of improvement as June's jobs report exceeded expectations. The US added 287,000 new jobs in June—a massive rebound from the mere 11,000 jobs gained in May—beating expectations for 177,000 jobs. Bisnow asked five economists what the jobs growth means for the economy and how it will affect real estate the second half of the year.
"The U.S. economy is continuing to strengthen after a weak winter...Still, the last two quarters have hardly been robust, but the second quarter is almost certain to greatly outperform recent growth.
The strong June jobs report was only the last in a series of positive signs. For example, consumer confidence surged to an eight-month high in June and both the manufacturing and services reports from the Institute of Supply Management showed strong pickups last month.
But the jobs report was arguably the most important. Jobs are the single most important driver for the property sector and a good gauge of overall economic strength. Job growth seems to have slowed a bit this year as we’re nearing what economists consider to be “full employment,” and so the June figures likely won’t be repeated this summer. But neither was the poor May report a good indicator of the economy’s direction.
Expect the moderate growth to continue a bit longer for both the economy and property markets."
"After a sharp contraction in May, job growth snapped back in June, blowing past expectations and easing fears that the labor market was stalling. Both the revised May report (only 11,000 new jobs) and the June report (287,000) are outliers.
The three-month moving average of 147,000 is a better gauge of the labor market’s underlying strength. This measure has declined steadily from a post-recession peak of 282,000 in December, but job growth remains strong enough to take up some of the remaining slack in the labor force and absorb new entrants.
Office leasing, too, has seen a moderate pullback this year, commensurate with slowing job growth and weak corporate profits. But even moderate job growth, combined with low levels of new construction, should be enough to push office vacancies lower and rents higher in the second half of the year."
"The June jobs report ran above expectations and demonstrated continuing strength in the economy, even with respect to Brexit and the likely damage that will cause going forward. Based on the release, the trend overall is weaker based on a rolling monthly average, but even with that in mind, the jobs report is a powerhouse of good news. It is important to remember that all of these releases are subject to revision, some pretty major, and they do not always indicate the true state of the economy.
There is some increasing certainty that CRE continues to be very stable and that major changes in rent and occupancy trends in almost all of the sectors are unlikely to show much diminished activity. If the employment trends as well as other releases continue to show better results, then CRE is likely to end up with a positive year for 2016."
"The unusually high growth in payroll employment in June counterbalances the unusually low number in May. Much has been written about the role of the Verizon strike and, more generally, monthly numbers convey a lot of noise, so it is more informative to look at trends over longer periods of time.
Job growth has picked up over the last few years, (which) is good news for the commercial real estate sector, because it suggests that demand for commercial real estate is growing as well, in line with job growth.
However, this is bad news for the commercial real estate sector in as much as job growth outside of the construction industry is making the construction industry's labor shortage more extreme by competing for the same workers. The most informative insights for CRE are likely to come from looking at a geographic and industry breakdown of job growth over time."
"Clearly job growth has been on a bit of a roller coaster ride. Lots of reasons for the volatility: seasonal distortions, Verizon strike, global uncertainty, Brexit—to name a few.
Looking past the monthly volatility, a few salient trends emerge. First, job growth in the US remains solid and supportive of healthy leasing fundamentals. Two, although job growth is healthy, it is also slowing. Even with the June surge, all the moving averages reveal that payroll gains are at least 20% slower than last year’s monthly pace.
It’s perfectly normal to see job gains decelerate as the economy nears full employment; nevertheless, slower job creation means weaker absorption. Third, wage growth is firming. The hard data clearly shows that, and when you look at the 'below the radar data' measuring labor slack, job openings and quit rates, they all point up to stronger wage inflation. So if we take the Fed’s data-driven pledge at face value, the latest information surely raises the odds of another rate hike occurring this year."
