Good job gains in May, with payroll jobs rising by 217,000. Over the past 12-months, 2.4 million jobs have been added. More jobs translate into more potential homebuyers and more occupancy demand for commercial real estate buildings.
Due to demands for rental housing, jobs in rental and leasing have increased by 45,200 over the past year. The Professional Business Service sector (accounting, legal, and other office jobs) has made huge strides, with 635,000 net new jobs (3.4 percent growth) in the past year. However, due to shrinking office space per worker and greater flexible work scheduling, the demand for office space has not commensurately risen.
An anomaly can be seen in construction jobs. No jobs were added in the construction of buildings, even though general contractor employment rose by 2,800. From the low point four years ago, jobs related to construction have risen by only 10 percent. By contrast, construction spending in dollar terms has risen by 26 percent. Some of this discrepancy is due to higher construction costs, but it appears that robust construction hirings will take place in the upcoming months.
The average hourly wage was $24.38 in May ($20.54 for those in non-supervisory positions). Because the wage gain is only 2 percent over the past year, there is only a slight inflationary pressure coming from labor costs.
Despite the job gains, the key employment-to-population ratio remains stuck at a low point of 58.9 percent. The reason is that an additional 2.3 million people are no longer in the labor force compared to just one year ago. Before the recession hit, 63 percent of the adult population was working. In other words, job creation needs to significantly pick up in order to raise the employment ratio.
One sector that has been significantly lagging behind in the current economic recovery is small business start-ups. There are piles of cash at corporations. Business borrowing costs are very low. Business spending has historically been well above corporate profits as small businesses borrow money to invest. Yet, this is not the case today. The “animal spirit” of free enterprise is clearly lacking in America in recent years.
During the Middle Ages, Vikings were fearsome in their predatory enterprise. Just a view of their horned helmets could freeze the heart of people. Among their activities, they ransacked the English coasts, plundered Ireland, and forced Kiev to pay huge ransoms. Though such activities are a definite no-no in today’s civilized world, Vikings do provide a lesson of never accepting the feudalist idea of being stuck in one economic position for the rest of one’s life. Be adventurous. Try out new things. Fail, get up, and try again. Small businesses today can be said to have such an enterprising (but not predatory) spirit. Unfortunately, far less small businesses are testing out their ideas.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.