April’s job numbers brought plenty of good news, pilule further solidifying the sustainability of the recovery. Total employment grew by 1.3 million jobs on a year-over-year basis or 1.1%, purchase with three particularly encouraging trends: First, private sector jobs totaled 1.8 million with net new jobs dragged down by government losses. Second, the pace of growth in the last three months placed the annualized expansion rate to 2.8 million jobs or 2.1%. Last, but not least, temporary employment growth is slowing while full-time job growth is picking up. In 2010, 30% of net new jobs were temporary. So far this year, only 6% of net new jobs have been temporary, signaling the need and willingness by companies to shift to long-term workers.
Recent job gains support the forecast for a relatively good year for employment growth in 2011 and further improvement in 2012. But the road ahead is likely to get bumpy again and we may lose some momentum over the next few months. High energy prices are eating into consumers’ discretionary spending and squeezing corporate profits, two of the most critical drivers of the recovery thus far. In the first quarter, GDP growth slowed to 1.8% from 3.1%, a foreteller of potentially weaker hiring in the next few months. The residential for-sale market is another major drag on the economy, with prices and sales flat at best on average, and falling in many regions. Global unrest, budget fights in Washington and the upcoming expiration of the Fed’s Quantitative Easing (Q2) in June are sure to drum up some volatility and uncertainty. Dealing with the public debt problem (higher taxes, lower spending) and consumers’ de-leveraging will also drag on growth.
Looking beyond these bumps ahead, real estate investors are well served to take a longer-term view. The economy is on much stronger footing today and even moderate growth (without an above-average ‘pop’) should sustain a recovery and improved commercial property fundamentals. Productivity per worker is at an all-time high, and 8% higher than it was prior to the recession. Companies need workers to operate, let alone grow. Retail sales, excluding food and gas, are well-above pre-recession peaks. Although consumers are unlikely to propel growth from this point forward, retail sales have been a much stronger contributor than expected. As a result, we have dubbed retail the “dark horse” of the race among commercial property sectors as the dramatic pull back in new construction, coupled with recovering demand is likely to cause a faster turn-around that most expect.
We are also seeing some interesting changes in the composition of jobs. Exports are growing at a healthy pace, helping to spur nearly 200,000 manufacturing jobs in the last 12 months. Exports account for 12% of economic output, compared to just 3% coming from for-sale housing. Closely related to domestic retail sales and globalization, the trade, transportation and utilities sector added 280,000 jobs in the past year. The weak U.S. dollar is also lifting the travel and tourism industry, which added 225,000 jobs in the past year. Healthcare and education continue to be leading sectors with over 432,000 jobs added but the top job growth sector over the past year was business and professional services, which gained 513,000 positions. Of course, this bodes well for office demand once excess space is burned off, but the healthcare segment is also supporting demand for medical office buildings. Meanwhile, the industrial market is benefiting from the resurgence in trade, movement of goods, improved domestic sales and to a lesser extent, manufacturing.
The final employment trend that real estate investors should be aware of is the demographic of job winners. In the last 15 months, 63% of net new jobs created were earned by young adults in the age range of 20 years to 34 years. This at least partially explains the surge in renter demand for apartments, which has put that sector in a clear and sustainable lead in this recovery. (credit, h,nadji, globe st)