“Exploring the Economics of Labor and Spending: An Expert Analysis”
Welcome to the second installment of a four-part series by Connect CRE, where we delve into economic insights from industry experts. In this article, we focus on two critical factors that drive commercial real estate success or failure: labor market trends and consumer spending patterns.
The impact of these factors is far-reaching – from housing to retail and other sectors. However, with conflicting signals in recent months, it can be challenging for investors to make strategic decisions based on current data alone. To gain a better understanding of the underlying trends in labor and spending metrics, Connect CRE reached out to leading economic experts for their insights.
Mixed Signals in Labor Market Data
According to Stephen Buschbom , Research Director at Trepp Inc., there are two primary ways that employment is measured by the Bureau of Labor Statistics (BLS): The Household Survey Data (also known as Current Population Survey) which determines unemployment rates; and Establishment Survey Data which tracks job additions.
While preliminary estimates show an increase in 206,000 jobs added during June 2021 according to BLS’ Establishment survey data; unemployment rates have also risen slightly over time – reaching an annualized rate of 4.1% as per June’s report . This discrepancy between surveys has caused confusion among analysts like Ray Perryman , President & CEO at The Perryman Group who believes it could be one reason behind mixed signals within today’s labor market.
Another factor contributing towards this uncertainty is what economists refer as “noise” generated by both surveys due inaccurate reporting methods such as counting part-time work twice or not accounting for multiple jobs held by individuals accurately explains Buschbom .
Furthermore,”birth-death adjustment”, used when calculating new businesses created versus those closed down can skew results significantly especially during periods when economies are transitioning notes Buschbom . Additionally,”preliminary numbers tend garner headlines while revised figures often go unnoticed” says Jonathan O’Kane , Vice President at Chandon Economics.
For instance, while the BLS reported an increase of 175,000 jobs in April and 272,000 in May; revised numbers for these months showed a downward trend – totaling to 111,000 fewer jobs than initially estimated. This brought down the three-month payroll gains average to its slowest pace since January 2021.
However,”while some data may indicate weakness within labor market trends; it is essential to put things into perspective as we are still recovering from unprecedented times” comments Omar Eltorai , Director of Research at Altus Group . He adds that compared with historical norms – most indicators remain healthy despite recent negativity.
Ryan Severino , Chief Economist & U.S. Research Head at BGO agrees saying “the labor market remains tight even though there has been a slowdown in job additions.” He explains this phenomenon by citing demographic-based shortages where companies are reluctant towards laying off workers due difficulty attracting and retaining talent.”
Lastly,”there is also an imbalance between sectors when it comes hiring practices notes Jay Denton , Chief Economist at Radix . While industries such as healthcare or hospitality continue adding new positions; others like finance or technology have seen slower growth rates.”
Slowing Consumer Spending
As per Bureau of Economic Analysis (BEA) consumer spending data released quarterly through GDP reports and monthly via personal income/outlays releases ; there exists direct correlation between employment levels and spending patterns among individuals living within United States borders .
The nation’s real GDP grew by only 1.4% during Q1-2024 which caused panic amongst analysts but was later calmed down after other experts pointed out that this figure was not too far from what had been predicted earlier on .
More recently however ,”consumer expenditure increased $47.8 billion during May representing month-over-month growth rate of just over half percent”. Although these figures do not match those recorded in 2022 or early 2023; they are still considered healthy by most analysts.
“However, there is a shift in consumer spending patterns from goods to services” explains Ryan Severino . He adds that this trend has been observed for some time now and could be one reason behind the outperformance of service sectors over manufacturing ones.
Omar Eltorai also agrees with this assessment but notes that “while wage growth has helped drive spending; more consumers are beginning to stretch beyond their means.” This coupled with rising credit costs and declining savings rates could impact future expenditure levels. Additionally,”prices have gone up significantly for items like insurance, home maintenance or property taxes which can further limit discretionary income available for other purchases.”
Jay Denton believes these changes were inevitable as people used government stimulus funds during pandemic times – leaving them struggling meet daily needs. However,”structural shifts within how we spend money may also play role here” says Jonathan O’Kane , Vice President at Chandon Economics .
Making Sense of Mixed Signals
In conclusion, it appears labor market trends and consumer spending patterns have slowed down due Federal Reserve’s efforts towards curbing inflation through higher interest rates . Moreover,the rapid pace job additions seen earlier on was not sustainable over long periods either.
Despite recent negativity surrounding economic indicators ,”consumer confidence remains high which bodes well future growth prospects”. However,”rising prices combined with fatigue absorption stimulus largess will continue weigh heavily on minds individuals when making purchasing decisions”.
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