Fundamentally Speaking: September Jobs Report Shows Economy Gathering Momentum

In the latest edition of Fundamentally Speaking, Calvin Schnure, NAREIT’s vice president for research and industry information, reviewed the September jobs report and what it says about broader economic trends.

Non-farm payrolls rose by 248,000 in September, according to the Bureau of Labor Statistics. “That’s a solid number just by itself,” Schnure said, adding that prior months were also revised upward. “The weakness in late summer was not quite as pronounced as we thought before.”

Schnure pointed to a shift in the tenor of the data. Whereas early in the recovery the release of strong data would be followed a month or two later with a setback, now the opposite is occurring, he said.

“We’re still seeing some choppiness in the data but it’s flipped. Any time we have a weak month, next month we have stronger numbers, upward revisions. We’re seeing the economy gathering momentum,” Schnure said.

In terms of the broader economic outlook, “it shows that we still have the potential to generate a lot of jobs. That’s good for commercial real estate,” Schnure said.

With respect to interest rates, Schnure forecast that the September jobs report would likely keep the Federal Reserve on track to unwind stimulus measures and begin to raise long-term interest rates sometime next year.

“We’re likely to see moderate interest rate increases during the year. They are not trying to put in a tight monetary policy, they are just trying to get us back to neutral to let the economy continue to grow,” Schnure said.

As that occurs, he added, it should result in rising occupancy, rent growth, and stronger earnings. “Commercial real estate should be able to thrive in the type of interest rate environment that the Fed is going to engineer for us,” he observed.

Meanwhile, Schnure reported that the third quarter overall was “moderately good” for real estate.  While there hasn’t been robust economic growth, and some new supply is coming onboard, there have also been continued gains in absorption. Vacancy declines have stabilized, but solid rent growth is occurring, according to Schnure.

“We’re seeing a good solid set of fundamentals as we go into the fourth quarter,” Schnure said.