Fundamentally Speaking: Jobs Report Doesn’t Sour Bigger Picture

In the latest edition of Fundamentally Speaking, Calvin Schnure, NAREIT’s senior vice president for research and economic analysis, explained that the commercial real estate sector continues to hold firm despite weakness in the September jobs report.

The Department of Labor reported that nonfarm payroll employment increased by 142,000 in September. Schnure noted that consensus estimates had projected an increase of about 200,000 jobs. In addition, payrolls for July and August were revised downward, while September posted a downward move in average hourly earnings.

“All in all, this is a very disappointing report,” Schnure said, and “a warning sign about potential weakness in the economy.”

Schnure noted that problems in the economies of China and Europe are impacting the United States in the form of depressed exports. However, Schnure stressed that despite the weak jobs report, there are other signs showing the economy has a fair amount of strength. He pointed to the fact that jobless claims are still very low.

Specifically, firms are not laying off workers, Schnure said. “That’s a fairly reliable indicator of trends going forward,” he noted.

Consumer sentiment is also very strong, he pointed out, with auto sales last month particularly robust.

Schnure noted that the private domestic economy has been growing at a rate of 3.25 percent to 3.5 percent during the past year.

“That’s important for real estate because it’s the domestic part that matters,” Schnure said.

“Overall, the U.S. economy is still very resilient. I don’t think this is indicating a major slowdown that’s going to trouble the real estate sector,” he added.

As for the timing of an interest rate hike, Schnure said the jobs report takes pressure off of the Federal Reserve for a near-term move. “They are not going to be as convinced that the labor market needs them to move right now,” he said.

While a rate move has been delayed for the time being, REITs and commercial real estate are well-positioned to withstand rising rates when they do occur, Schnure said. He pointed to solid earnings, rising occupancy and rent growth as indicators of the sector’s underlying resilience.