The Weekly Briefing - March 8th, 2021

The Weekly Briefing – March 8th, 2021

In This Week’s Brief:

  • Jobs Report Suggests Recovery is Picking Up Some Momentum
  • Market Spotlight: Houston Economy and Multifamily Market Largely Holding Up
  • Texas and California Home to Eight of the 10 Fastest Growing County Economies Last Cycle

Jobs Report Suggests Recovery is Picking Up Some Momentum

The labor market made its strongest showing since last fall, adding 379,000 net new jobs during February while the January total was revised upward to 166,000 jobs created. The strongest activity last month occurred in leisure and hospitality, which increased payrolls by 355,000 jobs, partially reversing the setback suffered in December when the sector lost 498,000 jobs.

The jobs report builds on several favorable recent economic releases that when taken together suggest the recovery is picking up speed heading into the spring. The most recent retail sales and consumer expenditures reports also recorded meaningful improvements compared to the prior month.

The second round of stimulus payments, which were mostly distributed in January, have likely provided a boost to the recovery even though many households have mostly set them aside as savings. But the substantial deceleration in the spread of the coronavirus since the start of the year and loosened business restrictions in some states have likely played a role as well.

Despite the recent improvements, full economic recovery in the labor market remains a distant prospect. Nonfarm payrolls are down 9.5 million jobs compared to pre-pandemic figures, and the labor force participation rate was unchanged last month at 61.4%, 2.9 percentage points below pre-pandemic levels.

Nonfarm Payrolls & Labor Force Participation Rate


Market Spotlight: Houston Economy and Multifamily Market Largely Holding Up

The Houston economy and multifamily market have navigated the past year fairly well despite confronting the double shocks of the coronavirus outbreak and a slide in oil prices in spring 2020. As of end-2020, Houston nonfarm payrolls were down 4.4% YOY compared to a 6.1% YOY decline nationwide. The relative health of the labor market is more interesting given that the metro’s energy sector shed 14,000 jobs last year.

In the multifamily sector, rents have dipped slightly by -0.8% YOY to an average of $1,111 per unit. Meanwhile, the vacancy rate has ticked up 50 basis points to 6.9%, which is in line with Houston’s long-term historical average but higher than some other major markets. The number of new completions more than doubled last year compared to 2019, and net absorption nearly matched the prior year figure.

Some Houston submarkets, however, have fared better than others. The urban center has experienced some of the most severe effective rent and occupancy declines in part due to an ongoing wave of Class A deliveries that are offering concessions to support lease-up. The Woodlands and Memorial, where many oil companies are located, have also seen meaningful negative rent growth. In contrast, some suburban areas have managed to push rents higher during the pandemic.

Year-over-Year Effective Rent Growth by Submarket as of 4Q20


Texas and California Are Home to Eight of the 10 Fastest Growing County Economies Last Cycle

Texas and California dominate the list of large counties (100,000+ residents) with economies that grew at the fastest clip during the last business cycle. Midland, TX led the way with 12.2% annual increases as the county bounced back from a particularly sharp contraction during the GFC when oil prices plummeted. Growth in the other top-ten Texas counties is likely to be more sustainable as all four are located at the fast-expanding edges of either Dallas or Houston, which both continue to attract new businesses and residents.

Three Bay Area counties with a particularly large tech presence also rank in the top five. Santa Clara and San Mateo are respectively home to Facebook’s and Google’s global headquarters. And San Francisco has benefited in recent years from an influx of tech companies seeking to expand their urban footprint to better appeal to younger workers. Across the bay, Alameda County did not make the top ten but did rank among the top 15 percent of large counties with 3.7% annual economic growth.

The three California counties have been hit particularly hard by the pandemic with economic output in each falling approximately 4.0%, likely due to many tech workers decamping to other areas to work remotely. The Texan counties have experienced more limited disruption.

Fastest Growing Large-County Economies (2010-2019) & 2020 YOY Change

 

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