Headline: U.S. employment rose by 261,000 jobs in October and was revised upward to an 18,000-job gain in September, re-establishing the longest streak of monthly job gains since the Bureau of Labor Statistics (BLS) began tracking this metric in 1939. October’s jobs gain was below the consensus estimate of 310,000, as the rebound in hiring following hurricanes Harvey and Irma was a bit softer than expected. However, revisions to August and September increased employment gains in those months by 90,000 jobs. The rolling three-month average is now 162,000 jobs, up from 91,000 last month. The 12-month rolling average rose to 167,000 from 148,000; the trailing 12-month total job gains rose to 2.04 million. The unemployment rate fell to 4.1% from 4.2%, due primarily to a drop in the labor force participation rate to 62.7% from 63.1%.
Executive Summary: Despite coming in below consensus, October’s solid jobs growth—coupled with upward revisions in prior months—signals that the impact from hurricanes was less severe than thought in September. The greatest impact was on leisure and hospitality, which, after losing 102,000 jobs in September, gained 106,000 in October. This proves that September’s job loss was a temporary blip. The economy has added 169,000 jobs per month this year, compared with 187,000 per month for all of 2016.
Wage Inflation: Wage growth was disappointing, falling 1 cent in October to $26.53 per hour. The 2.4% increase in wages from a year ago is down from the 2.8% increase reported in September. The bounce back in hiring of low-wage restaurant workers likely explains some of the slowdown in October and strong increase in September. The productivity report released earlier this week showed a significant jump, which may lead to greater wage gains ahead. The increase in productivity is the latest hopeful sign for wage growth, which has been sluggish for the past several years as the labor market tightened.
Hurricane Impact: This report shows that the impact of recent hurricanes was more muted than previously thought, given the upward revision of 51,000 jobs in September. The hurricanes’ outsized impact on hiring in low-wage industries helped drive stronger wage growth in September and weaker growth in October.
Labor Force Participation: The labor force participation rate fell to 62.7% from 63.1%, its lowest level since May 2017. The decrease in participation is a negative sign for the economy. The labor force participation rate has remained between 62.4% and 63.1% since August 2013.
Job Growth Outlook: We expect the rate of gains to moderate for the foreseeable future as employers find it difficult to fill skilled positions from the current workforce. A rise in participation would help, but growth of the labor force will be limited due to the aging population. The trailing 12-month job growth number averages 167,000 per month, down from 212,000 a year ago. Our forecast for the remainder of the year is for monthly job growth of less than 150,000.
CRE Sector Employment:
Retail: The hurricanes’ negative impact on employment was isolated to September, as employment in bars & restaurants increased by 88,500 jobs in October and is up by 222,000, year over year. Growth in demand for retail real estate will continue to come from food and beverage retailers, as department stores continue to struggle due to e-commerce.
Industrial: The transportation and warehousing sector added 8,400 jobs in October, a decline from solid gains in September. Anticipate strong growth for the rest of the year, as employment historically strengthens in Q3 and peaks in Q4 in advance of the holiday season. Continued employment gains will fuel industrial space demand.
Office: Professional & business services added 50,000 jobs in October after a 22,000 gain in September. The year-over-year gain rose to 536,000 and has run at a pace of more than 500,000 since September 2016. The financial activities sector added 5,000 jobs in October, and is up by 153,000 jobs, year over year. While growth in professional & business services has moderated slightly, the sector will remain the top source of office demand.
Construction: Commercial construction jobs fell while residential construction employment increased, largely offsetting the hurricanes’ impact. The labor markets for these sectors remain tight, as demand remains strong and new supply is limited. This, in addition to cost pressures, will remain a headwind for new development.