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Sunshine Corner is SRR Consulting’s bi-monthly newsletter with updates, news, and Sara's views on the US economy and commercial real estate.

Issue 2024:2

Happy Solar Eclipse! The excitement around these natural events is glorious. I will not be in a good spot for totality today, but I am in a good spot for shining a light on the Fed, jobs, and domestic migration shifts.

Nailed it.

The March FOMC meeting wrapped up as expected, with no change in rates and continued emphasis on data-driven decisions. The data in question, of course, is the slow downward trend in inflation and continually strong labor market.

Chair Powell’s post-meeting press conference and other Fed officials speaking since the March meeting have focused on inching market expectations toward the potential for fewer cuts in 2024, or perhaps none at all.

From the Spring Equinox newsletter, “Higher-for-longer remains the expected path as the Fed is unlikely to begin rate cuts until core inflation is trending below 3%.” I continue to stand firm on this expectation. Rate cuts are inevitable at some point but, I expect, the FOMC will not err on the side of cutting too soon.

Jobs, Jobs, Jobs!

The labor market continues to surprise on the upside, which is great. A data release that brings positive news of 303,000 net new hires, 469,000 more people joining the labor force, and a ten basis-point decline in the unemployment rate points to a solid labor market. More people looking for work and more hires? Yes, please.

The SRR Consulting model predicted 216,000 new jobs for March, below the fabulous print, but higher than consensus. Having relaunched this year, models are being built for major economic releases and private real estate returns. Stay tuned for more!

Migration Moves.

The Census recently released population estimates for the year ending in July 2023. Since June 2022 marked the end of federal healthcare protections that had existed for 50 years – or two years before I was born – I want to learn if/how domestic migration may be changing in the first year post-Roe.

Fifty-year trends in migration between US states are unlikely to turn on a dime. But did it turn at all? I checked it out using the new domestic migration data by state and metro area.

In 2023, New York and Illinois each had their largest positive shift in annual domestic migration over the past twenty years. Domestic migration into Florida peaked in the year ending July 2022, then downshifted through July 2023 by a similar amount as experienced during the housing bust in 2007. Texas had its largest decrease since 2016.

Did the Sunbelt pattern reverse? No. As headlines have boldly declared, everyone is moving to Florida and Texas, and no one lives in San Francisco or New York anymore. Clearly, I’m joking here, but that is how the rhetoric around domestic migration tends to go among blustery pundits.

What can be seen in the data is a shift in domestic migration over one year. For states, a comparison to annual changes over the past 20 years offers context that big swings in migration occurred for four large states on opposite ends of the country’s new political reality. A reality that is distasteful to most Americans.

Healthcare bans are dangerous. Florida and Texas have tied the hands of medical professionals by making medically necessary procedures illegal. In total, SRR Consulting has identified twenty-one states banning reproductive healthcare. New York and Illinois are on the other end, among the twenty-two states (inclusive of Washington DC) where healthcare is protected. The remaining eight states have created severe restrictions for accessing healthcare without outright bans.

So What?

Continued strength in the labor market is good news for real estate demand. Plus, the prospect of steady interest rates should encourage property repricing where adjustments to positive real rates and/or debt costs have not yet been made.

The bad news will likely continue for the office sector. Job growth is broadly tied to increasing commercial property values, but a closer look at which sectors are adding jobs does not indicate increased use of office space ahead.

The top four industries for new hires over the past year are education/health services (1.1 million new jobs; 70% in health services), government (664,000), leisure/hospitality (458,000), and construction (270,000). Meanwhile, the three main office-using industries – professional/business services, financial services, and information – added a combined 196,00 jobs over the past year.

With existing office space underutilized, footprints being reduced, and remote/hybrid work common, this pace of office-using job gains is unlikely to change the equation for most office owners. There is, however, an important caveat to make. Not all office space is equal. There is a flight to quality properties and locations as should be expected when prices go down.

SRR Consulting will continue to track shifts in demographics and economic conditions across states. For example, the health services industry added the most jobs over the last year while twenty-one states are enacting bans on healthcare. That can’t be good for business.

Thanks for reading!

Fun Facts: Sunshine marks the start and end of each day and illuminates the moon to mark the start and end of each month. New data covering the economic and demographic drivers of real estate performance are released at differing monthly and quarterly cadences such that an important data release occurs at least once a week. It is chaos. To build this newsletter's calendar, I chose to follow sunshine and release this newsletter twice per month, at the start (new moon) and end (full moon) of a lunar month. Problem solved. 🌞