April Jobs Report Holds Some Concerns for CRE

With nonfarm employment up by 428,000 jobs in April, most economists and business leaders were delighted with Friday’s April jobs report from the Bureau of Labor Statistics. But those in commercial real estate need to read past the top-line numbers to understand what the new data might be saying to the industry.

There were “subliminal messages,” according to commentary by Jeffrey Roach, Chief Economist for LPL Financial sent by email.

“One subliminal message for the markets comes from the Leisure and Hospitality industry,” Roach wrote. “Monthly job gains in this category slowed for the last five consecutive months. Excluding the volatility from the Omicron variant, the downward trend started last summer. The other message is within the Construction sector. Excluding the health-related distortion in January, monthly job gains in construction cooled from six months ago.”

Digging into the numbers more, directly from the BLS release, “Employment in leisure and hospitality increased by 78,000 in April. Job growth continued in food services and drinking places (+44,000) and accommodation (+22,000).” But restated numbers (because BLS does two backward adjustments as more information comes in) showed March adding 100,000 jobs in the overall sector and 124,000 in February. April 2021 had 208,000 jobs added, but that was much earlier in recovery with a bigger hole to fill. 

Meanwhile, construction added only 2,000 jobs in April, compared to 20,000 in March and 54,000 in February. It’s certainly better than the 15,000 lost in April 2021, but, like hospitality, there should be a seasonal increase in business, so slower hiring isn’t comforting, because it raises questions: whether the restaurant and hotel industries might be seeing trouble and if there is going to be enough construction labor available to get projects back on track.

“These sectors are particularly important because we are now seeing exceptionally high churn in the Construction and Leisure and Hospitality sectors as workers chase higher paychecks,” Roach writes. “From the earlier Job Openings and Labor Turnover Survey (JOLTS), the labor market is extremely tight as quit rates are high, revealing that workers in many industries know they can likely get higher wages if they move from one firm to another. These categories may be a leading indicator of broader cooling in the job market.”

One additional message came from the markets. The S&P 500, Dow Jones Industrials Average, and Nasdaq all saw continuing losses from Thursday’s retreat and cutting back the rally on Wednesday. Investors signaled through their actions that they expect the Federal Reserve will keep its planned course of interest rate hikes, which will mean continued growth in financing expenses for CRE professionals looking to buy new property or refinancing something existing.