In another piece of bad news for the economy and the commercial real estate sector, the government reports that the U.S unemployment rate rose to 6.1% in August, from 5.7% in July.
Non-farm payrolls declined by 84,000 jobs.
Over the past 12 months, the unemployment rate has gone up 1.4%, and the number of unemployed persons has increased by 2.2 million, with most of the increase occurring over the last four months.
The current unemployment rate of 6.1% is the highest rate since September 2003, when the economy was recovering from the recession of 2001, says James Smith, chief economist for Parsec Financial Management in Asheville, N.C.
“Everybody is eliminating jobs. There is no demand for anything that would fill an office, use a hotel, need a shopping center, or a warehouse. So it is pretty hard to get worse news for commercial real estate than you got in this report. The only news that would be even worse is the other news we already have which is that banks are not making loans to finance any commercial real estate. So it is pretty close to a perfect storm. It is an absolutely horrible environment,” Smith says.
Construction jobs lost in August and July averaged 14,000, compared with an average monthly loss of 45,000 jobs in the first half of 2008. Unemployment in the construction sector rose to 8% in August, compared with 5.3% in August 2007.
In the wholesale and retail sector more than 1.3 million persons fill the ranks of the unemployed, driving up the sector’s unemployment rate to 6.6%, compared with a rate of 5.1% in August 2007.
Smith has trimmed his outlook for growth in the 2008 U.S. gross domestic product to 2.2%, from 4.1%. One slim ray of hope is that currently there is no inflation problem.
“I don’t know anybody who thought the unemployment rate would get to 6%. So it probably means that things are going to get a lot worse before they get a lot better. That could easily mean a disaster this year, a disaster next year, a horrible disaster in 2010, and maybe in 2011 or 2012, the outlook gets better,” Smith says.
In the commercial real estate sector, that means projects that are being completed are going to have a hard time finding tenants to fill the newly available space, because of the job losses and other significant problems in the economy.