February 28, 2019

Executive Summary:

  • 20,000 jobs were created in February, far below expectations of 180,000.
  • The unemployment rate declined by 20 basis points (bps) to 3.8% and the labor force participation rate remained at 63.2%.
  • Average hourly earnings were up 3.4% year-over-year, the best in 10 years.
  • Despite mounting wage inflation, the Consumer Price Index increased by only 1.5% year-over-year.
  • First quarter GDP growth is expected to be weak, with the Atlanta Fed forecasting it at 0.5% due to the partial government shutdown in January and lingering impact of December stock market turbulence.
  • CBRE expects a bounce back in GDP growth in Q2 and full-year growth of around 2.4% as business conditions remain robust.

Commercial Real Estate Highlights:

  • Retail: Retail employment shrank by 6,100 jobs in February, though food services & drinking places were up by 1,600, showing continued strength in “experience” retail.
  • Office: Professional & business services and the financial activities sectors added a combined 48,000 jobs in February, bringing the monthly average since December to 36,700.
  • Health Care: Growth in this sector remains encouraging, with 20,800 jobs created in February lifting the monthly average to 36,500 since December.
  • Construction: Potentially due to seasonal factors, 31,000 jobs were lost in February, bringing average monthly job creation down to 12,700 for the past three months.
  • Industrial: Warehousing & storage jobs increased by 3,900 in February for a monthly average of 3,700 over the past three months. Manufacturing added 4,000 jobs, bringing the monthly average to 15,000 since December.
  • Multifamily: Continued job growth and strong wage gains should support household formation and overall rental demand.
  • Hotels: Strong wage gains and continued growth in financial and professional & business services jobs should support demand for hotels from both leisure and business travelers.

Some seasonal factors influenced February’s job numbers, particularly in construction, which lost 31,000 jobs due to very cold weather across most of the country. The return to the employment ranks of furloughed federal workers due to January’s partial government shutdown contributed to the lower unemployment rate in February. Both the headline unemployment rate and the U-6—the unemployment rate that includes discouraged workers who have quit looking for jobs and part-time workers seeking full-time employment—saw notable declines.

Overall, the February job report, though sluggish, comports with CBRE’s view that employment growth will slow in the first half of 2019. Still, there were some silver linings in wage growth and office-using jobs. Importantly for commercial real estate, this report does not merit a change to the outlook for Fed policy, though wage inflation at its highest levels in 10 years will give some Fed hawks cause for modest additional concern.

CBRE expects that moderate job growth will continue in the coming months and overall economic conditions should remain supportive of property market fundamentals.

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