Job Cuts Diminish in August as Unemployment Hits 9.7 Percent

A slowing in job losses in August offers additional evidence that the worst of the recession has passed. During the month, employers nationwide cut 216,000 positions, raising to 955,000 the number of jobs eliminated in the past three months. By comparison, 2.1 million jobs were shed in the first quarter of this year. Despite the welcome moderation in employment losses, a transition to stabilized payrolls and a resumption of hiring may still be a few quarters away.

Two factors revealed in today’s employment report indicate that the pace of hiring new workers will be slow. Average hours worked was unchanged during August at 33.1. Employers will increase hours for existing employees before hiring new ones. In addition, temporary employment services, one of first sectors to hire after a recession, slashed 6,500 positions last month.

Job losses were spread across most sectors in August. Notably, retailers trimmed only 10,000 positions last month, compared with the loss of 43,000 jobs in July. The decrease in retail employment cuts is attributable to fewer seasonal staff reductions and the effects of the “Cash for Clunkers” program, which created 5,200 positions at auto dealers. Meanwhile, the education and health services sector generated 52,000 workers in August, with health care employers accounting for 47,000 of these jobs; this was the only sector to add positions last month.

The rising unemployment rate represents another concern clouding the prospects of an economic recovery. In August, the unemployment rate increased 30 basis points to 9.7 percent, the highest rate in 26 years; the unemployment rate is expected to peak at more than 10 percent in 2010. In addition, unemployment claims remain elevated. The high rate of joblessness will make it difficult for the economy to start a sustainable recovery, as consumer spending, a key driver of economic growth, will likely stay sluggish until employment prospects improve.

The slowdown in consumer spending and ongoing job losses in the retail sector are being reflected in retail property fundamentals. After rising 50 basis points to 9.5 percent in the second quarter, retail vacancy continues to increase across the country as more merchants close and national brands scale back new store openings. The weakness in fundamentals also has discouraged investors year to date, as transaction velocity is down significantly in most markets over concerns regarding near-term vacancy and rents.

The decline in employment this year is adversely affecting the office property sector, where tenants are still realigning space needs with reduced head counts. After 20 consecutive months of contraction, though, the pace of office-using job cuts is slowing, which may stem the erosion of fundamentals recorded year to date. So far in the third quarter, 124,000 office-using positions have been eliminated. Approximately 421,000 office jobs were shed in the second quarter, when negative net absorption of 20.6 million square feet was posted.