Investors will have a lot to keep an eye on in 2020, from a slowing global economy to geopolitical developments. But there’s one area in the U.S. that could be more important than the rest: jobs.
The employment rate is always closely watched. But in 2020, it’ll come into greater focus because, as companies remain cautious about investment, consumers will drive growth.
While labor market remains strong, attention has turned business spending, which in the U.S. fell slightly in the third quarter, according to November data from the U.S. Bureau of Economic Analysis. It was the second consecutive quarter of declines, the second quarter’s being more significant at 6.3 percent.
Business frugality alone does not have a huge impact on the overall economy or commercial real estate market, says Ryan Severino, Chief Economist, JLL. But when businesses start to pull back on jobs, then it ultimately impacts how much money consumers pump into the economy.
“It all hinges on hiring, so if you pay close attention to the employment rate, you can reasonably get a sense of when there is an uptick or a dip,” he says, adding that it is easy to track in real time, given that unemployment data is released weekly.
Steady as it goes
As 2019 comes to a close, hiring is steady, with no major declines. Employment in November unexpectedly rebounded, with 266,000 net new jobs. The employment rate declined slightly to 3.5 percent.
“Weekly initial jobless claims will likely stay low, too, hovering near recent levels, indicating little sign of trouble in the labor market,” Severino says.
Consumer spending is also strong. In fact, consumers spent US$7.4 billion online on Black Friday, making it the biggest in history, according to Adobe Analytics. And the number of consumers who made purchases rose roughly 14 percent from last year, according to the National Retail Federation.
From this steady close of the year, all indicators related to hiring remain the ones to watch, Severino says. The number of unfilled jobs, for example, came down from all-time high of 7.4 million in March, which was the peak, to 7 million in September.
“It’s important to watch whether this number continues to trend down,” he says.
Implications for commercial real estate
Virtually every aspect of commercial real estate is impacted by these labor market indicators, Severino says.
Retail properties, for example, see a boost when hiring increases, and are negatively impacted when consumers have less money to spend. Because vacation is discretionary spending, consumers spend more on hotels when labor numbers are positive.
Industrial properties are impacted, too, because the amount consumers spend on e-commerce products determines how much space is needed in warehouses. Job growth or shrinkage also determines how many employees need apartments, impacting the multifamily housing market.
“No part of CRE is not affected by labor, and right now, it is performing well,” Severino says. “CRE continues to provide attractive relative yield versus other major asset classes and excellent diversification benefits. More than 10 years into an economic expansion, CRE investors continue to reap rewards for the efforts.”