Tepid Private Sector Job Growth Falls Short of Government Employment Cuts.

Marcus & Millichap - Research Brief
 
EMPLOYMENT
 
Tepid Private Sector Job Growth  Falls Short of Government Employment Cuts

  • The scheduled elimination of temporary census positions in July led to weakened employment figures for the month while private employer hiring edged upward only moderately to offset a portion of the losses. Contributing 71,000 positions, private employers exceeded their June tally, but remain below the levels required to keep pace with normal labor force expansion. Manufacturing and education/health services generated 60 percent of the jobs created this year, but growth has spread to seven of the 10 employment sectors, signaling that the foundation of the choppy recovery has broadened. With the recovery now incorporating a significant cross-section of the economy, a double-dip recession still appears unlikely although the sluggish pace of expansion will persist for the next several months.

  • Facing substantial budget shortfalls, state and local governments eliminated 48,000 positions in July. These losses, combined with an 11,000 worker reduction at the federal level and the release of 143,000 temporary census positions, generated a total downsizing of 202,000 government positions in July. These cuts overwhelmed private sector additions to generate a net loss of 131,000 workers in July. With another 180,000 temporary census positions targeted for elimination over the next two months, employment trends should soon stabilize, with private sector hiring coming close to balancing government reductions.

  • Though corporate caution has atrophied private sector job growth, manufacturing employers generated gains for the seventh straight month, adding 36,000 positions in July. Additionally, an 8 percent year-to-date rise in imports spurred the creation of 25,000 trade, transportation and utilities positions. However, while temporary positions increased in each of the last nine months and have contributed over one-quarter of the total job additions since the start of the recovery, they finally lost momentum in July with the reduction of 5,600 jobs. This trend reversal illustrates renewed corporate concern regarding the pace of the expansion. Fundamentally both the economy and corporate balance sheets are in better shape than reflected in the current sentiment.

  • Apartment demand has moved well beyond employment gains with the absorption of nearly 46,000 units in the second quarter, the strongest gains since the fourth quarter of 2000. This aggressive lease-up of apartments resulted in a 20 basis point vacancy drop to 7.8 percent, a trend that should continue through the remainder of the year as pent-up demand finally releases. Barring a systemic shock that halts job creation, an additional 65,000 units will be absorbed through the second half of the year, pressing vacancies to 7.4 percent by year-end.

  • Although consumers remain cautious, as evidenced by the elevated personal savings rate of 6.2 percent in the second quarter, private-sector job additions have helped stabilize retail centers. Following five years of slow, steady increases, vacancies flattened at 10 percent in the second quarter on positive net absorption of 6.3 million square feet. Nevertheless, asking and effective rents continued to decline, falling by 0.3 percent and 0.6 percent, respectively.

 

The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.

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