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HFF Research Update for September 4, 2015: Haymaker

Friday, September 04, 2015

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.

In the United States, we celebrate Labor Day on the first Monday of September to commemorate workers and their contributions to industry and society. But in other parts of the world, the honor is still celebrated on May 1. It is fitting the Bureau of Labor Statistics released an update on August’s hiring ahead of the Labor Day weekend. At first glance it would appear the report was a “haymaker” blow to investors. But further investigation suggests otherwise.

Analysis of Market Insights and Economic Performance

The BLS’s preliminary estimate of job growth in August is 175,000. This is a marked departure from the average 203,000 monthly job creation we had experienced for the prior 58 consecutive months. However, as Moody’s Analytics’ Chief Economist Mark Zandi pointed out on CNBC, August job growth estimates have, on average, been revised upward an average of 80,000 additional positions in each of the past five years. So, assuming this history holds, the 175,000 could eventually be revised upward to 255,000, which would be 10,000 higher than the re-stated 245,000 job growth number for July.

What does this technical jargon mean? The markets understand this phenomenon and are pricing in a September rate hike.

  • To wit, WTI crude prices are down on the jobs release. Not because it means lower job growth results in lower demand for oil. But because an anticipated revised figure of 255,000 would allow the Fed to hike rates, strengthening the USD, which hurts crude prices.
  • To wit, a strengthening USD hurts stock prices. The DJI is currently down about 130 bps.
  • To wit, while the effective yield on the 10-year UST is down about 2.5 basis points, the shorter-term maturity Treasuries are selling off, giving rise to their effective yields which implies a near-term rise in interest rates.

About Jimmy Hinton

Mr. Hinton serves as Managing Director of HFF, responsible for the firm’s research efforts. Mr. Hinton works with the HFF Jimmy Hintonexecutive 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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