The recent employment report was positive in a number of ways. It indicates that the slower growth experienced in December and January was likely an anomaly caused by the unusually severe weather and not indicative of a slowdown in the general economy. For the real estate sector, this report is particularly encouraging and strongly supportive of our view that the economy is on track for the best year of growth in this recovery.
The U.S. economy added 175,000 payroll jobs in February, the largest increase since November and above the consensus expectation of approximately 150,000. In the last 12 months, the economy has added 2.2 million jobs. The level of employment was revised slightly upward for both December (+9,000) and January (+16,000).
The most important rebound was in services, where employment growth fell to a four year low in December. Most major service sectors, from health care and private education to professional and business services as well as wholesale trade showed significant increases in employment growth in February. For the commercial real estate industry, two of the more significant increases were in:
- Wholesale trade where employment jumped almost 15,000 jobs and has risen 116,000 over the past year. This industry is growing more rapidly than the U.S. as a whole, pointing to strong growth in the warehouse/distribution sector.
- Office-using employment: The sum of employment in financial services, professional & business services and information increased by 72,000 jobs in February, the largest gain in seven months. Office-using employment has fully recovered from its recession losses and is at a new all-time high. This suggests that demand for office space is healthy and rising.
Office-using employment is growing at a healthy clip and industrial activity also remains strong, a conclusion that is reinforced by this morning’s report that U.S. imports and exports of goods both increased in January.
In addition, today’s employment report suggests that workers are becoming more optimistic about job prospects—an indication that labor markets are getting healthier. The unemployment rate, calculated from the separate household survey increased from 6.6% in January to 6.7% in February. The increase was caused by a 223,000 person jump in the number of unemployed persons, the largest increase in more than a year. However, this increase is likely a result of discouraged workers returning to the job market to look for work. The fact that the labor force participation rate increased and the U-6 unemployment rate (which includes discouraged workers) fell from 12.7% to 12.6% (the lowest level in more than 5 years) indicates that the slight increase in unemployment is a result of a positive assessment of job prospects by workers who had previously opted to not even bother looking for work.
The report also means that the Federal Reserve will not change its monetary policy direction. The economy is healthy enough that there is less need for the Fed to continue to purchase bonds in the volumes that they have been buying. Thus, the tapering program that began late last year will continue. This will likely lead to higher interest rates, but the current pace of growth suggests that the economy can bear the higher cost of funds.
The recovery was derailed temporarily by one of the worst winters in recent memory, but the quick rebound in growth suggests that we are on track for a good year.