There is not much cheer in the employment figures released by the federal government today. The U.S. unemployment rate now stands at 7.2%, up from 6.8% for November. More than 524,000 nonfarm jobs were lost in December.
“This was certainly a dreadful report. There is no good news for commercial real estate here,” says James Smith, chief economist with Parsec Financial Management based in Asheville, N.C. Smith believes the January employment report to be depressing, too.
The loss of jobs translates into less demand for commercial real estate space. For one, more unemployed workers mean less demand for office space. And, as these workers cut down on their discretionary consumption, retail sales are likely to fall further.
The jobs picture is especially bleak in the franchised hotel sector. New data from PricewaterhouseCoopers prepared for the International Franchise Association points to a 4.9% loss in jobs this year at franchised lodging properties. This follows a nearly identical (4.4%) rise in jobs between 2007 and last year.
According to the study, 661,000 people will be employed in franchised hotels this year, down from 695,000 in 2008 and 666,000 in 2007. While all franchised businesses are forecast to have a tough year, it’s particularly grim for hotels. The number of franchised hotels in business in 2009 (32,202) will be 2.6% lower than last year, while sales for the sector are expected to slide by 3.2% to $63.6 billion.
The apartment sector also is under pressure. As younger Americans face more difficulty finding jobs, there will be a decline in demand for apartment units as prospective renters take on roommates or move back to their parents’ homes.
What could lead to an improvement in the economy as the year progresses — and an improvement on the jobs front — is the stimulus package that President-elect Barack Obama is seeking to put in place. This is likely to lead to a “robust rebound” sooner than some gloomier people would expect, according to Smith. In fact, there could be job gains by midyear, he says.
The December jobs report points to a loss of 67,000 jobs in the retail sector; 22,000 jobs in the hospitality sector; and as many as 101,000 jobs in the construction sector, which also includes residential construction.
Kenneth Simonson, chief economist of the Associated General Contractors of America, sees the report as a dismal one for the economy, and for the construction sector in particular. “Construction suffered nearly one-fifth of the job cuts, even though the industry accounts for only one out of 20 employees economy-wide. We expect further sharp declines in construction employment and activity in 2009, affecting nearly all segments and regions.”
Simonson expects that a government stimulus package focused on infrastructure investment could help prevent further job loss in the construction sector. Smith, too, believes that the government’s continued efforts to stimulate the economy, by pumping in trillions of dollars since last August, will eventually produce some positive results. He also sees the recent drop in oil prices as having an impact similar to a $300 billion tax cut for consumers.
Smith anticipates that the economy will grow about 2.3% in 2009 after adjusting for inflation. However, he sees more trouble on the economic front in 2010, when all the Bush tax cuts expire and “the bankruptcy of Medicare is clear to all, even members of Congress.” His forecast for commercial real estate sector, where new capacity is still being built, provides no cause for celebration. The worst news will come in 2010 and 2011, he predicts.