December 2, 2016

  • ​​​​Executive Summary: U.S. employers added 178,000 jobs in November, slightly beating expectations. Wage growth fell for the first time in nearly a year.
  • Fed Watch: The probability of a Fed rate increase later this month is almost certain. Odds of additional rate increases next year are high due to the post-election boost in U.S. growth expectations.
  • Job Growth Outlook: Monthly job additions have averaged 180,000 this year, compared with 229,000 in 2015. The pre-election forecast was for slower job growth in 2017, and this likely won’t change regardless of economic policy for at least the first half of 2017. Potential economic stimulus by the new administration most likely will not have a direct impact on job growth until 2018, but the positive-sentiment impact on 2017 can’t be dismissed.
  • Wage Inflation Pause: While wages had been steadily ticking up almost every month this year, they fell in November to 2.5% annualized from 2.8% last month, giving the Fed a bit more breathing room as inflation isn’t going to manifest itself immediately. The fall in wages is more than likely due to a data blip caused by the timing of November payroll report.   
  • Labor Force Participation: The labor force participation rate has barely moved since August 2013, hovering between 62.4% and 63.0%. November’s rate was 62.7%, low by any historic measure, as about 226,000 people dropped out of the labor force. Faced with a currently tight labor market, the incoming Trump administration has signaled its intention to incentivize some workers to reenter the labor force. But given the aging population, there is a demographic headwind that could make this difficult.
  • GDP Revised Up: Third-quarter GDP growth was revised up to 3.2% annualized (from 2.9%) earlier this week, due largely to improved consumer spending.  Continued wage growth should boost this further in the next few quarters.

CRE Takeaways/Industry Highlights:
    • The healthcare industry remains one of the strongest single drivers of jobs. No matter what happens to the Affordable Care Act, the need for increased healthcare services will not diminish, and we expect this to be a major jobs driver indefinitely.
    • Business & professional services employment increased by 63,000 jobs in November and is up by 571,000 jobs for the year. This benefits the office market, since most of these jobs are office-based.
    • Single-family home construction—perhaps the most significant industry for employment and economic growth, and that is still lagging since the 2008 recession—is showing modest improvement.  Modest softening in the multifamily sector is more related to supply issues, rather than strengthening of the single-family sector.

  • Interest Rates: The 50-basis-point rise in the 10-year Treasury has caused immediate concern in CRE capital markets, especially on the debt side. There has been some buyer re-trade activity in a minority of transactions.  Our position is that this first 50-basis-point rise was largely baked into pricing. We are closely tracking transaction activity and will be reporting back in mid-January on specific changes to the debt and investment sales capital markets during the month of December, which is typically the busiest month of the year for capital markets.   

Spencer G. Levy | Head of Research
CBRE | Americas Research 
T 617 912 5236

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