Jobs Market Remains Hot, But Incomes Not Keeping Pace with Inflation

The June employment report from the Bureau of Labor Statistics once again confounded expectations and a hot jobs market has continued unabated.

Although consensus forecasts by economists were for 250,000 additional jobs, according to Barron’s, non-farm payroll rose by 372,000 and the unemployment rate stayed at 3.6% for the fourth month in a row.

There were two downward revisions of previously reported numbers: April went from 436,000 to 368,000, a drop of 68,000, and May went down 6,000, from 390,000 to 384,000. But both months remain higher than economists had expected at the time.

Some of the big growth areas in June tie into significant commercial real estate property types. Professional and business services—and the need for office space—was up by 74,000 during the month. Overall, employment in that area is 880,000 higher than in February 2020, before the pandemic set in.

Restaurants and bars saw a lift as the leisure and hospitality category grew by 67,000 jobs, meaning good news for that part of retail space. That’s still a long way off from where the industry stood, with 1.3 million jobs, or 7.8%, still unrecovered from pre-pandemic times.

Healthcare employment was up by 57,000. That was split between ambulatory healthcare services (28,000), hospitals (21,000), and skilled nursing and residential care (8,000). But employment there is also below February 2020 levels by 176,000, or 1.1%.

Transportation and warehousing added 36,000, with storage having gained 18,000 and air transportation, 8,000. The current total is up 759,000 over pre-pandemic. That’s been seen reflected in the growth of industrial space prices and the flattening of cap rates. Manufacturing, another industrial user, grew by 29,000, getting it back only now to pre-pandemic levels.

All well and good, but there are going to be repercussions. With that much of a jump in employment, chances are strong that the Federal Reserve will do another 75-basis point hike in its benchmark rate this month, increasing the difficulty for many in CRE to make needed returns with growing financing costs. Previous hikes have already put significant pressure on the industry.

And then there are average hourly earnings. For all employees, they rose by 0.3% to $32.08 in June, making a 12-month growth of 5.1%. But that’s significantly below inflation, meaning that consumers, who drive nearly 70% of GDP, continue to fall behind. And production and non-supervisory employees, while they saw an average increase of 0.5% in June, are at $27.45 per hour, meaning they’ll have greater difficulty in maintaining spending, which is a potential warning sign both for retail and multifamily housing, as that might put an upward bound on revenue.