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Real Estate Market Commentary - September 2014
by Peter L. Zachary, MAI, MRICS

The Sunday New York Times on September 6, 2014 had a front page article in their Business Day section written by Nelson D. Schwartz entitled, "Job Growth Is Sluggish, Raising Fear Of Malaise". It stated:

"Missing: nearly three million American workers.

This isn't the latest dystopian science fiction story or the pitch for a Hollywood thriller. It is the economic trend that has alarmed experts and policy makers alike.

A growing number of people many in their prime working years have simply given up on landing a job. On Friday, the Labor Department reported that the overall unemployment rate dropped slightly to 6.1 percent in August. But that improvement was mostly a result of Americans dropping out of the labor force, not of their finding work.

The situation helps explain why so many ordinary Americans remain doubtful about the recovery, now in its fifth year.

Adding to the discontent, the pace of job creation in August also slowed. Employers added 142,000 workers to their payrolls, the smallest number so far this year; it was the first time since January that monthly job creation fell below the 200,000 level.

It is tempting to discount weaker hiring in any single month, and August tends to be especially unpredictable. As millions of people take their summer breaks, a smaller proportion of Americans respond to government data collectors during the month, said Tara M. Sinclair, an economist at, one of the nation's largest sites for job postings.

Economists at Bank of America Merrill Lynch noted that August payroll growth had been revised upward in 12 of the last 15 years by an average of 31,000. "The report was clearly disappointing and contrasts with the otherwise strong economic data we have seen recently," the bank said in a note to clients. "We advise not overreacting given the volatility of nonfarm payrolls and possibility of an upward revision."

But the fall in the labor participation rate cannot be dismissed as an aberration. The rate dropped to 62.8 percent last month, the lowest level since the late 1970s.

Although the shrinking proportion of Americans in the work force is often attributed to the retirement of baby boomers, 25-to-54-year-old workers are quitting as well. Just over 81 percent of this group was in the work force last month, compared with 83.4 percent in early 2007, equivalent to the disappearance of nearly three million workers.

"The structure of the U.S. economy has shifted," said Dean Maki, chief United States economist at Barclays. "Some of these people dropped out when the labor market was bad, and it's not clear how many will come back."

For most Americans who are employed, another challenge has been very slow wage growth since the recovery began five years ago. In August, average hourly earnings increased 0.2 percentage points, while the average workweek was unchanged at 34.5 hours.

At the Federal Reserve, policy makers have been watching for improvement in the level of unemployment, as well as the participation rate and wage growth, to gauge when to begin the process of gradually increasing short-term interest rates from near zero. While there have been several positive economic reports this week, the August jobs numbers are likely to take pressure off the Fed to move more quickly than expected on rates.

"It really does look like there is still a lot of slack in the labor market," Mr. Katz said. "If you are out of work, you are still at the end of the queue in getting hired."

Drawing people back into the work force is not easy, says Robert A. Funk, chief executive of Express Employment Professionals, a major staffing company. Last month, for the first time since the recession, Mr. Funk's company reached out to 5,000 workers in its files who had looked for work in the past. Only 267 indicated they wanted to work again, and he was able to place just 70 people.

"A lot of people have lost hope because they don't think the jobs are available," he said. "We're going back and trying to encourage people to take temporary positions, but some do prefer to stick with government benefits."

Although the slackening in job creation last month took place across the board, some sectors fared better than others. Services outperformed blue-collar sectors like manufacturing, mining, logging and construction. The health care sector was a standout, adding nearly 43,000 positions, a sign that President Obama's signature health care expansion may be fueling added demand from new patients.

At the other end of the spectrum, the factory sector, which added more than 50,000 jobs from May to July, was unchanged in August. Retail employment shrank by 8,400 last month, after a jump of 85,000 jobs in the previous three months.

The upper end of the white-collar world is increasingly pulling away from the rest of the labor market, says Michael Durney, chief executive of Dice Holdings, which operates Internet job boards. "There are skilled professionals and unskilled labor, and there is a dichotomy," he said."

More to come next month. Read previous Real Estate & Housing Market News.

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