April 6, 2018

  • Headline: U.S. employment rose by 103,000 jobs in March, which was well below the consensus expectation of 193,000. The unemployment rate remained unchanged at 4.1% for the sixth consecutive month. While monthly employment changes are volatile, employment growth in March was well below that of February. Further reflecting volatility in monthly numbers, January’s job growth was revised downward, while February’s was revised upward. On net, however, employment gains in January and February were 50,000 fewer jobs than previously reported. The labor force participation rate remained mostly unchanged at 62.9%.
  • Executive Summary: Monthly employment gains remain volatile, as do revisions. On average, job growth has been a relatively strong 202,000 jobs per month for the past three months. In March, average hourly earnings rose slightly. Year-to-date, wages have risen by 2.7%. Based on these results, there is no reason to expect the Federal Open Market Committee (FOMC) will change its course on the normalization of monetary policy. Markets have already priced in two additional rate increases this year. It’s possible that the Fed could consider a third increase if wage growth remains above 2.5%, given uneven productivity growth.
  • Wage Inflation: Annualized wage growth was 2.9% in January, 2.6% in February and 2.7% in March. While this wage growth is substantially slower than growth prior to the global financial crisis, it represents an increase from post-crisis lows. The 10-year Treasury has fallen slightly from last month by about 10 basis points (bps). It remains nearly 45 bps higher than this time last year. Given the normalization path of monetary policy, the 10-year Treasury is more likely to be slightly above 3% than below it by year-end.
  • Job Growth Outlook: Without a sharp increase in labor force participation, job growth likely will moderate in coming months, as employers find it difficult to fill skilled positions from the current workforce. Recent tax reform is expected to increase the deficit, further placing upward pressure on interest rates. But it also is likely to provide a boost to the job market, potentially extending the current cycle. Nevertheless, gains will likely be modest given that the economy is operating at near-full capacity. While market volatility has risen slightly, a trade dispute between the U.S. and China remains focused on minor import tariffs.
  • CRE Sector Employment:
    • Construction: Employment in construction was little changed, after adding a solid 61,000 jobs in February.
    • Industrial: Manufacturing payrolls rose by 22,000 in March. The manufacturing sector has added 232,000 jobs over the past year, with the durable goods component accounting for three-quarters of the increase.
    • Retail: Retail employment remained largely unchanged after February’s strong growth.  
    • Office: Strength in professional and business services continues apace. Employment in this sector rose by 33,000 in March and has risen by 502,000 in the past year.