If you are a regular reader of this StreetWise column, you know the importance that I believe the employment picture has on our commercial real estate markets. In fact, there is no other metric that more profoundly impacts the fundamentals of both residential and commercial real estate.

This is why last Friday’s jobs report was particularly troubling. In June, U.S. payrolls lost 125,000 jobs, the first monthly loss of 2010. These losses were due, mainly, to the elimination of 225,000 temporary government census workers. Just as 441,000 new census temporary jobs skewed the numbers higher months ago (and the administration seemed downright giddy over this “job growth”), June’s job eliminations have skewed the numbers to the downside.

The official unemployment rate, interestingly, dropped from 9.7 percent in May to 9.5 percent even though the market lost 125,000 jobs. You may ask how this can happen as elementary school mathematics would indicate this is an impossibility. The fact is that something called the “participation rate” impacts the official unemployment rate calculation. While the market lost 125,000 jobs, simultaneously, 652,000 discouraged Americans stopped looking for work. After their job search has ceased for more than 30 days, these unemployed workers are no longer technically considered unemployed. This quirk in the official rate calculation caused the reduction seen in June.

However, if these discouraged workers are counted and those who work part-time wishing to be employed full-time are included, the unemployment rates balloons to 16.5 percent. Equally troubling is the fact that the median duration of unemployment rose to 25.5 weeks in June from 23.2 in May.

The most important thing to extract from the jobs report is that the private sector created only 83,000 jobs in June. This comes after an equally disappointing private sector job creation number, in May, of only 33,000 private sector jobs.

During this recession, our economy has lost 8.4 million jobs. It is important to note that, depending upon which analysis you read, our economy needs between 100,000 and 150,000 jobs created per month just to keep up with population growth. Therefore, even with monthly job creation on the order of 300,000 or 400,000, it will take many years to regain the jobs that have been lost.

Additionally, in June, employers cut the average the work week of existing employees. The average work week fell to 34.1 hours after rising for the previous 3 months. Average hourly earnings also slipped in June down to $22.53 from $22.55.  

So, why isn’t the private sector creating jobs at the typical rate seen at this point in a recovery?  Economic growth shifted positively almost one year ago. In typical recoveries job creation becomes self sustaining. Jobs are created, more people have disposable income, and this creates demand, which creates profits, which leads to more new jobs. This process normally works very nicely.

Unfortunately, we are presently seeing an employment picture that is merely muddling along. The fact is that private sector employers are in a holding pattern. Hiring decision are being delayed as employers wait to see how much more politicians are going to increase their costs of doing business. Job creation and new investment have suffered from the destructive impact of trade restrictions, additional regulation and, most importantly, higher taxes.

Even before any new taxes are proposed to address budget deficits, Americans are bracing for the biggest federal tax increase in America’s 234 year history, which is expected in six months. Naturally, Washington will portray this tax increase as a “restoration” of old taxes, not new taxes.

 In 2001 and 2003, Congress enacted tax relief that spurred economic growth and development. These cuts will expire on January 1, 2011. Income tax brackets will shift significantly. The top income tax rate will rise from 35 percent to 39.6 percent. The lowest bracket will increase from 10 percent to 15 percent and all other brackets will increase by 3 percent annually.

Additionally, itemized deductions and personal exemptions will phase out which effectively create even higher marginal tax rates.

On top of these tax hikes, the marriage penalty will return and will be applicable to every dollar of income. The child tax credit will be cut in half and dependant care and adoption tax credits will be cut. The estate tax will increase to 55 percent on estates over $1 million.

Important to our real estate markets, capital gains rates will increase from 15 percent to 20 percent in 2011. The dividend tax rate will rise from 15 percent this year to 39.6 percent next year. Additionally, the new healthcare bill will increase both of these rates by 3.8 percent beginning in 2013. This increase will bring capital gains rate to 23.8 percent or 60 percent higher than its present level. Dividends will be significantly impacted as the top dividend rate will escalate to 43.4 percent or nearly three times today’s rate. The healthcare bill includes 20 new or higher taxes, several of which become effective January 1, 2011. In the face of these increasing costs, is it any wonder why private sector job growth is moving like a glacier?

For the sake of the commercial real estate market let’s hope policy makers realize the importance of job growth and that they understand what the real drivers of private sector job creation are. A clarity with regard to future costs, particularly taxes, and elimination of much of the uncertainty, which presently exists, would induce private sector employers to begin hiring again. Our economy needs this and so do our commercial real estate markets.

 Mr. Knakal is the Chairman and Founding Partner of Massey Knakal Realty Services in New York City and has brokered the sale of over 1,750 properties having a market value in excess of $6.4 billion.