April's Jobs Report Bodes Well for CRE

NEW YORK CITY—Winter may be over in more ways than one, in the view of Cushman & Wakefield's Ken McCarthy. Given April's strong national jobs report from the US Bureau of Labor Statistics, it appears that “the underlying strength of the economy is finally starting to emerge,” McCarthy writes in a report issued this past Friday.

“For the first three months of 2014, we had been expecting the economy to shift into a higher gear led by a surge in hiring as businesses begin to take more risk to generate top-line growth,” writes McCarthy, C&W's senior managing director, economic analysis and forecasting. That shift evidently is taking place: April's tally added 288,000 jobs to the domestic economy, bringing unemployment down from 6.7% to 6.3% in the largest single-month decline in the jobless rate since 1949.

It was accompanied by upward revisions in the numbers for February and March, to 222,000 and 203,000, respectively. “You may recall that February job growth was first estimated at 175,000, so the growth in February has been revised up by more than 25%.,” McCarthy notes.

A drilldown into employment growth by sector suggests both positive and less-positive implications for commercial real estate. Noting that growth last month was “widespread across the economy,” McCarthy reports that the three main office-using sectors—namely, financial services, professional and business services and information—increased by “an aggregate of 78,000 jobs, to a new record high.”

The construction sector added 32,000 jobs last month. That figure brought the unemployment rate in construction to the lowest April level in seven years and lifted industry employment to 6.0 million, its highest level since June 2009, according to the Associated General Contractors of America.

“It is heartening that all categories of construction employers added workers, not only in April but over the past 12 months,” says Ken Simonson, chief economist at AGC in Arlington, VA. “Moreover, contractors have been adding to workers' hours as well as hiring more employees.” However, Simonson and other AGC officials point to a lack of training programs for future construction workers as a near-term liability for the sector.

Along with health and education, which added 40,000 positions, another big gainer in jobs was retail with 34,500 jobs. However, McCarthy notes that retail, as well as foodservice—where 32,600 jobs were added to the economy last month—traditionally is lower-paying.

“This may explain why, despite the drop in the unemployment rate, wage growth was nonexistent,” he writes. “Average hourly earnings in April were unchanged from March.” Nonetheless, McCarthy adds, “with more people working, total income in the economy is rising, which should lead to stronger growth in consumer spending in the months ahead.”

With the jobs recovery from the 2008-2009 recession nearly complete, McCarthy writes, “the economy is finally ready to attain new record employment levels.” For commercial real estate, he writes, the implications are “very positive.” The number of jobs in key office-using sectors continue to rise at a healthy pace, “increasing the likelihood of strong absorption in the quarters ahead.”

Industrial, too, stands to gain from the month's jobs report, with solid numbers in  manufacturing (up 12,000) and transportation and warehousing (up 11,300), “indicating that as economic growth picks up in the second quarter, so will activity in the manufacturing and distribution sectors,” writes McCarthy. “And for both retail and multifamily, stronger employment growth will boost incomes and lead to more spending and more demand for apartments.” All in all, McCarthy sums up, April's jobs report was “the first of what we expect will be many showing stronger growth in the months and quarters ahead.”