RESEARCH REPORT - WEEKLY ECONOMIC UPDATE
The Economy Slows,
Fed Back on Hold for October
October 6, 2015
●● Although job growth disappointed for the
second consecutive month, the impact on
commercial real estate is likely to be minor.
Office-using employment growth remains
healthy as does consumer spending and
those are the main drivers of demand for
commercial real estate.
THE PAST COUPLE OF MONTHS WERE
MIXED FOR THE ECONOMY
●● The economy appears to have slowed in the
third quarter, generating the fewest jobs since
the second quarter of 2012.
●● In addition, wage growth remains sluggish.
Average hourly earnings fell from $25.10 to
$25.09 for the month and were up 2.2% from
a year ago. The long awaited acceleration of
wage growth still has not arrived.
●● The slowdown means it is likely the Federal
Reserve will not raise interest rates this
month, and the much anticipated lift off of
interest rates will take place in December at
the earliest.
●● On the plus side, officeusing employment
increased by 43,000
jobs marking the 21st
consecutive month of
gains in the main driver
of office demand.
Nonfarm payroll employment increased a modest
142,000 jobs in September and the growth in both
July and August was revised down. As a result,
employment growth in the third quarter averaged
only 167,000 jobs per month, the slowest quarter
since the second quarter of 2012. The slowdown was
concentrated in the goods-producing sector of the
economy, particularly manufacturing (-17,000 jobs in
the last two months) and the mining sector (-21,000
in August and September combined). Services
employment growth was moderate, with the private
sector adding 131,000 jobs in September. Importantly,
43,000 of these jobs were in the key office-using
sectors: financial (no change), professional and
business services (+31,000) and information
technology (+12,000). Over the last 12 months the
economy has added a healthy 807,000 office-using
jobs.
RESEARCH REPORT - WEEKLY ECONOMIC UPDATE
The Economy Slows,
Fed Back on Hold for October
October 6, 2015
Compared to a year ago employment is up
2.75 million jobs - very healthy growth and
well above the long term trend of about 2.0
million per year.
LABOR FORCE PARTICIPATION RATE
(Persons working or looking for work as a percent of
working-age population)
67.0%
66.0%
65.0%
64.0%
63.0%
62.0%
61.0%
The unemployment rate was unchanged
at 5.1%; however, part of the reason for the
stability was a reduction in the number of
people in the labor force. The labor force
participation rate, the percentage of the
population that is in the labor force (either
employed, or unemployed) fell to 62.4%,
the lowest level since September 1977.
The unusual, and steep drop in the labor
force participation rate has been one of
the mysteries of the current expansion.
Normally the participation rate is stable or
rising during periods of economic growth,
the steep decline seen over the past five
years is unprecedented. This decline may
represent people who have just dropped
out of the workforce or, perhaps, people
who have retired early. If the labor force
participation rate today was at the same
share of the population as in January
2010, there would be approximately 6.1
million more people either employed or
unemployed.
The pace of wage growth in the current
expansion has been a disappointment. In
2014 average hourly earnings increased
by 1.8%. This year the growth has been
somewhat stronger. In September average
hourly earnings were flat compared to
August, but up 2.2% from a year ago.
This is an improvement, especially in an
environment of little or no inflation, but still
well below the pre-recession rate of 3.5%.
Part of this slow growth can be explained
by the mix of jobs. If more people are
employed in lower paying industries it will
Copyright © 2015 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered
to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.
cushmanwakefield.com | 2
RESEARCH REPORT - WEEKLY ECONOMIC UPDATE
The Economy Slows,
Fed Back on Hold for October
October 6, 2015
It’s important to put the job slowdown of the third quarter in
perspective. It is not as weak as the headline numbers suggest,
especially for the commercial real estate sector.
●● Employment in September was a solid 2.75 million jobs higher
than a year ago. During every economic expansion since 1960
the average 12-month increase in payroll employment has
been 2.0 million. So the economy continues to create jobs at a
well above average pace.
●● Office-using employment continues to grow strongly. This
indicates that demand for office space in the U.S. is rising at a
healthy clip.
●● September is a notoriously volatile month for job growth.
Timing of school openings and holidays can have a big impact
on seasonal adjustment.
So what will the Federal Reserve do? After holding off on raising
interest rates in Mid-September, the weaker employment data
suggest that there will be no increase in October. The final
meeting of the Federal Open Market Committee (FOMC) will take
place in mid-December. The possibility of an increase is still on the
table in December, as there will be two more employment reports
before that meeting. In addition, other data on wages and inflation
will, of course, be taken into account by the FOMC, so it is too
early to rule out a December tightening.
The economic factors impacting
commercial real estate remain positive.
Not only is office-using employment rising
at a strong pace, but consumer spending
remains healthy. The latest evidence was
the September motor vehicle sales which
topped an annual rate of 18 million units for
the first time since 2005. When consumers
are spending, demand for retail space
increases and there is greater movement of
goods around the nation boosting demand
for industrial properties. Expect these
trends to continue in the fourth quarter.
Overall, the past couple of months were
mixed for the economy. Job growth was
sluggish, and manufacturing activity
slowed, but consumers continue to spend
and demand for commercial real estate
remains healthy. The economy is not hitting
on all cylinders, but it continues to expand
at a solid pace.
“
“
tend to hold down the pace of earnings growth. Private sector
wage growth as reported in the Employment Cost Index
has averaged 2.3% per year over the previous three quarters
somewhat faster than the jobs report indicates, but still well below
the 3.5% pre-recession pace. The next Employment Cost Index
report will be released on October 30th and will bear watching.
Not only is office-using
employment rising
at a strong pace, but
consumer spending
remains healthy.
About Cushman & Wakefield
Cushman & Wakefield is a leading global real estate services firm that helps clients transform the
way people work, shop and live. The firm’s 43,000 employees in more than 60 countries provide
deep local and global insights that create significant value for occupiers and investors around
the world. Cushman & Wakefield is among the largest commercial real estate services firms with
revenues of $5 billion across core services of agency leasing, asset services, capital markets, facility
services (branded C&W Services), global occupier services, investment & asset management
(branded DTZ Investors), project & development services, tenant representation and valuation &
advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.
Ken McCarthy
Senior Managing Director,
Regional Research Director –
Tri-State New York, Economic
Analysis and Forecasting
1290 Avenue of the Americas
New York, NY 10104
+1 (212) 698 2502
ken.mccarthy@cushwake.com
cushmanwakefield.com | 3