U.S. Employment Update: January Jumble

U.S. employment growth remained weak in January 2014 as the economy added only 113,000 jobs, the second-smallest increase in the past 18 months. Only December 2013 experienced slower employment growth when just 75,000 jobs were added.

This back-to-back weakness follows six months when the average gain was slightly more than 200,000 per month, suggesting that the slowdown has been caused by bad weather in December and January rather than by a fundamental economic slowdown. An important positive point in the report was the significant upward revision in employment growth in both October and November, which are now estimated to have added an additional 70,000 jobs.

Of course, we will need to see several more months of data to determine the impact of weather, but the categories of employment that were weak suggest that weather was a factor. For example, school-related employment (private and public) declined in the month (-16,400 jobs) as did Postal Service employment (-8,500) and telecommunications jobs (-10,200). Unusually weak sectors included healthcare (+1,500 jobs compared with an average of 25,600 per month in 2013), banking (-9,400 jobs) and retail (-12,900). Retail employment is particularly volatile in December and January due to changes in the timing and size of seasonal holiday hiring. The December and January jobs numbers need to be taken with a large grain of salt, and it will be a couple of more months before we know with certainty if the last two months were a weather-related anomaly or something more worrisome.

One bright spot was the unemployment rate, which declined further to 6.6%, the lowest level since October 2008. The unemployment rate is calculated from a separate survey of households, and it was more upbeat than the establishment survey that produces the payroll employment statistics. According to this survey, a large number of people entered the labor force in January and many of them found jobs. The so-called U-6 unemployment rate, which includes discouraged workers and those working part time (think of it as an underemployment rate) also fell to 12.7 percent from 13.1 percent in December.

This report does not change our view of the outlook for the U.S. economy, the direction of Federal Reserve policy or the outlook for commercial real estate markets. There is far too much noise in the data to get an accurate reading on the state of the economy in January and the unusually severe winter is definitely having an impact on economic statistics. That’s the way the Fed will read it and we do not expect any change in the tone or direction of monetary policy. They will continue to gradually reduce purchases of long term government and mortgage backed securities, and maintain interest rates at or near current levels.

All in all, for the commercial real estate sector, the report shows employment in the key office-using industries (financial, professional & business services and information) increasing to a new all-time high. But the growth was tempered by weakness in financial services employment, which has been essentially flat since July 2013. In the goods sector, employment was up in manufacturing, transportation and warehousing, which suggests healthy demand for industrial space.

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