Unemployment Lowest in Seven Years. Why CRE Is Watching Closely

Will an increasing job market continue, and if so, how will it affect CRE?

Economists and other observers are gearing up for that time of the month again: the Bureau of Labor Statistics’ report on employment for the previous month. Last month, with an (unrevised) gain of 223,000 jobs, the report was reasonably good, especially considering that during the month before only 126,000 positions were added nationwide. The April monthly report also put the unemployment rate at 5.4 percent, the lowest that metric has been in the last seven years, since the beginning days and months of the recession, but before it turned into the Great Recession. The question now is whether February was a mere bump, or whether employment will roller coaster for a while, which would be good for no one (including CRE). The Fed is watching the monthly employment reports pretty closely as fodder for their decision to up interest rates this year sometime or stand pat.

The average consensus estimate for May, according to Bloomberg Business, is a net of 220,000 new jobs, which is roughly the same as in April. The range among Bloomberg prognosticators is also fairly narrow, from 190,000 to 289,000, which the company said “points to a sense of certainty among the sample.” The unemployment rate isn’t expected to move. In other words, May won’t be a bad month, but it won’t be a great one either, at least not like the run of months in late 2014, when hiring sometimes added more than 300,000 jobs a month. Even so, a reasonably good May would confirm the general pattern since the end of the recession characterized by occasional sharp drops but also fairly quick recoveries in the rate of hiring.

Automated Data Processing reported its May employment numbers on Wednesday. According to the company, which handles large amounts of payroll processing, there was an increase of 201,000 private-sector jobs in during the month. That’s not too far off the consensus, but on the other hand, ADP and the BLS rarely come very close to a match; that’s partly reasonable, since the BLS reports on public-sector jobs as well as private. Last month, for instance, ADP’s numbers undershot BLS numbers when it said that 169,000 jobs were added in April. This was true to form: ADP tends to come in well below the revised BLS numbers (though not always).

Also on Wednesday, the ISM non-manufacturing index for May came in at 55.7 percent, down from 57.8 percent in April. The organization’s employment index decreased to 55.3 percent in May, down from 56.7 percent in April. Those might be lower indexes, but they still correlate with reasonably good job growth, since above 50 indicates expansion, below 50 contraction. In short, the overall jobs numbers ought to be good but not stellar for May; anything else would be a surprise. There’s still some question about the health of specific industries, however, including those that affect real estate directly, such as business services, retail and construction. That data will have to wait for the BLS report.