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HFF Research Update for February 5, 2016: Payrolls, Pay, Pesos and Property

Friday, February 05, 2016

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.

The Bureau of Labor Statistics released January payroll creation figures recently -- a few stats to set the table. The U.S. has created jobs 64 months in a row, which is over five years of monthly payroll additions. This is an all-time high since 1939 when the BLS started keeping track. The streak hit 46 months from September 2003 to June 2007, 48 months from July 1986 to June 1990 and 45 months from July 1975 to March 1979.

rates for february 5 2016

Job Creation and Wages on the Rise

Going into this morning's release, the average monthly job creation has totaled 205,492 – the highest level since the early 90s. Unemployment is at 4.9 percent – the lowest level in eight years.

We know the economy grew by 0.7 percent in 4Q 2015, per the Bureau of Economic Analysis’s GD release last week. Therefore, it is not all that surprising that we have seen a dip in job creation in January, which is typically a slow month anyway. What we should keep an eye on is wage growth. Hourly earnings rose more than estimated after climbing in the year that ended December 2015 by the most since July 2009. A further tightening of labor conditions could spark continued wage gains, which would help spur inflation though at these levels not the desired target of the Federal Reserve.

Retailers added almost 58,000 jobs last month, the most in a year, and the healthcare industry took on another 44,000 workers. Perhaps most surprising was a 29,000 gain in hiring at manufacturers, the biggest increase since August 2013. Payrolls picked up at producers of fabricated metals, automobiles, food and furniture. December payrolls were revised down to 262,000 from 292,000, and November employment was revised up to 280,000 from 252,000, resulting in a net revision of -2,000 jobs.

Friday’s data showed a much-awaited pickup in wage growth is starting to manifest itself. Average hourly earnings rose 0.5 percent from a month earlier to $25.39. The year-over-year increase of 2.5 percent followed a 2.7 percent jump in the 12 months ending in December 2015, which was the biggest advance since mid-2009.

China Foreign Currency Reserves

Elsewhere, China’s holdings of foreign currency reserves is at its lowest level since 2012 given their intervention towards volatility in domestic stock bourses. Already at all-time highs, we expect China’s trailing 12-month foreign currency reserve sales to exceed half a trillion dollars.

foreign currency reserves china

While I believe this has had an impact on SWAP spreads, it doesn’t seem to be having an impact on absolute yields. One could reasonably surmise that a half-trillion exodus from government securities (not exclusively Treasuries) would put a great amount of upward pressure on yields. But it hasn’t ensured such an outcome.

U.S. Currency Performance

Meanwhile, the U.S. Dollar (USD) has weakened a bit lately per the below graphs showing the USD versus Asian and Latin American currencies. If you look at the USD versus the Euro, for example, you will see the USD has weakened to a dour-month low. Meanwhile, other currencies such as the Mexican and Colombian peso continue weakening.

graph USD versus Asian and Latin American currencies

USD graph versus Asian and Latin American currencies

Keep an eye on the economic data and foreign currency values as much as you focus on commodities, namely oil, and U.S. stock markets.

For now, the changing value of the USD has not adversely impacted foreign investment in US CRE. Quite the opposite as the below graph conveys.

graph rising usd foreign purchases of us cre

About Jimmy Hinton

Jimmy HintonMr. Hinton serves as Managing Director of Research for HFF and is responsible for the firm’s research efforts. Mr. Hinton works with the executive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.

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