CBRE Economic Watch: Hurricanes Contribute To Decline In September Employment

CBRE boils down the September employment numbers with wage inflation, labor force participation, job growth outlook, the impact of Hurricane Harvey and commercial real estate implications.

• Headline: U.S. employment fell by 33,000 jobs in September, the first monthly loss since September 2010 and ending the longest streak of monthly job gains since the Bureau of Labor Statistics (BLS) began tracking this metric in 1939. While this was well below the consensus expectations of 95,000 new jobs, the loss was partially attributed to the two major hurricanes that hit the U.S. since August and temporarily impacted certain service sectors. Revisions to July and August lowered employment gains in those months by 38,000 jobs. The rolling three-month average is now 91,000 jobs, down from 185,000 last month. The 12-month rolling average fell to 148,000 from 175,000. For the first time since early 2013, the trailing 12-month total job gains are below 2 million. On a positive note, the unemployment rate fell from 4.4% to 4.2% and the labor force participation rate rose from 62.9% to 63.1%.

• Executive Summary: Job losses due to the recent string of hurricanes were greater than expected. The greatest impact was on bars and restaurants, which lost 105,000 jobs and are particularly susceptible to natural disasters such as the devastating storms that ravaged Texas and Florida. While we believe September’s job loss is a temporary blip, we expect that future monthly gains this year will remain muted. The economy has added 148,000 jobs per month this year, compared with 187,000 per month for all of 2016. 

• Wage Inflation: Wage growth improved significantly from the sluggish growth of the past few months. Wages rose 12 cents to $26.55 in September, up by 2.9% from a year ago and the largest increase since December 2016. The loss of low-wage restaurant workers in the survey may explain some of the significant jump this month.

• Hurricane Impact: According to the BLS, “Our analysis suggests that the net effect of (the) hurricanes was to reduce the estimate of total nonfarm payroll employment for September. There was no discernible effect on the national unemployment rate.” While the hurricanes impacted job growth, the report was still weak on the hiring front given the downward revisions of the previous months. However, the increase in wages is significant and offsets the slowing pace of hiring.

• Labor Force Participation: The labor force participation rate rose to 63.1%, its highest level since 2013. The increase in participation is a good sign for the economy.

• 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. The rise in participation will help, but growth of the labor force from increased participation will be limited. The trailing 12-month job growth number a year ago was 219,000, compared with the current 148,000 monthly average. Our forecast for the remainder of the year is for monthly job gains of below 150,000.

• CRE Implications:

° Retail: The temporary effect of the hurricanes makes it difficult to reach any conclusions. Averaging this report      with the October report will give a better picture of the labor market for this sector.

° Industrial: The transportation and warehousing sector added 22,000 jobs in September, a rebound from relatively small gains in August. 

° Office: Professional & business services added 13,000 jobs in September after a 40,000 gain in August. The year-over-year gain fell to 528,000 after running at a pace of 600,000 for the past several months. Financial activities added 10,000 jobs in September, the same pace as July and August. That sector is up by 150,000 jobs in the past year. 

° Construction: Commercial construction jobs increased while residential construction employment fell, largely due to the hurricanes. The labor markets for these sectors remain tight, as demand remains strong and new supply is limited.

Article and research was originally published by CBRE.

For more information on this research project, please contact CBRE Head of Research, Americas | Senior Economic Advisor, Spencer Levy; CBRE Chief Economist, Americas | Managing Director, Economic Advisors, Jeffrey Havsy.

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