"Stand and Deliver"

 

Economists have been saying for several months that the labor market is due to break out of its slow-growth trajectory, and for several months they had been wrong as the monthly employment reports from the Labor Department fell short of expectations. Other indicators pointed to stronger growth, which gave the optimists – including the stock market – an excuse to shrug off the disappointing employment data. But lurking in the shadows was a fear that job growth could stay weak because regulations and taxes discouraged employers from hiring at the same time that the recession had taught them how to keep profits high with smaller headcounts.

Finally we got a report that lived up to expectations. The Labor Department announced this morning that employers added 192,000 net new payroll jobs in February comprised of 222,000 private sector jobs and a loss of 30,000 state and local government jobs. This was the strongest report since May 2010 when temporary hiring for the 2010 Census inflated the number. Revisions to the December and January totals added another 58,000. The gains were widespread last month including 47,000 in professional and business services (of which 15,500 were temp jobs), 40,000 in education and health services, 33,000 in manufacturing, 33,000 in construction (could be payback for January’s weather-related losses), 22,000 in transportation and warehousing and 21,000 in leisure and hospitality. Besides government, the only other major sector losing jobs was retail trade, down 8,100.

The household survey reported slightly better conditions in February. The unemployment rate moved lower for a third consecutive month to 8.9 percent, its lowest level since April 2009. The civilian labor force expanded by a modest 60,000 as more people looked for work, and the number of people reporting they had worked during the survey week increased by 250,000.

The labor market holds important clues for the performance of the office leasing market. If the economy generates an average of 200,000 net new jobs per month in 2011 compared with the 125,000 we used in our forecast model last November, it would knock an extra 50 basis points off the U.S. vacancy rate by year-end, i.e. 16.5 percent versus our forecast of 17.0 percent. Stronger job growth also will benefit shopping centers and apartment properties.