There is a lot of attention paid to the national labor market. However, real estate is primarily based on local conditions. This is especially true in New York City, given the size and complexity of our economy.
A key economic driver is the labor market. When people feel comfortable about their job prospects and opportunities are plentiful, they will go house hunting. Conversely, if people lose their jobs, or fear they will shortly, they have bigger concerns than buying a home. Therefore, we have analyzed the city’s labor conditions to see where it is headed.
Job market rolling
The city’s labor market continues to get healthier. The unemployment rate stood at 6.3% at the end of the second quarter. This is down from 6.6% in the prior quarter and 7.4% a year ago.
This was not merely from people dropping out of the labor force. In fact, the labor force participation rate continues to increase. Although most people would consider someone not working unemployed, the government only counts those actively seeking work. In the quarter, over 20,000 jobs were added by the private sector, on top of the more than 30,000 new jobs in the first quarter.
Moreover, the strength is broad-based across sectors. This is healthy for the city’s economy since it lessens the reliance on one industry, such as finance. It is also beneficial for workers. High-paying sectors such as construction, professional and business services, education and health services, and financial activities led the way. In other words, it was not merely low-paying service jobs that were created.
There have been 519,000 private sector jobs added since the low point of the recession in early-2010. Put another way, over 400,000 city residents were unemployed at one-time. It is now down a third to 267,000.
More good news on the horizon
Investors are clamoring for New York City businesses. Venture capital (VC) investment in the metropolitan area rose more than 80% to $2.3 billion, near the record level in the dot-com heydays in 2000. While that cycle ended badly, we are far from the mania that was going on back then. These types of investments important indicator since the money typically flows to young, fast-growing businesses. If these companies have additional capital to invest in growth opportunities, additional hiring will likely be needed.
The investments may also reflect greater confidence in NYC’s economy. Although well behind Silicon Valley, NYC gained ground, now accounting for over 13% of VC investments compared to 9% a year ago.
The labor market is recovering nicely over the last several years. However, there appears to be room for further employment gains given the current unemployment rate and investments levels. As slack is removed, higher wage growth is likely to follow. Furthermore, a stronger labor market leads to increased spending and higher tax revenue for the city. This leads to greater economic advances since budgets do not have to be balanced via tax increases or spending cuts.
Although New York City’s real estate market has risen, the data shows there is fuel for further increases.