‘The Accidental Economist’ with Jack Kern: Summer Heat Melts Job Report for August

There are a number of reasons why I’m neither surprised nor particularly concerned about the jobs report. At the risk of sounding either bullish or bearish, I like to point out to people the rational difference between managing apartments based on news headlines and the long-term trends that matter in multifamily. Frequently I’m called upon to help decipher the different news releases and help to bring some semblance of order to the different reports on producer price indices, the consumer price index and gross domestic product, not to mention the ever popular monthly jobs report, also known as the establishment survey among the data congnoscenti. Those of us who are the nerds that cover this every month are painfully aware how much it changes between the time it’s first reported to when it finally gets bench-marked (government speak for corrected after a few rounds of tequila).

The report said that the levels of employment remained essentially unchanged, and that the unemployment rate was around 9.6 percent, which is not statistically different from the beginning of this year. (Statistically significant means we don’t have all the facts yet.)

In an uncharacteristically blunt remark, Gene Sperling, who serves on the White House Economic Council (not to be confused with the Council of Economic Advisors), said we need stronger growth for everything and jobs in particular. Nice to see they’re up on current events over there on Pennsylvania. Maybe they can help by selling “I lived through the recession and all they got me was this dumb t-shirt” shirts.

So what does this portend for the multifamily industry? Well fundamentally the economy has been chugging along nicely, albeit slowly for the past year and this lack of growth in employment simply means that the summer doldrums and some negative activities through layoff and position attrition created a downdraft in hiring for August. The apartment industry still has a great deal of strength in demand as people are promoted and gain better positions and some new hiring, even though it isn’t showing up, creates renter households. The basics of the industry should continue to demonstrate some solid gains through all of this and it isn’t time to put pricing and revenue management systems on high alert. Now as we near the end of the popular leasing season, we can expect to see rent growth slowing and that’s happening but we won’t see large scale increases in concessions or mass move-outs like we did three years ago.

A monthly report is just a monthly report, with one of the largest sample sizes of the many ones we follow, but one month doesn’t make a trend and low levels of hiring—especially considering the shifts in employment, layoffs in financial services and huge hiring in oil rich sections of the nation—really do offset in many ways, given the multiplier effect on employment. In fact, in most markets, rents are practically back to 2007 or better levels. Now on average, that’s as much as 20 percent off of what you might have forecast for rents by now, had you looked at the underwriting popular in 2006/207, but at least the rents are less likely to decline than they are to increase.

The Federal Reserve (featuring Benny “I told you so” Bernanke) has been pretty quiet about all of this, and I’m sure the White House will come out with a “What Me Worry?” speech or talk about Mrs. Obama’s garden (remember Victory Gardens in 1943)?

My advice to owners and operators is to remember residents have lots to worry about, but the vast majority don’t make decisions or elect to move out based on the consumer price index renter’s equivalent rent or the jobs report. The employment situation, very typical for a post recession trend is reflecting the re-engineering of employment and as it settles down jobs and very different jobs will emerge again and cause the unemployment rate to decline. Structurally the economy is basically sound and we’re not heading into a secondary dip or recession. I guarantee it.

Jack Kern is the research editor of Multihousing New, Commercial Property Executive and Managing Director of Kern Investment Research, LLC, a consultancy based in Germantown, Maryland, home of Roy’s Big Beef and Cheese. He is also very ably edited by Ms. Jessica Fiur, newly married news editor of Multi-Housing News and big fan of research trivia and trend watching. Our welcome to Jessica!