• Alex Pettee, CFA

Jobs Miss • Labor Shortage • Yields Jump

Summary

  • U.S. equity markets were lower Friday - but still delivered modest gains for the week - after a disappointing jobs report showed that the persistent labor shortage isn't yet abating.

  • Ending the week with cumulative gains of 0.8%, the S&P 500 slipped 0.2% today while the Mid-Cap 400 finished lower by 0.6% and the Small-Cap 600 declined 0.3%.

  • Real estate equities were mostly-lower today - and lagged on the week - as the Equity REIT Index declined 0.9% today with 15-of-19 property sectors in negative territory.

  • The Bureau of Labor Statistics reported this morning that the U.S. economy added just 194k jobs in September - far below consensus expectations of 500k - the weakest rate of job growth since December 2020.

  • Beneath the headline numbers, hiring wasn't quite as weak as it looked. Private sector employment was almost in-line with estimates when including the prior month revisions, led by a bounce-back in the Leisure and Hospitality and Retail sectors.

Real Estate Daily Recap

U.S. equity markets were lower Friday - but still delivered modest gains for the week - after a disappointing jobs report showed that the persistent labor shortage isn't yet abating. Ending the week with cumulative gains of 0.8%, the S&P 500 slipped 0.2% today while the Mid-Cap 400 finished lower by 0.6% and the Small-Cap 600 declined 0.3%. Real estate equities were mostly-lower today - and lagged on the week - as the Equity REIT Index declined 0.9% today with 15-of-19 property sectors in negative territory while Mortgage REITs gained 0.1%.

Further evidence of a persistent labor shortage in the September jobs report sent inflation expectations and interest rates higher today as the 10-Year Treasury Yield jumped above 1.60% for the first time since early June. Nine of the eleven GICS equity sectors finished lower today, dragged on the downside for the second-straight day by the yield-sensitive sectors including Utilities (XLU) and Real Estate (XLRE). We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

The Bureau of Labor Statistics reported this morning that the U.S. economy added just 194k jobs in September - far below consensus expectations of 500k - the weakest rate of job growth since December 2020. Despite a record number of job openings, more Americans left the workforce in September, resulting in a decline the unemployment rate to 4.8% from 5.2% in August. Prior to the weak BLS jobs report, however, employment data earlier in the week was generally better-than-expected as ADP payrolls topped estimates while initial jobless claims fell more than expected.

Beneath the headline numbers, the BLS report wasn't quite as weak as it looked as much of the miss resulted from a sharp decline in public sector employment - mostly local government jobs in the education sector - which some economists speculate could be reflecting seasonal factors. Private sector employment was generally in-line with estimates when including the prior month revisions, led by a bounce-back in the Leisure and Hospitality sector and in the Retail Trade sectors. Construction hiring also bounced back in September following several months of very weak growth, perhaps reflecting some relief in supply chain constraints in the homebuilding sector.

Equity REITs

Healthcare: Today, we published Healthcare REITs: Safe & Effective which discussed how the "fourth wave" of the COVID pandemic has pressured Healthcare REITs over the past quarter. Senior Housing REITs - the hardest-hit sub-sector - were leading the recovery as occupancy rates appear to have bottomed in early 2021, benefiting from the red-hot and undersupplied housing market. Staffing shortages have become critical issues at skilled nursing facilities - worsened by recent vaccine mandates - pressuring not only operating margins but also forcing some facilities to turn away new business. While near-term headwinds will persist until the pandemic abates, we remain optimistic on the long-term outlook for healthcare REITs. Baby Boomers are substantially larger and wealthier than any prior generation.

Mortgage REITs

Per our Mortgage REIT Tracker, mREITs were mostly higher today as residential mREITs gained 0.3% to push their weekly gains to 1.0%. Commercial mREITs gained 0.1% today to end the week higher by that amount. After the close yesterday, AGNC Mortgage (AGNC), Ellington Financial (EFC), and Ellington Residential (EARN) each held their dividends steady with prior rates. Boosted by 24 dividend hikes across the sector this year, the average residential mREIT now pays a dividend yield of 9.1% while the average commercial mREIT pays a dividend yield of 7.0%.

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished lower by 0.02% today, on average, but have produced total returns this year of roughly 15%. Over in the bond markets, Physicians Realty (DOC) priced $500m of 2.625% senior unsecured notes due 2031. Elsewhere, Healthcare Trust of America (HTA) announced an amended and restated $1.3B revolving credit facility.

Economic Data This Week

We'll publish a full analysis and commentary of this week's developments in the real estate industry, as well as an analysis of the busy week of economic data in our Real Estate Weekly Outlook report on Saturday morning.

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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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