July 6, 2018

  • Headline: U.S. employment rose by 213,000 jobs in June, beating consensus expectations of 190,000 jobs. Employment has grown by 2.4 million over the past 12 months. While this continues the longest streak of job growth on record, the unemployment rate rose slightly to 4%, as improved job prospects draw more people back into the workforce. The labor force participation rate rose by 20 bps to 62.9% and the number of jobless increased by almost 500,000 people to 6.6 million. Average hourly earnings rose by 5 cents month-over-month, and wages were up 2.7% year-over-year in June. Revisions to April and May jobs numbers resulted in a net gain of 37,000 jobs.
  • Executive Summary: June’s jobs report signals that the U.S. economy remains on solid footing, despite geopolitical and trade tensions. Other recent signs of strength include solid personal income and spending data. Jobs gains in retail, construction and manufacturing suggest that the economy continues to expand, showing late-cycle strength. While wage growth also beat expectations in June, it remains well below its historic trend. Average hourly earnings were growing roughly 4% year-over-year in 2000, when unemployment was as low as it is today. While financial markets have demonstrated some volatility over trade tensions, the 10-year U.S. Treasury yield is largely unchanged since February, and is nearly 25 bps below its May peak. The 10-year break-even inflation rate—a measure of markets’ expectations of inflation 10 years from now—stands at about 2.1%. The cumulative balance sheets of monetary authorities stand at nearly $12 trillion globally, reflecting the extraordinary policy measures taken after the global financial crisis.
  • Wage Inflation: June’s wage growth of 2.7% year-over-year is not historically commensurate with the current level of unemployment. The popular economic consensus remains that with labor markets continuing to tighten, wage growth should accelerate. In what may be one of the earliest signs of an acceleration in wages, the Federal Reserve Bank of Atlanta recently reported that workers who switched jobs received annual pay increases averaging 4%, compared with average gains of 2.9% for those who did not change jobs. Given this report, the Fed remains on track to normalize monetary policy through continued policy rate increases and a reduction in its balance sheet, which stands at nearly $4.5 trillion.
  • Job Growth Outlook: While recent tax reform is expected to increase the U.S. budget deficit, potentially placing additional upward pressure on interest rates, it likely will continue to buoy the U.S. job market, potentially extending the current cycle. Additional gains will likely be modest, given that the economy is operating at near-full capacity. While financial market volatility has risen slightly, escalating trade disputes between the U.S., Europe, Canada, Mexico and China have the potential to disrupt employment and supply chains.
  • CRE Sector Employment:
    • Construction: The construction sector added 13,000 jobs in June, down from a 25,000 gain in May. It has increased by 282,000 jobs year-over-year.
    • Industrial: Manufacturing continued to expand, adding 36,000 jobs in June, well up from the addition of 18,000 jobs in May. It has increased by 285,000 jobs over the past year.
    • Retail: Retail trade lost 22,000 jobs in June, largely offsetting the increases in May, but food services & drinking places were up 16,000 in June.
    • Office: Professional & business services continued trending up in June, adding 50,000 jobs. The sector has added 521,000 jobs year-over-year. Employment in health care rose by 25,000 in June and has increased by 309,000 over the year. Hospitals added 11,000 jobs over the month, and employment in ambulatory health-care services continued to trend up.