A CRE Dissection of the February Jobs Report

Mixed Results in the Latest Jobs Report

The Bureau of Labor Statistics reported last Friday that private sector employment increased by 222,000 jobs in February, the twelfth consecutive monthly increase in net private hiring. Policymakers and commercial real estate professionals have reason to cheer February’s result, which follows a disappointing increase of just 68,000 jobs in January. The most recent gain represents the largest monthly increase in private payrolls since last April and the second-largest increase in almost five years, since March 2006.

Apart from the headline measures, a dissection of the report reveals a mixed picture for commercial real estate demand. Including public payrolls, total non-farm employment has increased by 1.3 million jobs (by approximately 1.0 percent) over the last year. While reflecting a turnaround from the deep losses of the year before, the increase offsets only a small part of the 8.8 million jobs lost during the 2008 and 2009. Even the last month’s increase was barely of a magnitude that keeps pace with new entrants to the workforce.

While sectors such as health and education have measured relatively healthy gains over the last year, other sectors have stagnated near their recession lows. In particular, job growth in key office-using occupations, including financial services, continues to lag broader labor market trends, raising questions about the sustainability of recent improvements in prime space absorption should labor market trends fail to accelerate.

Public Payrolls Fall

Government payrolls fell by 30,000 jobs in February. Federal employment was flat but state and local governments shed 12,000 and 18,000 jobs, respectively. The largest cuts were in local education payrolls. Given the enormous challenges facing state and local governments in managing their deficits, disruptions to local economies from government payroll cuts will remain a factor for some time.

The importance of public payrolls for the health of local economies should not be underestimated. As of February, local government employment represented an economically important 11 percent of total US payrolls. As compared to a year earlier, local government payrolls in February had fallen by 225,000 jobs.

Commercial Construction Increases

Non-residential building employment fell by 2,000 jobs in February but is up by 3,500 jobs as compared to a year earlier. Similarly, non-residential specialty trade employment has increased by 11,500 jobs over the last year, following an increase of 16,700 jobs in February. The gains are inconsistent with data on commercial property construction spending and lending activity, which shows that development activity continues to taper off, but may reflect hiring related to recent and prospective multifamily construction projects.

Retail Employment Declines

Employment in the retail sector declined by 8,100 jobs in February, even as evidence mounted of rising consumer confidence and discretionary spending outpacing wage and salary increases.  Losses were spread across home furnishing retailers, building and home improvement stores, electronics stores, and department stores, amongst other groups. In spite of the most recent drop, retailers are signaling greater optimism about the direction of consumer spending. Over the last year, retail employment has increased by more than 86,000 jobs. Apparel retailers have measured some of the healthiest increases in non-durable categories. In the durable goods categories, auto retailers have registered even larger gains.

Consistent Gains in Education and Health Care;

Office-Using Employment Disappoints

Consistent with previous reports, payrolls have been improving in education and health care services and in areas related to leisure and hospitality. The former have been relatively stable through the last few years while the latter are rebounding from deeper losses during the recession.

In areas more closely related to office space demand, however, improvements have lagged. Professional and business services increased by 47,000 jobs in February. But the gains were concentrated in administrative and support services rather than occupations exhibiting strong correlations with absorption of prime office space. Information services employment was flat in February and has declined over the last year. Financial services employment increased by 3,000 jobs in February but has declined by almost 50,000 jobs over the last year.