Disappointing Employment Data Tempers Outlook for Fundamentals

For investors eager to embrace recent affirmations of a turnaround in commercial property fundamentals, Friday’s labor report should offer a modest check on their rising sense of optimism. One and a half years following the official end of the recession, US employers added just 103,000 jobs to national payrolls in December. While the unemployment rate dropped to its lowest level in 19 months, that decline reflects a large number of discouraged Americans giving up on their job search and a corresponding decline in the labor participation rate. Neither one of these outcomes is consistent with a robust improvement in the health of the US labor market. 

After initial indications of momentum last spring, labor markets returned more mixed results through the end of the year. Overall, a net of 1.1 million jobs were created in 2010, leaving the economy 7.4 million jobs short of the pre-recession employment peak in December 2007. Almost all of the last year’s net job growth was in the first five months, between January and May 2010. Since May, however, the economy has added just 118,000 jobs, or fewer than 17,000 per month. Of course, adjustments in government payrolls, including temporary Census workers and cutbacks in state and local governments, contribute to this alarming result. Private payrolls have measured stronger results, increasing by 820,000 jobs between May and year-end, and by 1.4 million jobs over the year.