Browse Tag: Employment

Fed: Commercial Real Estate, Employment Improved

The Federal Reserve Beige Book, the eight-times-yearly published compendium of anecdotal information about current national economic conditions, has once again arrived.  This time around, the national story on commercial real estate is about modest growth, improvement and expansion. Based on information collected before October 7 of this year, the Fed states:

Home price appreciation continued at a modest pace in general, and commercial real estate activity and construction improved since the last report. Demand for business and consumer loans increased, aside from some seasonal slowing, and credit quality remained strong or improved. Agricultural conditions were mixed, as low commodity prices pressured farm revenues despite generally strong crop yields. There were signs of stabilization in the oil and natural gas sector, while reports of coal production were mixed.


Commercial real estate leasing activity generally improved, and outlooks were mostly optimistic, although contacts in a few Districts expressed concern about economic uncertainty surrounding the upcoming presidential elections. Commercial rents were flat to up, and vacancy rates were generally low and/or declined in reporting Districts, except in the Houston metro area where office vacancies increased further. Sales of commercial properties were characterized as robust in the Chicago, Minneapolis, and San Francisco Districts but softened in the greater Boston area. Commercial construction increased on net, with contacts in the Cleveland and Atlanta Districts reporting increased or high backlogs. Shortages of skilled labor remained a constraint on construction activity in some Districts, such as Cleveland and San Francisco.

On employment:

Employment expanded at a modest pace over the reporting period. Reports of hiring were strongest in the Richmond, Chicago, St. Louis, and San Francisco Districts. Layoffs in the manufacturing sector were noted in the New York, Philadelphia, Cleveland, and Richmond Districts. The Dallas District reported that energy-sector layoffs had abated, and manufacturing employment was stable following payroll reductions in recent months. Labor market conditions remained tight across most Districts. While reports of labor shortages varied across skill levels and industries, there were multiple mentions of difficulty hiring in manufacturing, hospitality, health care, truck transportation, and sales. The Richmond, Dallas, and San Francisco Districts noted a lack of construction workers with some contacts noting these shortages were constraining construction activity.

While the color beige may be popularly known as the color people use when they don’t want to use color, this report’s findings do point to our industry’s recent health — and to the green of dollars.

Fed Votes 7-3 For No Interest Rate Change

At its September meeting yesterday, the Federal Reserve Board noted one way and voted another.  The Fed voted 7-3 to leave its Federal Funds interest rate untouched at its low level, suggesting the commercial real estate national markets will not have to worry about escalating cost of capital — at least for now.

In a press release following the vote, the Fed cited a strengthening labor market plus a picking up of economic activity in the second half of the year as a justification for the vote. Inflation fears were addressed by noting the level remains under the Board’s long-run goal of 2%.

The Federal Funds Rate’s target was allowed to stand between 1/4 and 1/2 of 1%, despite the “case for a [rate] increase [strengthening]”:

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Prime Rates Primed To Stay Put

The Federal Funds rate is deeply tied to the prime rates each commercial bank offers to its least risky borrowers, prime rates tracking more or less consistently at 3 percentage points above the Federal Funds rate. The next Federal Open Market Committee (FOMC) meeting where the issue of interest rates will be again considered is scheduled for November 2.


Fed Rate Raise Put Off In Wake Of Jobs Report?

The cost of money might not be going up after all. Signals from the Federal Reserve over the last quarter had been pointing to a raise in interest rates in September. But a new jobs report from the US Labor Department showed softer gains than were predicted. Now the signals point again to rates being left at their current low levels.

The issue was in the payroll numbers: although nonfarm employment rose for August, wage gains lagged behind projections, triggering a slide in the value of the dollar felt in currency markets around the world.

The present commercial real estate boom is greatly encouraged by heightened employment, and wages speak loudly to drive aggregate demand for multifamily housing, retail products and the industrial backchannels that produce and move those products. The hot national CRE market depends on jobs. But are the Labor Department’s August numbers on payrolls really reliable?

August Payroll Misses

An interesting pattern picked up by Bloomberg’s Lillian Karunungan shows that the Labor Department’s August payroll numbers have fallen short of expectations for five years running. In “Much Anticipated August Payrolls Have A History Of Misses,” she spells out that the DOL has produced a significant gap between predicted payroll levels and reported levels each August since 2011.

Summer doldrums? A glitch in the survey methodology? Hard to tell. But the above, plus other indicators of national slowdown are more than likely to prompt Fed Chairwoman Janet Yellen this month to leave the interest rates where they were all summer.

USDOL: Jobless Claims Down By 27,000

NAR Research Chart Showing Feb 9th 2013 Jobless ClaimsThe week ending February 9th saw a drop in jobless claims of 27,000, continuing a general trend in new jobless claims that  is approaching pre-2007 recession levels.

NAR Research Economist Scholastica (Gay) Coroaton published the latest US Dept. of Labor statistics at NAR’s Economist’s Outlook Blog.

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses initial jobless claims.


  • Good news for the job market this week: initial unemployment insurance claims for the week ending February 9 dropped to 341,000, which is 27,000 claims lower than the previous week’s level.  Although the data is preliminary and gets revised higher nearly every week for prior week’s data, the drop in initial claims is larger than the usual weekly variation since January of about 18,000 claims.  This indicates that fewer people are starting a period of unemployment.
  • The level of weekly claims looks headed towards 350,000 from last year’s average level of about 375,000 claims. It is also a far cry from the peak level in 2009. Still, the pace of job creation has to accelerate to absorb those already unemployed into the market. As of February 2, about 3.2 million continue to receive unemployment insurance benefits.
  • The bottom line for REALTORS® is that the job market continues to make steady, if modest, gains. NAR projects 1.4 million non-farm net new jobs in 2013, one factor that can support 5.08 million existing homes sales.

Of course the commercial real estate sectors rely more directly on employment in both leading and trailing indicator relationships to job numbers.  Unemployment and office vacancies are usually closely tied, and with vacancy rates go absorption rates and other metrics. There’s room to suggest that the 2007 recession was a correction, as  Michael Campbell’s recent piece in the Tennesseean  does when he writes

The typical complementary relationship between unemployment and office vacancies was re-established in late 2005. That is, they began moving together again, but vacancies were still much higher relative to unemployment than they had historically been.

The Great Recession, which officially began in December 2007, shocked the unemployment/vacancy relationship back to normal, where it has remained ever since.


When the Great Recession hit, the “normal” relationship between unemployment and office vacancies was re-established. And, as can be seen on the graph, the normal state is for office vacancies to mirror the economy, but lag behind it. These timing differences are due to the long cycle of commercial real estate transactions. In other words, a company may lay off several workers and vacate its office space, but still be committed on a long-term lease, which may not expire for a number of years.


After the recession’s peak in June 2009, this timing lag continued until approximately December 2009, when the numbers began tracking as you would expect, with vacancies decreasing as unemployment drops.

One thing’s for sure: offices are here for workers.  The rest is more complicated: occupancy follows jobs on one side of the cycle, and jobs follow the economic activity of occupied offices on the other.


NAR 2012 Commercial Outlook: Vacancies Down, Rentals Rise Expected

NAR Commercial February 2012 forecast excerptReleased today was the February 2012 edition of Commercial Real Estate Outlook from NAR Commercial. Among the tables and graphs, report author George Ratiu, Manager of NAR Commercial Research sees a 2 to 3 percent general economic recovery rate and reports two CRE findings:

Vacancies were down 1Q 2012 

Beyond the decline in vacancies, job growth is a key driver of the demand for commercial space. Economists are forecasting a an increase in payroll jobs in the neighborhood of 2 to 2.5 million for the next two years based on GDP growth in the 2 to 3 percent range. A continued recovery for the commercial sector is projected in NAR’s February edition of the Commercial Real Estate Outlook.

Rental rates are expected to rise

As the economic recovery continues in the 2 to 3 percent range rental rates are projected to increase in both the residential and commercial sectors.  Commercial space completions have been below absorption, and demand for commercial space has started to increase.  Based on the currently available economic forecast, a modest rent growth for the commercial sector is projected.

See a copy of the complete report here.

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