Economic and Jobs Outlooks Improve


In October, the U.S. added 171,000 new jobs, many of which were in sectors that drive demand for commercial real estate. In addition, consumer confidence reached a five-year high, leading Cassidy Turleyto call for “measured optimism” in its November 2012 U.S. Employment Tracker report.

Despite looming fiscal policy issues, consumer demand for homes, electronics, furniture, and cars has picked up, according to the report. The increased demand has been pushing up factory orders since August, which could force businesses to use some of their record-high cash balances to bolster their payrolls.

The U.S. economy is snapping out of its summer funk and picking up the pace. The October employment numbers (assuming they hold true after revisions) were yet another sign that, regardless of intensifying politics, the nation’s economy is again growing fast enough to generate a reasonably healthy number of new jobs. The principal threat to the economy remains fiscal policy concerns, but interestingly enough, consumers are spending as if they no longer seem to care. The latest report from the BLS shows that the U.S. economy added 171,000 net new jobs in October. The job creation figures for August and September were revised upwards by a combined total of 84,000. Over the last three months, the U.S. economy has been generating an average of 170,000 new non-farm payroll jobs, a solid improvement from the 67,000 averaged over the summer. The unemployment rate inched up to 7.9% in October, not surprising given the surge in hiring of part-time workers from the previous month. In general, every 150,000 jobs created should be enough to reduce the unemployment rate by around 10 bps in the same month. Also encouraging was the fact that the strongest job gains in October were in sectors that drive demand for commercial real estate. Office-using employment rose by 56,000 jobs during October, the manufacturing sector added 13,000 jobs, the retail sector added 36,400 jobs, and the construction sector added 17,000 jobs.

In addition to the jobs report, other recent economic data has clearly turned decidedly more upbeat. Of particular note is the rise in consumer confi dence. In fact, the U.S. consumer doesn’t seem to be terribly concerned about the election or the fi scal cliff; the Conference Board’s consumer confi dence index increased to a reading of 72.2 in October which is nearly a five year high. This renewed vigor has translated into much stronger spending patterns. Over the last three months, growth in retail sales is on par with the strong rates in the first three months of the year, and this time we can’t attribute the better numbers to unseasonably warm weather. Demand for cars, homes, electronics, furniture, clothing – it’s all generally trending upward as we enter the holiday season. The same uptrend is evident in the manufacturing sector. New factory orders have been rising steadily since August. Given the pick-up in demand, it will become increasingly difficult for businesses, which are already lean, not to add to payrolls to keep pace. They certainly have plenty of cash to make stronger investments in personnel. Cash balances of the Standard and Poor’s 500 are nearing historic highs of $1.5 trillion.

None of the recent upbeat trends should override the signifi cant headwinds still facing the U.S. economy. With the elections right around the corner, U.S. fiscal policy has become the biggest wild card. Numerous decisions regarding the federal deficit, the cliff, the debt ceiling, taxes, and a number of other issues could send the U.S. economy off in wildly different directions. Other threats include a potentially hard landing in China, a euro-crisis that could flare up at any moment (Greece is once again fighting for another bailout and Spain is failing to meet its budget deficit targets) and an Iranian-driven oil shock. Clearly, there is still a great deal more to do. There are still 5 million more unemployed people today than prior to the recession, but the latest trends are important steps in the right direction. Overall, the outlook gets a slight nudge towards measured optimism.

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