A Commercial Real Estate Dissection of the October Employment Report

A Review of the Household Data Shows Fewer Lost Jobs but Few Opportunities for the Unemployed

The relatively small discrepancy between anticipated and actual job losses was overshadowed by a 40 basis point rise in the unemployment rate, from 9.8 percent in September to 10.2 percent in October. Having more than doubled since the beginning of the recession, the unemployment rate is now at its highest level since April 1983. The market response to this headline-hungry unemployment statistic was muted when it could have been defeatist: the Dow Jones Industrial Average opened lower but recovered through the day, closing 0.17 percent higher for the day and 3.2 percent higher for the week. On balance, the current report represents an indubitable improvement from the unprecedented job losses recorded earlier this year.

The wealth of detail in the body of the employment report evinces the continuing challenges for commercial real estate market participants. The following are some of the key findings of the report that bear on demand trends for the sector:

Household Data

Who is unemployed? Amongst its many dimensions of variation, some of the most striking differences in unemployment rates are across race. The unemployment rate for White Americans increased to 9.5 percent in October, up from 9.0 a month earlier. The unemployment rate amongst Black Americans inched up, as well, from 15.4 percent to 15.7 percent; amongst Hispanics, from 12.7 percent to 13.1 percent. The unemployment rate for Asians remains relatively lower than for other groups, inching up from 7.4 percent to 7.5 percent (note that the unemployment rate for Asians is not seasonally adjusted) over the month.

Unemployment rates exhibit even greater variation across educational attainment. For persons with less than a high school diploma, the unemployment rate increased from 15.0 percent to 15.5 percent. At the other extreme, the unemployment actually rate fell for persons with a bachelor's degree or higher, from 4.9 percent in September to 4.7 percent.

And young apartment-dwellers? Dominant renter groups face continuing challenges in finding work, undermining demand for multifamily housing. For adult heads of household younger than 25, the unemployment rate jumped 70 basis points between September and October, rising from 14.9 percent to 15.6 percent. This age cohort contributes millions of people to the rental pool, far more than any other age group (chart). Refer to the August 31 Chief Economist column - Cohort R: What Apartment Investors Should Look for in the Employment Report - for a more thorough discussion of homeownership rates across age groups. As described in that column, the absence of new jobs for recent graduates and other young people has resulted in a sharper increase in the unemployment rate for these groups. But without jobs and the resulting income streams, younger Americans demonstrate a lower propensity to form new households. Some move home after college; others double-up. In both cases, a keystone of rental demand softens, resulting in lower apartment occupancy and rental rates.

Does the unemployment rate tell the whole story? The 10.2 percent unemployment rate captures the share of individuals who are seeking employment as a share of the labor force. Because some people will drop out of the labor market as conditions worsen (this is reflected in the lower participation rate), the unemployment rate tends to underestimate the severity of the labor market's downturn. Including these marginally attached workers and persons working part-time for economic reasons, the alternative measure of labor underutilization in October is 17.5 percent, up from 17.0 percent in September.

How are the unemployed faring? While companies have slowed the pace of job cuts as broader economic conditions have stabilized, few new jobs have are being created. As a result, job losers are remaining out of work for longer periods. As of October, the average unemployed person has been out of work for 26.9 weeks - just over six months. In what may be the most troubling statistic in the current report, the average duration of unemployment is at its highest level in history. Prior to the current recession, the peak in average duration of unemployment was 21.2 weeks in July 1983.

From the perspectives of both economic policy and public policy, the apparent rise in the chronic unemployment rate is deeply troubling. Offering a modest salve - but not a remedy - the President signed legislation on Friday that will extend unemployment insurance benefits by fourteen to twenty additional weeks.