June 2, 2017
  • Headline: U.S. employers added 138,000 jobs in May, well below the consensus forecast of 185,000 jobs. In addition, March and April were revised down 66,000 jobs from previous reports. The unemployment rate fell to 4.3%—its lowest level since 2001—but the labor force participation rate dropped to 62.7%.
  • Executive Summary: The recent drumbeat of negative headlines could start to impact business and consumer confidence. The rolling three-month average has fallen from 174,000 new jobs last month to 121,000 this month. Over the past 12 months, the average was 189,000.   
  • Fed Watch: Recent statements from Federal Reserve board members and bank presidents indicate another rate increase is likely in June. This report may give the Fed pause, but is unlikely to stop a rate increase. The June statement is expected to show more details regarding the Fed’s plan to shrink its balance sheet over time.
  • Labor Force Participation: The labor force participation rate dropped again to 62.7% after hitting a recent high of 63.0% in March. The monthly number can be volatile, but has remained between 62.4% and 63.0% since August 2013. This stability is encouraging given that the aging workforce is a headwind to increased participation, but without a significant increase in labor availability the pace of hiring will be limited. 
  • Wage Inflation: Wages grew by 4 cents last month and the annual rate of growth held steady at 2.5%. Wage growth was expected to accelerate given the tight labor market, but growth has been slow to pick up. Even though the number of job openings remains high, and many employers have difficulty finding qualified workers, this hasn’t led to strong growth in wages yet.
  • Job Growth Outlook: The economy added 2.2 million jobs over the past 12 months, which is similar to the pace of 2016, but down from 2012-2014’s pace. The pace of growth is likely to decelerate even further since almost 300,000 jobs were added both in June and July 2016. We expect job growth will slow from its previous 12-month average to 150,000 per month for the remainder of the year due to tight labor market conditions.
  • GDP Growth:  First-quarter GDP growth was revised upward to 1.2% from 0.7% in last week’s release. The most recent Atlanta Fed forecast is for 3.8% growth in the second quarter. The New York Fed forecast is for 2.2% growth and consensus is just below 3% for the second quarter. April’s personal consumption and expenditure data was strong, with monthly growth of 0.4%. A strong GDP number in the second quarter could offset some of the negative headlines from the jobs report.
  • CRE Implications:
      • Retail: Retailers cut another 6,000 jobs in May and the initial estimate of April’s gains was reversed. Retail employment is up 36,000 from a year ago, but the sector has lost jobs for three straight months. Food & beverage and general merchandise stores both lost more than 5,000 jobs in May and the trend shows no signs of abating. Department stores have shed more than 100,000 jobs since October 2016. This trend is likely to continue.
      • Industrial: Transportation and warehousing employment turned positive in May after falling slightly in April. Warehousing employment rose slightly and is up by 36,000 jobs in the past year. This is a relatively small employment sector, so the absolute job numbers don’t reflect the huge absorption numbers. As automation continues to improve within the warehouse sector, employment may flatten. Given the tight labor market, this may be necessary for absorption to remain positive.
      • Office: Professional & business services continues to trend upward, adding 38,000 jobs in May and an average of 46,000 jobs per month so far this year. Financial services added another 11,000 jobs in May and 14,000 jobs per month in the past year. As the pace of hiring slows, a deceleration in office-using employment is likely and this will impact office demand. Healthcare continues to add jobs at a robust pace. Some of these jobs are office-, lab- or life science building-based, which bodes well for absorption in those locations.
      • Construction: Construction payrolls grew by 11,000 in May as the housing market continued to expand. Some specialty construction jobs continue to face significant labor shortages, so a continued decline in job growth for this sector would not be surprising. Rising wages may draw more workers in, but acquiring the necessary skills for certain trades takes time and will not be relieved in the short-run.
  • Wild Cards:
      • Oil: The price of oil has averaged around $50/bbl this year and currently is just below that price. Oil has been trading between $45 and $55/bbl for the past 18 months and is likely to remain in that range. As the price of oil stabilizes, it will have limited impact on inflation.
  • Autos: Auto sales continue to decelerate, with May’s figure coming in at 16.6 million SAAR, which is down 3% from a year ago though up 1% from last month. The surplus of midsized and compact vehicles on dealer lots remains an issue, despite record-level incentives. With a record level of used vehicles hitting the market, the second half of the year may be soft for automakers. Subprime credit continues to soften and rising interest rates will only make this issue worse. Look for longer plant closures this summer when model years change and for less overtime, which will lower disposable income.
Spencer G. Levy | Head of Research | Senior Economic Advisor
CBRE | Americas Research
T 617 912 5236 

Jeffrey Havsy | Chief Economist | Managing Director 
CBRE | Americas Research | Econometric Advisors
T 617 912 5204