We have long maintained that one of the keys to the strength of the U.S. economy in 2014 will be whether and when firms shift from worrying about costs to worrying about losing sales. When companies are more willing to take risk, they are more aggressive in hiring and when that happens, the pace of economic growth accelerates sharply. That is what we have been anticipating for 2014; unfortunately the severe winter has postponed the shift to stronger growth.
Much of the early economic data for March suggests that the severe winter weather that blanketed much of the U.S. in January and February did have a significant impact on economic activity. People stayed home, employers did not hire as aggressively and everyone just tried to wait out the weather. As weather conditions turned more normal in most of the country during March, the data is showing a bounce-back, indicating that the economy is healthy and the weakness in January and February was weather-related. That is great news for the commercial real estate industry.
The most significant economic news of the past week came from two reports indicating that labor market conditions in the U.S. are improving. In the office sector there is no more important economic indicator than employment, and since a positive March jobs report came out a week ago, the data continued to point to stronger employment growth in the months ahead.
The U.S. Labor Department’s monthly report: Job Openings and Labor Turnover Survey (JOLTS) covering the month of February showed a jump in the number of private sector job openings to its highest level since the recession began at the beginning of 2008. After dropping in December and January, the number of February openings recovered all those declines and more. While the number of new openings is not soaring, the clear uptrend in the number of available jobs in the economy indicates that private sector employers have a need for more workers than at any time in the last six years. This is a good sign that firms are getting more aggressive in their hiring.
One of the important indicators of the health of labor markets has always been layoffs. When layoffs are declining, hiring often follows. We measure layoffs using the number of people filing for unemployment benefits in a given week. In general we have found that when the number of filings is below 400,000 per week, it portends healthy employment growth. The number of new claims for unemployment insurance dropped below 400,000 in late 2012 and has remained below that level for the past year and a half, or so. However, while employment has continued to grow at a steady pace, it has not accelerated. Now the number of new claims is falling even further. In the week ended April 5, the number of people filing for unemployment dropped to 300,000, the lowest level since mid-2007. We did see the number of new claims drop near these levels about six months ago, but that was caused by a technical issue caused by new computer systems. The latest decline appears to reflect a shift in labor markets indicating that companies are holding on to workers more than at any time in the last seven years.
Nothing is more important to the commercial real estate industry than jobs, especially for the office sector. The number of jobs is a critical indicator of current and future demand. The data released this week suggest the economy finally may be shifting from slow to fast growth, as businesses have reduced layoffs to multi-year lows and have more job openings than at any time in the last six years. This points to stronger job growth in the months and quarters ahead. The result will be more demand for all types of space, stronger income growth as more people are earning money, and stronger demand for goods and services.