Grubb & Ellis Montana Commercial, LLC

Silver Lining in the December Jobs Report

January 8, 2010 

The U.S. Bureau of Labor Statistics this morning reported a loss of 85,000 payroll jobs in December, a disappointment compared with the consensus for zero jobs gained or lost. The unemployment rate was unchanged at 10.0 percent. After the announcement, short-term Treasury prices rose a bit (interest rates fell), suggesting a longer period before the Federal Reserve begins to raise interest rates. Oil prices fell, consistent with the scenario for a sluggish recovery. This shouldn’t be viewed as too much of a surprise. November’s gain of 4,000 jobs (revised upward from the previously announced loss of 11,000 jobs) was an abrupt change from the trend, and the labor market gave a little of that back in December. The average monthly job loss receded every quarter last year, from -691,000 in the first quarter to -69,000 in the fourth quarter.

 A slower pace of recovery could be better for the long-term health and balance of the economy by keeping a lid on inflation. The Federal Reserve has flooded the financial system with liquidity at the same time that the government has spent heavily to stabilize the economy. The excess liquidity and deficit spending is like dry kindling that could lead to an outbreak of inflation if money begins to circulate faster through the economy, i.e. households and businesses raise their spending quickly. A gradual pace of recovery will reduce the chances for an outbreak of inflation down the road.

 Have a great weekend.

 Robert Bach

SVP, Chief Economist

Grubb & Ellis

Concluding Thoughts for 2009

  December 18, 2009

Economic downturns can be an opportunity for savvy businesses to grab market share according to a story this week on NPR’s Morning Edition (click here to listen). The story notes that company market shares change more during a downturn than at any other time.

 But this downturn is coming to a close. Former Federal Reserve Chairman Alan Greenspan, appearing on Meet the Press last Sunday, said that the recession probably ended in July or even in June. He went on to say that employers “presumed that the economy was going to go down far more sharply than it actually did… What this means is that we have a level of employment at this stage which is barely adequate to staff the level of output, and… it seems to me virtually inevitable that if nothing else were to happen that employment would start to come back fairly quickly.”

 Alan Blinder, professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve Board, makes the same point in an op-ed article in The Wall Street Journal this week titled “The Case for Optimism on the Economy” (click here). He notes that “Fearful businesses pared payrolls to the bone… Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.”

 This is the 39^th edition of Good News Friday. The first one came out on Friday, March 20^th during the depths of the credit crisis and the recession. But we were already past the low point. The Dow Jones Industrial Average hit bottom on March 9^th and embarked on what turned out to be a 57 percent rally as of yesterday, while net monthly job losses had peaked at 741,000 in January and were down just about every month since then, to 11,000 last month. Problems remain, of course, but the economy proved to be far more resilient than just about anyone thought.

 Have a great weekend and a wonderful holiday. We look forward to bringing you more good news in January.

Robert Bach

SVP, Chief Economist

Grubb & Ellis

Office Vacancy vs. Class A Rent* December 11, 2009

It’s a simple equation: The office market will not begin to recover until employers start hiring again. Friday’s employment report from the Labor Department showing that just 11,000 payroll jobs were eliminated in November and the unemployment rate fell from 10.2 to 10.0 percent is a hopeful sign, but one data point isn’t enough to change the outlook for a slow recovery. Expect office leasing market fundamentals to soften in 2010 with vacancy ending the year at 18.7 percent, up from 17.1 percent in 2009-Q3. The asking rental rate for Class A space is likely to fall another 5 percent next year. The market is expected to turn in 2011 as the vacancy rate embarks on a slow descent, though asking rent may slip a bit further due to the abundance of excess space that will remain on the market in the early stages of the recovery. Source: Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist