Was the December Jobs Report A Big Setback? Economists, Researchers Weigh In

Disappointing news from the U.S. Labor Department that non-farm payrolls declined by 85,000 in December has renewed concerns about the strength of the economic recovery. Many economists had expected the losses to be much more muted, and some were even looking for a net gain after a relatively positive jobs report in November.

But the figures are subject to revision, which could be substantial based on recent trends. For example, the Labor Department originally reported that non-farm payrolls fell 11,000 in November, only to be revised to a net gain of 4,000.

Conversely, the economy shed 16,000 more jobs in October than first believed. The change in total non-farm payroll employment for October was revised from a loss of 111,000 to a loss of 127,000.

The number of long-term unemployed — those persons jobless for 27 weeks and over — continued to trend up in December, reaching 6.1 million. In December, four in 10 unemployed workers were jobless for 27 weeks or longer. Meanwhile, the national unemployment rate was unchanged at 10%.

For commercial real estate, the December job figures reveal a mixed bag. The number of temporary workers rose 47,000 jobs in December, and that’s historically a precursor to an increase in full-time hiring. Since reaching a low point in July, temporary help services employment has risen by 166,000.

One positive sign for the office market is that the professional and business services segment added 50,000 jobs in December. Additionally, the number of education and health services jobs rose by 35,000.

The troubled leisure and hospitality sector shed another 25,000 jobs in December. Employment in retail trade was little changed over the month, although general merchandise stores lost 15,000 jobs.

Construction jobs dropped by 53,000 while manufacturing fell by 27,000. Employment in construction has fallen by 1.6 million since the recession began in December 2007. Meanwhile, goods-producing jobs decreased by 81,000.

NREI asked the commercial real estate industry’s leading economic experts for their take on the December jobs report. Their analysis follows:

Hessam Nadji, managing director of research services, Marcus & Millichap Real Estate Investment Services:

“Although the December number was disappointing, the overall trend is still very positive, particularly as it relates to first-time unemployment applications, which indicate that we are at or very near the end of job losses.

“The other indicator in support of this trend came through temporary jobs, which were up for the fifth straight month. The December number does confirm that this will be a choppy and uneven recovery, and companies are far from adding jobs in a robust and sustainable way.

“The story for commercial real estate has not changed in that we are at least six to nine months from the bottom of the occupancy-correction cycle. Interestingly enough, apartments are already showing better absorption in reaction to fewer job losses. The gain in professional services in December was also good news, and an early indicator of a bottoming for office demand.”

Victor Calanog, director of research, Reis:

“The only thing that seems certain right now with the near-term prospects of the labor market is how uncertain monthly job figures will turn out. The numbers get revised often and that’s expected, but what surprises most observers is how job losses can become job gains, or vice versa, whenever initial figures range between a net gain of 15,000 and a net loss of 15,000. Today’s case in point is how 11,000 jobs lost in November suddenly became 4,000 jobs gained.

“While a loss of 85,000 jobs in December is worse than expected, it still reflects a deceleration in the pace of job losses when viewed from the perspective of the last 24 months. If anything, it is consistent with expectations that labor markets will remain on rocky ground for at least the whole of 2010, and is likely to prompt less unwanted surprises from policymakers and market players.

“The Fed will be reluctant to raise interest rates. Market participants in commercial real estate financing and development will continue to be cognizant of the need to carefully vet deals and projects, and enthusiasm for overall recovery will be hopeful, but not unbridled.”

Bob Bach, chief economist, Grubb & Ellis:

“The December jobs report, which shows a loss of 85,000 non-farm payrolls, doesn’t come as too much of a surprise. The loss of 11,000 jobs in November, revised to a gain of 4,000, was a surprise and a rather abrupt change from the trend. I thought we’d give a little of that back this month.

“That said, I would have expected a smaller loss than we got. I noticed while watching CNBC that Treasury prices rose a bit (interest rates fell) and oil prices fell, which supports the sluggish-recovery scenario.

“It’s probably not a hopeful sign for commercial real estate, which depends on job growth for at least three of the four core property types — office, retail and multifamily. And it’s also not hopeful in the sense that a little inflation might be a good thing for the investment prospects of commercial real estate.

“But I’d have to say that rapid job creation wouldn’t necessarily be good for the economy because it would raise inflation fears. I view all the excess liquidity in the economy as dry kindling for an outbreak of inflation, if consumers and businesses start to spend again and all that liquidity begins to circulate at a faster pace.”

Ken McCarthy, managing director of research, Cushman & Wakefield:

"While overall employment fell in December, this latest report continues to affirm that there are positive employment trends beginning to take hold, particularly for the office-using industries.

“While we don't expect an immediate impact on commercial property fundamentals, we can now be more confident in our time horizon for the beginning of a commercial real estate recovery in the middle of 2010."

Sam Chandan, president and chief economist, Real Estate Econometrics:

“The job losses were concentrated in goods-producing sectors, including commercial construction. With vacancy rates rising, we can expect that commercial construction activity will ease for some time, even though housing activity appears to have bottomed.

“In the service professions, on the other hand, the December report shows the first substantive increase in professional and business employment. We're a long way from replacing jobs lost in office-using employment, but it’s a hopeful sign.”

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