CALABASAS, CA—“Solid US jobs report bolsters case for Fed rate hike.” “July Job Numbers Keep Fed Rate Hike on Track.” “July Jobs Report Hints At Fed Rate Hike In September.” These headlines from this past Friday found Reuters, the Wall Street Journal and Investor’s Business Daily all saying essentially the same thing. This week, Marcus & Millichap‘s Hessam Nadji reiterated a theme he has sounded in recent months: the steady if not dizzying pace of employment growth offers the Federal Reserve “a solid foundation to begin modestly raising rates later this year, despite some soft readings in measures such as wage growth.”
Cumulatively, according to the GlobeSt.com Thought Leader, “the US has added 12.4 million jobs since the recovery began, and total employment stands 3.7 million positions above the pre-recession employment peak. Notwithstanding month-to-month volatility, the trend over the past 58 months has been “remarkably sturdy, generating average monthly additions exceeding 200,000 jobs,” Nadji, a senior EVP at MMI, writes in this week’s Research Brief blog.
Nonfarm private-sector payrolls rose by 215,000 in July, and Nadji notes that the gains were broad-based. “Trade employment added 60,000 workers, predominantly at shopping malls and stores,” he writes. “Despite a strong US dollar that limits exports, manufacturers rallied from a lackluster first half of the year to create 15,000 posts last month.” Auto sales were also strong, and long term, “the ongoing replacement of older vehicles by consumers will sustain payrolls at vehicle and parts factories in the coming months.”
A weak spot in July hiring was the energy sector, as has been the case for some time. “A fall in oil prices to less than $50 per barrel in July contributed to the loss of 4,000 jobs in natural resources and mining, the only private employment sector to trim payrolls last month,” according to the Research Brief blog.
And wage growth remains a sore subject. “Average hourly earnings rose 0.2% last month following a flat reading in June, culminating in a modest 2.1%,” Nadji writes.
He adds, however, that “conditions supporting more substantial increases continue to align.” The number of workers quitting jobs, presumably for better-paying positions, is near a post-recession high, while unemployment of workers in their prime earnings years has compressed to about 4%. “The thinning pool of experienced workers will place additional pressure on wage trends.”
Economic growth patterns, with the rise of e-commerce among them, continue to bode well for commercial real estate. Nadji observes that a reduced reliance on physical retail outlets is expanding requirements for fulfillment centers and contributing to growth in the industrial property sector. Nationwide, tenants moved into an additional 54.4 million square feet of industrial space in the second quarter to shave vacancy 10 basis points to 6.9%, the lowest level in 14 years. “Additional demand growth and a modest expansion of stock will further reduce vacancy this year and underpin average rent growth of 5.3%,” he predicts.
Rental housing also continues to benefit from the employment gains, “while the subdued pace of wage growth has suppressed the migration to homeownership,” according to the Research Brief. In keeping with the preference for rental housing, US multifamily vacancy rate tumbled 40 basis points in the second quarter to 4.1%, its lowest level since 2006. “Expected job gains through the remainder of the year combined with positive demographic trends should support continued absorption and elevated rent growth” through Q4.