September 7, 2018
- Headline: The U.S. economy added 201,000 jobs in August, above market expectations of roughly 190,000. The unemployment rate remained at 3.9%, while the labor force participation rate fell by 0.2 percentage points to 62.7%. Downward revisions to June and July jobs numbers resulted in 50,000 fewer new jobs than previously reported. With the economy adding 207,000 jobs on average in the first eight months of 2018—up from 189,000 jobs on average for the same period last year—this year likely will be the best for jobs gains since 2015. Average hourly earnings rose 10 cents in August and were up 2.9% year-over-year—the strongest wage growth since mid-2009.
- Executive Summary: Other recent signs of economic strength include 4.2% GDP growth in Q2 and a sharp uptick in the Institute for Supply Management’s manufacturing and services indices. Continued jobs gains in professional & business services, health care, wholesale trade and transportation & warehousing are indicative of the economy’s late-cycle strength. Moreover, wage growth of 2.9% over the past year is a sign that wages might finally rise higher after years of sluggish gains. The last time unemployment was as low as it is today—during the dot-com boom of the mid-to-late 1990s—wage growth was in the 3.5%-to-4% range. Just after the release of today’s jobs report, the 10-year U.S. Treasury yield, which has hovered around 3% since February, rose a mere 7 basis points to 2.93%, while equity markets opened flat. The absence of a knee-jerk reaction to wage inflation by financial markets, like the one seen in January, suggests that markets will wait and see whether wage growth continues its upward trend in the coming months.
- Wage Inflation: August’s year-over-year wage growth of 2.9%, while higher than earlier in the expansion and the strongest since 2009, is not historically commensurate with the current level of unemployment. Economists’ consensus remains that with labor markets continuing to tighten, wage growth should accelerate. Indeed, a report by the National Federation of Independent Business (NFIB) shows that nearly 32% of small businesses are raising compensation as they struggle to fill positions. The Federal Reserve Bank of Atlanta recently reported that workers who switched jobs received average annual pay increases of 4%, compared with average gains of 2.9% for those who did not change jobs. In all, today’s jobs report will keep the Fed on track to raise short-term interest rates at least two more times this year and reduce its balance sheet, which currently stands at nearly $4.5 trillion.
- Job Growth Outlook: U.S. jobs growth has hit its longest streak of monthly gains on record and recent tax reform may provide added momentum, potentially extending the current cycle. However, additional jobs gains likely will be modest, given that the economy is operating at near-full capacity, an aging population is shrinking the available labor pool and productivity growth is low by historical standards. Recent financial market volatility has ebbed, as rhetoric around U.S. trade policy has largely softened.
- CRE Sector Employment:
- Construction: The construction sector added 23,000 jobs in August and is up by 297,000 jobs year-over-year.
- Industrial: The manufacturing sector shed 3,000 jobs in August, but has added 254,000 jobs over the year, much of them in the durable goods sector. Transportation & warehousing added a solid 20,200 jobs in August and is up by 172,000 jobs over the past year.
- Retail: The retail sector shed 5,900 jobs overall in August, with large declines in clothing & accessories (-20,800 jobs) and department stores (-9,200). Food services & drinking places added 17,500 jobs in August, showing continued strength in this segment.
- Office: Professional & business services continued trending up in August, adding 53,000 jobs. The sector has added 519,000 jobs over the past year. Professional & technical services added 27,600 jobs in August, while administrative & support services added 20,200 jobs. Employment in health care & social assistance rose by 40,700. Health care employment increased by 33,200 and is up by 301,100 over the year.
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