There was plenty to cheer in last Friday's employment report. The headline numbers showed payroll growth rebounded to a preliminary tally of 248,000 net new jobs in September, up from a disappointing tally the prior month. Heading into the fourth quarter, monthly average employment gains are the best we have seen in fifteen years. The other lingua franca measure of labor market health, the unemployment rate fell below 6.0 percent for the first time since mid-2008, putting it within range of the so-called natural rate of unemployment. As of August, the Congressional Budget Office estimates (emphasis on estimates) the current natural rate of unemployment is 5.7 percent.

Judging by the raft of commentary on Friday, commercial real estate market participants have wasted little time in linking the latest job numbers to favorable expectations for property fundamentals. But even a cursory review of the data shows the improvements are uneven along dimensions that matter for our industry. Among the most important qualifiers, wage growth remains lackluster. As compared to the prior month, average hourly earnings of private sector employees actually declined by one cent. The year-over-year trend, illustrated in the following chart and sourced from the Bureau of Labor Statistics, shows nominal earnings growth stuck at roughly 2.0 percent. That has been something of a puzzle of late for economists, since the lower unemployment rate and the improving balance of job openings to available workers should be fomenting stronger wage gains.

Source: Bureau of Labor Statistics

Sluggish wage growth implies a degree of slack in the labor market that is not reflected in the lower unemployment rate, in isolation a notoriously incomplete measure of market conditions. Fed Chair Janet Yellen argued as much during her press conference following the mid-September FOMC meeting, when she attributed the lack of earnings growth to slack and again questioned the adequacy of the unemployment rate as a measure of underutilization. The decline in labor participation rate, which fell to its lowest level in 36 years, is a confounding factor that continues to elicit debate about structural and cyclical shfits in the labor market. Setting that aside for another post, apartment investors should take note; for the average tenant, rent growth cannot race ahead of earnings indefinitely.  The historical link between a firming labor market and wage gains is currently tenuous.