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Jobs Report: December 2012

Contributed by Meagan Boyle, January 24, 2013

December Job Gain Remained Steady Despite “Fiscal Cliff” Debate

On Friday, January 18, 2013, the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) posted its preliminary December employment numbers by metropolitan statistical area (MSA). At the national level, the employment report for December reflected an increase in job gain but no change in the unemployment rate from November 2012. 

Monthly nonfarm payrolls increased by 155,000 jobs in December. The October job numbers were revised downward, from 138,000 to 137,000, but job gain from November was revised upward, from 146,000 to 161,000. These revisions added 14,000 jobs more jobs than originally reported, which should increase optimism about the headline number. Private payrolls rose by 168,000 jobs in December, slightly higher than the average of 158,000 jobs seen from January through November 2012. The recent BLS revisions result in an average job gain of 226,000, 67,000, 168,000 and 151,000 jobs per month during the first, second, third, and fourth quarters of 2012, respectively.

Employment growth by sector during December was led by Health Care (+45,000), Food Services and Drinking Places (+38,000), and Construction (+30,000). Manufacturing Employment increased by 25,000 jobs in December, reflecting 180,000 factory jobs in 2012, with most of the job growth taking place during the first quarter. All other industries showed little change over the month. A link to the December 2012 jobs report in Excel is listed under the News & Updates section to the upper right.

While still healthy, apartment market fundamentals moderated in 2012 compared to 2011. Nationally, annual effective rent growth in 2012 stood at 3.8% compared to 4.2% in 2011. Occupancy inched up a bit from 93.7% in 2011 to 94.3% in 2012. The increase in occupancy in 2012 was primarily due to late recovering markets posting occupancy growth while others held on to their already high occupancy rates.

The top five annual job producers, not seasonally adjusted (NSA), during December 2012 were New York (+92,600), Houston (+84,500), Los Angeles (+69,500), Boston (+53,800), and Phoenix (+51,800). Miami (-3,700), Memphis (-2,600), Albuquerque (-2,300), Augusta
(-2,100), and Richmond, VA (-1,100) lost jobs during December 2012 and rank at the bottom of the list.

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Average Monthly Job Gain in 2012 Was Similar To 2011; Expect 2013 To Be Slightly Better Than 2012.

The December 2012 labor market data was above expectation, as the private sector added 168,000 jobs. For the U.S., annual job growth (NSA) was 1.4% and 1.857 million jobs, or 155,000 jobs per month in December (p) 2012, compared to 1.4% and 1.780 million jobs, or 223,000 jobs per month in December 2011. See Table 1 below for the results for some major markets. The unemployment rate remained unchanged at 7.8% during November and December 2012. October job numbers were revised downward, from 138,000 to 137,000 but job gain from November was revised upward from 146,000 to 161,000. These revisions added 14,000 jobs to the number originally reported.

us-job-gain-growth

During 2012, the U.S. economic recovery remained spotty and grew at a slower pace than during other previous recessions due to the negative impact of the housing and financial sectors. Problems surrounding the labor market got compounded by U.S. fiscal issues and the slow growth in EU countries and China. U.S. businesses remained on the sidelines without clear expectations on taxes and regulations during much of 2012 despite ballooning corporate profits. Furthermore, business and consumer confidence, though improving, remained subdued due to the debt ceiling and fiscal cliff debates in the national media. With 2012 being a presidential election year, businesses held off on making further investments until they could see if a new administration was coming in with policies more favorable to them. Out of about 5.796 million jobs lost from December 2008 through February 2010, the economy has recovered about 4.777 million jobs, including the count of temporary census workers employed in 2010.

Over the prior 12 months ending in December 2012, nonfarm job growth averaged 153,000 jobs per month. The recent BLS revisions result in an average job gain of 226,000, 67,000, 168,000 and 151,000 jobs per month during first, second, third, and fourth quarters of 2012, respectively. Employment growth by sector during December was led by Health Care (+45,000). Over the past year, the Health Care industry was the most stable, producing over 452,000 jobs. Food Services and Drinking Places sectors added 38,000 jobs and Construction added 30,000 jobs. Manufacturing Employment increased by 25,000 jobs in December, reflecting 180,000 factory jobs in 2012, with most of the job growth taking place during the first quarter. All other industries showed little change over the month.

The graph below shows monthly job gains by select major industries. Professional and Business Services led the pack during 2012 with job gain of 472,000, followed by Education and Health Services with 452,000 jobs gained, Trade/Transportation/Utilities with 341,000 jobs gained, and Leisure and Hospitality with 320,000 jobs gained. However, the Government sector was a drag on the employment recovery, which may be not all that bad given the debt and deficit situation. Besides the Government sector, the Information sector lost jobs during 2012.

december-employment-by-industry

Looking forward, Professional and Business services will lead 2013 job growth supported by the technology sector, followed by Education and Health services and Leisure and Hospitality. The Oil and Gas industry will continue to produce jobs and the Manufacturing sector will show a similar growth in 2013 as seen during 2012. For the laggard components of total employment, Axiometrics sees the greatest potential from State and Local Governments to start adding about 175,000 to 200,000 jobs during 2013. As the graph below shows, faced with a constitutional mandate, the state and local governments were forced into austerity mode once the recession hit. The cuts continued through last year, finally putting them in the best financial position since the recession began. The increase in new construction and the recovering single-family market will provide local governments a growing property tax base and thus generate more tax revenues to invest in local services that were cut in the downturn. However, headwinds remain because one third of states’ revenues come from the federal government.

december-state-and-local-employment

The unemployment rate remained unchanged during December 2012 at 7.8%, though this was lower than its average of 8.1% for all of 2012. The labor force participation rate remained unchanged during December 2012 at 63.6% and remains near its historically low level. The number of long-term unemployed (+27 weeks) was 4.8 million, accounting for 39.1% of the unemployed. Also, out of 2.6 million persons who were marginally attached to the labor force in December, 1.1 million were discouraged workers and 1.5 million persons had not searched for work in four weeks preceding the survey because they believe no jobs are available for them or they are attending school or they have family responsibilities. The employment-to-population ratio remained similar to last month at 58.6%.

Forecast of Job Growth

Now that 2012 is behind us, what should we expect for the labor market in 2013? For 2013, job growth is estimated at 1.6% or 2.1 million jobs, slightly better than the job gain seen during 2012. Monthly job gain is expected to average 153,000 jobs during the first half of 2013 but the pace of job gain is forecasted to increase to 202,000 jobs per month during the second half of 2013. What will drive job growth in 2013? The Axiometrics baseline forecast for 2013 is based on: 1. Clearer expectations about business and personal taxes and business regulations; 2. Deployment of investment dollars to the economy that are currently sitting on the sidelines; 3. Strong business profits supported by increasing demand for goods and services; 4. Continued recovery in the single-family market; 5. Increased lending by healthy banks and financial institutions; and 5. Improving consumer sentiment due to stronger household balance sheets. While these factors will create a better environment for job creation, significant economic headwinds resulting from issues surrounding structural changes in employment, the U.S. debt and deficit, political risk, and slower economic growth abroad, primarily in the EU countries, will constrain the U.S. from achieving robust job growth as seen during past recoveries.

On January 1, 2013, Congress broke the stalemate to pass legislation to avert the so-called fiscal cliff. The compromise bill blocked most of the impending tax increases and postponed spending cuts. The bill represented the largest tax increases in the past two decades on upper-income Americans and contained no meaningful spending cuts to tackle the U.S. debt and deficit. The compromise avoids just one part of the fiscal cliff and heads the Congress towards another one on spending cuts and the debt ceiling. The upcoming debate on spending and the debt ceiling will be more vigorous with potentially damaging consequences to the U.S. and world economy. Given the pros and cons for the U.S. economy, Axiometrics’ baseline forecast for annual GDP growth during 2013 is 2.4%, which is similar to the 2012 growth rate.

december-gdp-and-job-growth

The U.S. apartment occupancy rate is forecasted to reach 94.9%, with effective rent growth reaching 3.6% by the end of 2013. The occupancy forecast is 60 basis points above the 2012 rate whereas rent growth is 20 basis points below the 2012 rate.

Table 1. Annual Rates of Job Gain and Growth by Market (MSA)
Not Seasonally Adjustedtable-1Sources: U.S. Census Bureau and Bureau of Labor Statistics

The top five annual job producers, not seasonally adjusted (NSA), during December 2012 were New York (+92,600), Houston (+84,500), Los Angeles (+69,500), Boston (+53,800), and Phoenix (+51,800). Miami (-3,700), Memphis (-2,600), Albuquerque (-2,300), Augusta
(-2,100), and Richmond, VA (-1,100) lost jobs during December 2012 and rank at the bottom of the list.

Forecast of Rental Revenue

For those markets with sliding job growth, current apartment market fundamentals look stable due to the slightly lagged effect of job gains, but expect those markets to see moderate or declining fundamentals if they don’t start producing jobs. The graph below depicts annual job growth and rental revenue impact (RRI, which is the change in occupancy plus effective rent growth) for 2013 for the top U.S. markets. We are forecasting the Bay Area markets to once again lead the U.S. during 2013, whereas Jacksonville, Washington, DC, and Philadelphia will lag.

december=job-growth-and-apartment-rental-revenue

Permitting

For the U.S. over the trailing 12 months ending in November 2012, Multifamily (MF) permitting was up 46% (82,248 units) to 261,232 units while single-family (SF) permitting was up by 20.9% (87,540 units) to 506,839 units (figures are over the comparable period a year ago, NSA basis). The long-term annual-average for MF permitting is about 290,515 units, with the peak occurring in 2005 at 389,300 units and the trough in 2009 at 121,125 units. November MF permits are about 116% higher than the trough of 2009; however, the current level is still about 33% below the peak and 10% below the long-term annual average. MF permits are expected to catch up to the historical average by the middle of 2013.

The MF permitting trends for the same markets above are shown below. The permitting numbers by MSA below are as of November 2012 since the December data will be released on January 27, 2013.

Table 2. Annual Multifamily Permitting and Job Growth Trendstable-2Sources: U.S. Census Bureau and Bureau of Labor Statistics