• Jason Tuvia

Stimulus May End, Says M&M Report


Hessam Nadji of Marcus & Millichap says job growth may end the Fed economic stimulus.

LOS ANGELES-A Marcus & Millichap Research Services report says the pace of job creation raises the probability that the Federal Reserve will ease stimulus later this year. M&M Research Services managing director Hessam Nadji cited stronger than expected private-sector job growth last month, as well as upward revisions in May and April, in his analysis.

Although acknowledging that the unemployment rate did not fall, he noted that the rates on 10-year U.S. Treasury bonds jumped dramatically after the June jobs report release, and overall rose roughly 100 basis points in the second quarter. Most of the gain occurred in the final six weeks of the period after the Fed inferred that it could start curtailing bond purchases later this year.

The prospect of higher interest rates will continue to be the most significant headwind facing the economy over the remainder of the year, which could dampen the housing recovery and consumer spending, the report says. The rise in interest rates is not yet appearing in data on home sales and home building, both of which gained momentum during the first half of this year.

Job news cited in the M&M report was generally upbeat on the first half of the year, citing positive news for several sectors of commercial real estate interests. But the spectre of interest rate raises, like with housing, could spell trouble in the coming months. Nadji was not available for additional comment.

M&M says construction employment has recovered solidly due to the new vigor in the housing sector, with 13,000 positions added in June and 101,000 jobs created in the first half of the year. More than 130,000 workers were hired in the retail sector in the first half of the year, as store visits increased and new stores opened. National retail vacancy sat in the mid-10% range in the second quarter and is down about 60 basis points over the past year behind net absorption of more than 1.5 million square feet.

Higher interest rates, though, could present a headwind in the months ahead. M&M says that, until recently, low interest rates have enabled many homeowners to refinance and free-up cash for spending. But refinancing fell notably in the latter part of the second quarter as mortgage rates escalated, and it remains unclear whether this trend will weigh on consumer spending in coming months.

Full-time office-using payrolls continue to grow, driven by gains in professional and business services and financial activities. With the addition of 55,500 full-time office-using jobs in June, approximately 580,000 positions have been added over the past year. National office vacancy was in the low-16% range at midyear and will edge down to 15.9% by year end as staff additions necessitate larger layouts. M&M predicts a more substantial decline will occur in 2014, as additional jobs are created and while construction of spec space remains restrained.


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