What Newest Employment Trends Mean for CRE
- Mar 09, 2015
The February headline employment numbers were strong indeed, but so were many of the deeper trends reported by the Bureau of Labor Statistics, which bodes well for spurring demand for commercial real estate. For one thing, the decline in unemployment was fairly widespread. According to the BLS, unemployment rates decreased from February 2013 to February 2014 in all 50 states and D.C. This was the first year since 1984 in which all states and D.C. enjoyed year-over-year unemployment rate declines. The largest drop was in Illinois (2 percentage points)—showing some signs of a stronger recovery in a weaker-than-it-should-be market, metro Chicago—followed by Colorado, North Carolina and Ohio (1.8 points each). Twenty other states had year-over-year jobless rate decreases of at least 1 percentage point.
So far the energy slump hasn’t hit the unemployment rates in places like the Dakotas—North and South Dakota are still enjoying the lowest and third-lowest unemployment rates in the nation, as of February: 2.8 percent and 3.4 percent, respectively (Nebraska was second, at 3.3 percent). But none of those states include major real estate markets, and even if investor and development interest in those places wanes in anticipation of slower energy economies, it wouldn’t represent much of a ripple for the bigger CRE picture. More important employment growth nodes are markets such as Seattle, San Francisco, Denver, Austin, Brooklyn and a number of other urban centers. It’s no coincidence that these markets are also seeing more CRE activity.
Other good news about employment includes the continued drop in U-6, the BLS’ unemployment metric that includes total unemployed, plus “all persons marginally attached to the labor force”—people who have given up looking for work for now, but who still want to work—plus people “employed part time for economic reasons,” who are part-timers who want full-time work but can’t find it. In February, the U-6 was 11 percent; a year earlier, it was 12.6 percent. Arguably, the U-6 is a better reflection of the job market than the headline employment number, since it better reflects the reality in which people are unemployed. The better the U-6, the better for the whole economy, including demand for various kinds of real estate.
Finally, a note about construction employment, which is a direct reflection of real estate activity. It continues to go up, but construction has seen a slow recovery over the years, mainly because not as many residential properties are being built now as in the 2000s. The bubble took construction employment to nearly 8 million in the mid-2000s, up from the more healthy levels of the late 1990s and early 2000s, when employment was just below 7 million. The recession crashed construction employment to around 5.5 million; since 2013, the total has topped 6 million—still down from the more healthy years. It may take a few more years of expanding construction to get back to the levels of 15 to 20 years ago.