Despite Looming 'Fiscal Cliff', There is Some Good News for U.S. Commercial Sector in December

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The U.S. economy is resilient, in spite of numerous obstacles, according to a December 10th report from Marcus & Millichap, using data from the US Bureau of Labor Statistics as well as its own research.

Although a deal to avoid the "fiscal cliff" with its threat of cuts in government spending and tax hikes, did not seem imminent as of December 10th, both political parties "recognize the severity of the situation," according to the Marcus & Millichap report. Still, there is the possibility that political gridlock could result in significant blow to GDP, it says.  Although the anticipated compromise between Democrats and Republicans will include tax hikes for those at the top and government spending cuts, "these will weigh on the economy less than the uncertainty currently being faced by businesses," according to the report.

In November, 146,000 jobs were added, which was better than what was expected, considering that many observers thought that the "fiscal cliff" situation and Hurricane Sandy would cut into job growth, according to the Marcus & Millichap report. The private sector added 147,000 jobs last month, while the government eliminated 1,000 jobs. Meanwhile, an early Thanksgiving and the Black Friday start of the holiday shopping season, gave a boost to retail sector hiring, which amounted to 53,000 in November.

The construction sector posted the most significant job loss in November because of projects being put on hold because of Hurricane Sandy. But the 20,000 jobs lost in November are expected to come back in November, along with thousands more because of the need for rebuilding in the Northeast.

The unemployment rate dropped 20 basis points to 7.7 %, the lowest level in almost four years. The decline is mostly attributed to a reduction in the labor force participation rate, which fell 20 basis points to 63.6%. The decrease was due to Hurricane Sandy, as many job seekers waited out the storm and its aftermath before beginning to search for work, as well as people waiting until after the holidays to renew their job search.

The professional and business services sector added 43,000 jobs during November, just 1,000 jobs short of becoming the fourth sector to surpass pre-recession levels. The natural resources and mining, leisure and hospitality, and education and health services sectors are already at all-time highs. As these office jobs fill up empty space, Marcus & Millichap expects the office vacancy rate to drop to the low 16% range in 2013.

Based on preliminary data, retail sales for the holiday season will be the highest since 2007 on a per person basis, which is a good sign for retail real estate. Combined with little new construction, strong retail sales should push vacancy rates down to the mid-8% range in 2013, according to Marcus & Millichap.