U.S. Economic Watch:
Economic Recovery Continues in June: Unemployment Drops to 11.1%

Executive Summary

• The U.S. economy added 4.8 million jobs in June, almost double economists’ consensus expectations.
• Unemployment dropped to 11.1% from 13.3% and the labor force participation jumped significantly to 61.5%. The participation rate is now just under two percentage points below its level in February.
• This month’s report must be viewed cautiously, as most data was collected prior to the late June spike in COVID-19 cases in Texas, Florida and elsewhere. Jobs gains and losses likely will be highly volatile in coming months.
• The potential for a “V”-shaped economic recovery has been called into question due to the virus' flare-up. The strong recovery of jobs for the second consecutive month bolsters expectations that the U.S. economy can avoid a worst-case scenario.

Commercial Real Estate Highlights

• Office: Professional and business services added 306,000 jobs, but is still 1.8 million below February peak levels. Office-using jobs have been more insulated during the COVID-19 crisis than many other sectors. However, the impact from secular shifts due to increased work-from-home regimes is a major open question for the commercial real estate industry.
• Industrial: Manufacturing continues to bounce back, but total employment remains almost 750,000 below February levels. Continued ramp-up to full manufacturing capacity should provide an additional boost to the U.S. economy into the third quarter. Transportation and warehousing were bright spots in June, adding 99,000 jobs following declines in April and May.
• Retail: Enormous increases in retail, hospitality and leisure industries drove more than half of June’s total job gains. This is a reflection of both a seasonal upswing during the summer as well as the unleashing of pent-up demand from consumers as local economies reopen.
• Construction: Construction jobs showed a modest increase, but still were well below June 2019 peak totals. The pullback of lenders from construction financing—particularly for speculative projects—should keep a lid on construction job growth into 2021.
• Health Care: Gains in non-essential healthcare services that have reopened—including dentists (190,000) and physicians (80,000)—more than offset losses in nursing home facilities (-18,000). As healthcare services continue to reopen in more local economies, the medical office segment should receive a boost.
• Multifamily: Employment gains, combined with generous unemployment insurance, provided stability for the multifamily sector. Pressure remains on the senior and student housing subsectors. The disease’s continued significant toll on the older population and uncertainty about college and university reopenings remain significant clouds on these sectors.
• Hotels: An enormous increase in drive-to U.S. hotel destinations provided a modest boost to the hospitality sector. However, hospitality should remain beleaguered at least into 2021, when business and international demand resumes.

The Bottom Line

June’s jobs report—following May’s performance—significantly exceeded expectations. While heavily concentrated in the hard-hit leisure, hospitality and retail segments, the jobs gains were broad based. On the surface, the June performance adds credibility for a “V”-shaped recovery. The optimistic view is dimmed, however, by the COVID-19 case spikes and resultant partial snapback of economic shutdowns in Florida, Texas and elsewhere. Therefore, we caution against reading too much into the May and June employment gains. Jobs gains and losses can be expected to remain highly volatile over the next several months.

Fiscal stimulus, such as the Paycheck Protection Program (which was extended yesterday through August) and generous unemployment insurance, have been tremendously helpful to the economy. Commercial real estate has benefited from higher-than-expected rent collections in office, industrial and multifamily. The trajectory of the economic recovery will be heavily dependent on the extension of government fiscal stimulus programs—which face an uncertain future—and the retail and hotel sectors, in particular, may ultimately require additional support.