Labor Market Tightens Further, Fostering Upward Pressure on Wages, Interest Rates
In rare feat, unemployment drops below 4 percent. Employers added 199,000 personnel to payrolls in December, below the 2021 monthly average of 537,000 jobs, while the unemployment rate fell 30 basis points to 3.9 percent. Of the past 22 years, fewer than three have been spent with sub-4 percent unemployment. The tight labor market is also reflected in the surplus of job openings, last counted at 10.6 million, compared to 6.3 million people activity seeking work. Closing that gap will take time and may impede the recovery of certain commercial property types, as many retailers, hoteliers and medical practices look for staff. At the same time, more people earning incomes fosters household formation, benefiting apartment demand.
Recent hiring indicative of strong industrial space needs. The transportation and warehousing sector grew by 19,000 personnel last month, raising the total headcount to 218,000 above the February 2020 level. Robust hiring in these fields reveals just how quickly consumer demand has recovered following the brief pandemic-induced economic downturn. Demand for distribution and logistics services as well as warehousing space has driven sharp vacancy reductions at industrial properties, including in smaller cities. Vacancy in tertiary markets fell 90 basis points between the end of 2019 and September 2021, compared to a 70-basis-point drop in primary metros. Strong residential growth in many of these smaller markets has largely outstripped development.
Office tenants continue to hire staff; in-person return delayed. Ongoing job growth in professional and business services has lifted the traditionally office-using sector close to its pre-pandemic headcount. This recovery has not yet translated to office properties, however, as many positions remain remote. Multiple companies, including those that had previously brought staff back in, recently asked employees to stay home amid the rapidly spreading omicron variant of COVID-19. Roughly 168 million square feet of office space has been vacated since the start of the pandemic, although absorption turned net positive in the third quarter of 2021.
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