The Azucena Take: Labor Market and the Investment Real Estate (2023)
The first jobs report of 2023 came out on February 3rd and it was not what economists were expecting. 517,000 jobs were added to the labor market during the month of January (double what was expected). Now economists are concerned going into 2023.
Right now you are wondering why are strong job numbers being treated as bad news. Shouldn't a strong labor market be celebrated? Were this at any other moment, this would have been good news. Instead, the concern has more to do with inflation and interest rates going into 2023. Analysts are concerned these job numbers might fuel inflation and influence the Federal Reserve's decision on raising interest rates.
But are these concerns warranted? That is why it helps to break down the news.
Breakdown of the Data
Federal Reserve Response
517,000 jobs were added in January while unemployment fell to 3.4%. This was a surprise because it was one of the largest jumps in the labor market. To have an idea regarding the scope of this report, May 2010 was the only other time (before the pandemic) that saw over 500,000 jobs added to the labor market.
Now that you know why the news was not welcomed, many are asking how will the Federal Reserve respond. It's unlikely to change their course of action so long as the inflation numbers continue to decline. At the moment, the Federal Reserve feels confident that inflation can be brought down without significant economic decline or a spike in unemployment.
Its Impact on Investment Real Estate
When 517,000 jobs are added to the market in a month, it might be bad for inflation but it's welcoming for investment real estate. High job openings mean more demand for space. Be it retail, hospitality, or industrial - high employment fuels demand for space. The numbers also back this up as high job growth has always resulted in high net absorption.
High demand from employers will also equal high demand for apartments. If the units are within the proximity to a center of commerce then they will be in greater demand.
The only outliner in all of this has been office space due to the popularity of the hybrid work model. However; 2022 did see a sudden rise in demand for office space but it still pales compared to the pre-pandemic levels.
What it Means for Investors
Just because economists say the high employment demand is bad for inflation, doesn't mean it's an issue for the investment real estate market. Such news should be welcoming for investors who have properly positioned themselves and planned for this.
That is why it's always important to reach out to an expert who could advise you regarding your current investment holdings.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap