The week ending February 9th saw a drop in jobless claims of 27,000, continuing a general trend in new jobless claims that is approaching pre-2007 recession levels.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses initial jobless claims.
- Good news for the job market this week: initial unemployment insurance claims for the week ending February 9 dropped to 341,000, which is 27,000 claims lower than the previous week’s level. Although the data is preliminary and gets revised higher nearly every week for prior week’s data, the drop in initial claims is larger than the usual weekly variation since January of about 18,000 claims. This indicates that fewer people are starting a period of unemployment.
- The level of weekly claims looks headed towards 350,000 from last year’s average level of about 375,000 claims. It is also a far cry from the peak level in 2009. Still, the pace of job creation has to accelerate to absorb those already unemployed into the market. As of February 2, about 3.2 million continue to receive unemployment insurance benefits.
- The bottom line for REALTORS® is that the job market continues to make steady, if modest, gains. NAR projects 1.4 million non-farm net new jobs in 2013, one factor that can support 5.08 million existing homes sales.
Of course the commercial real estate sectors rely more directly on employment in both leading and trailing indicator relationships to job numbers. Unemployment and office vacancies are usually closely tied, and with vacancy rates go absorption rates and other metrics. There’s room to suggest that the 2007 recession was a correction, as Michael Campbell’s recent piece in the Tennesseean does when he writes
The typical complementary relationship between unemployment and office vacancies was re-established in late 2005. That is, they began moving together again, but vacancies were still much higher relative to unemployment than they had historically been.
The Great Recession, which officially began in December 2007, shocked the unemployment/vacancy relationship back to normal, where it has remained ever since.
When the Great Recession hit, the “normal” relationship between unemployment and office vacancies was re-established. And, as can be seen on the graph, the normal state is for office vacancies to mirror the economy, but lag behind it. These timing differences are due to the long cycle of commercial real estate transactions. In other words, a company may lay off several workers and vacate its office space, but still be committed on a long-term lease, which may not expire for a number of years.
After the recession’s peak in June 2009, this timing lag continued until approximately December 2009, when the numbers began tracking as you would expect, with vacancies decreasing as unemployment drops.
One thing’s for sure: offices are here for workers. The rest is more complicated: occupancy follows jobs on one side of the cycle, and jobs follow the economic activity of occupied offices on the other.