Research Brief: Employment June 2022

Employment Gains Echo Economic Stamina As Higher Interest Rates Add Hurdles

June, 2022

Excerpt of Full Report:

Job growth overcomes inflation concerns. Total employment increased by 390,000 personnel in May, consistent with April hiring, while the unemployment rate held at a historically low 3.6 percent for a third consecutive month. Continued job creation is an important baluster amid economic turbulence stemming from elevated inflation and rising interest rates. June will likely bring the year’s third rate hike from the Federal Reserve, as well as marking the start of quantitative tightening. Higher interest rates are beginning to temper sales in the housing market, while price increases are weighing on consumer sentiment and personal savings. Retail spending has nevertheless continued to advance in real terms in recent months, bolstered by climbing wages, reflecting an overall positive economic trajectory.

Structural forces underscore space demand. Multiple factors continue to enhance the needs of renters and tenants for a range of commercial spaces. The ongoing housing shortage, underlined by millennial family formation, drives demand for rentals, while the aging of the baby boomer generation emphasizes the necessity for medical offices and seniors housing. The removal of most mask mandates and other health restrictions, particularly in the Northeast and along the West Coast, is supporting foot traffic at retailers, hotels and offices. Across most property types, construction is also falling short of demand, hindered by shortages of materials and labor, aiding vacancies and rents

Investment plans become more dynamic amid tighter margins. Strong property fundamentals are continuing to draw investor interest, keeping cap rates at historically low levels across most property types. As such, higher interest rates are pinching yield spreads, emphasizing the importance of value creation on behalf of buyers. Some investors are focusing more on properties where rents can be frequently adjusted, as is the case with multifamily, self-storage and lodging. At the same time, retail and office spaces are poised for a potential absorption lift from tenants later in the year, which could present some upside opportunity for buyers

Developing Trends

Core working ages participating at nearly pre-pandemic levels. The ongoing recovery in labor participation continues to be focused among the prime working age groups. The labor participation rate for those between the ages of 24 and 54 has closed in on the pre-pandemic high more rapidly than for the older cohorts. At 82.6 percent in May, the measure is only 40 basis points below the February 2020 rate. The shortfall for those over the age of 54 is more than three times as wide, with many individuals having retired early during the health crisis. Backfilling those workers with recent college graduates and young adults will take time, weighing on overall labor participation in the short term.

Wages advance at a tempering rate, aiding inflation outlook. Average hourly earnings continued to climb in May, up 5.2 percent year-over-year. The pace of wage increases is nevertheless decelerating, down from a yearly clip of 5.6 percent in March, lessening overall inflationary pressure. A slowdown in wage growth enhances the prospects that the trajectory of price increases will begin to decline.

Denver Office:

Adam Lewis Vice President, Regional Manager

Tel: (303) 328-2000 | adam.lewis@marcusmillichap.com

Prepared and Edited By:

Benjamin Kunde Research Analyst | Research Services

For Information on national multifamily trends, contact:

John Chang Senior Vice President, National Director | Research Services

Tel: (602) 707-9700 | john.chang@marcusmillichap.com

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions sold for $1 million or greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc. © Marcus & Millichap 2021 | www.MarcusMillichap.com