Disappointing June Jobs Report

The Bureau of Labor Statistics' report of June employment offers few silver linings for the commercial real estate industry. As in previous months, job growth in June fell short of levels consistent with sustained improvements in space absorption. While no one month constitutes a trend, the pattern of frustratingly slow recovery remains a qualifier for the fundamentals outlook and current pricing and underwriting activity.

Why the historic lag in job creation? In many cases, job growth has been lackluster even when corporate profits have swelled and labor productivity has narrowed. This is consistent with a scenario where firms remain cautious in hiring, either because of concerns about the sustainability of the broader recovery in aggregate demand or because of exaggerated uncertainties stemming from unresolved policy issues.

While the federal government’s own constraints limit its capacity and the desirability of fiscal stimulus, concrete steps to address issues such as the unresolved fate of health care reform, the debt ceiling, and the long-term outlook for personal and corporate taxes can be instrumental in fomenting private sector activity. Therein we can seize upon the silver lining: many of the underlying conditions for job growth are in place, needing only to be kindled by stronger business confidence as policy uncertainties abate.

What's in the Jobs Report for Commercial Real Estate

Seasonally adjusted non-farm employment increased by 18,000 jobs in June, the smallest gain since September 2010. The headline result reflects the anticipated decline in public sector payrolls, which fell by 39,000 jobs and which included losses at every level of government. Private sector payrolls showed a gain of 57,000 jobs.

Goods-producing sectors were flat in June, generating only 4,000 net new jobs. Small increase in mining and manufacturing were partially offset by the loss of 9,000 construction jobs, including in non-residential segments of the construction industry. Non-residential specialty trade contractors were the only group to register an increase in employment in June.

Service sectors fared better than goods-producing activities, generating 53,000 jobs in June. The largest increase was in the hospitality sector, where 34,000 jobs were created in low wage occupations in areas unrelated to office space demand.

In areas most closely related to office space demand, June’s results were mixed. There was no change in employment in information occupations. A 12,000-job increase in professional and business services was more than offset by the loss of 15,000 financial services jobs. Importantly, there are fewer financial services jobs now than there were a year ago. The middling performance of this sector is a key consideration for office demand, particularly at the high end of the inventory where asset prices anticipate further strengthening of absorption and, in many submarkets, accretive lease rollovers.

Wages Fall

Largely on account of the share of new jobs in hospitality services, average weekly earnings for all private sector employees actually fell in June. Retailers will be looking for a rebound in income before the fall. For now, they added just 5,200 jobs in June. No one retail segment reported a meaningful increase in employment.

Wither the Unemployed?

The unemployment rate inched up to 9.2 percent even as more than 400,000 Americans left the workforce. Other measures of the labor market’s condition suggest that deep discouragement amongst the unemployed. The participation rate declined to 64.1 percent while the employment-population ratio fell to 58.2 percent. The latter metric matches last November for the lowest share of the US population employed since 1983. It is consistent with a market where job openings remain few and far between and where hiring is also hampered a mismatch between job openings and the skillset of the unemployed labor force.