The Labor Department reported that there were 157,000 jobs created in the U.S. economy in July, below the consensus expectation of 193,000.  However, revisions added 59,000 to the prior two months as June was revised to 248,000 from 213,000 and May was revised to 268,000 from 244,000.  Payrolls have averaged 215,000 per month so far this year, up from 182,000 last year.

The unemployment rate fell to 3.9% in July from 4.0% in June. The jobless rate remains well below the rate of what is generally believed to be the “natural rate of unemployment” of 4.5% and continues to suggest that there will be growing upward pressure on wage rates.  The jobless rate is calculated from a different survey than the survey used to calculate the number of new jobs (the household versus the establishment survey, respectively).  Among major worker groups, the unemployment rate for adult men was 3.4%, adult women 3.7% and teenagers 13.1%.

A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—fell to 7.5% in July from 7.8% in June and was down from 9.2% as recently as December 2016.  The July rate of 7.5% was at a 17-year low.

In July, employment in health care and social assistance rose by 34,000. Health care employment continued to trend up over the month and rose by 17,000 jobs in July and has increased by 286,000 over the year. Hospitals added 7,000 jobs over the month. Within social assistance, individual and family services added 16,000 jobs in July and 77,000 jobs over the year. Construction employment continued to trend up in July and increased by 19,000 in July and has increased by 308,000 over the year.

Average hourly earnings for all employees on private nonfarm payrolls rose in July by seven cents to $27.05. Over the past 12 months, average hourly earnings have increased by 71 cents, or 2.7%.  This is the same as in June and up from 2.5% on average in 2017. A more comprehensive measure of wage pressure is the Employment Cost Index (ECI), which has shown greater acceleration.  In the second quarter, private wages in the ECI were up 2.9% from year-earlier levels.  Last year, they averaged 2.6% and in 2016, they averaged 2.3%.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work held steady at 62.9%.  Nevertheless, this remains quite low by historic standards, although up from a cyclical low of 62.5% in October 2015.  The low rate at least partially reflecting the effects of an aging population.

The July jobs report and the report last week from the Commerce Department that GDP expanded at an annual rate of 4.1% in the second quarter will provide further support for increases in interest rates through 2018 by the Federal Reserve. As widely expected, the Fed increased the fed funds rate by 25 basis points at its June FOMC meeting, the second increase in 2018.  The Fed has raised rates by a quarter percentage point seven times since late 2015, and most recently to a range between 1.75% and 2.00%, after keeping them near zero for seven years.  The June projections by the Fed now show a total of four increases in the fed funds rate are anticipated in 2018 (two of which have already occurred), up from an earlier expectation of three.  This would bring the benchmark rate to a range of 2.25% to 2.5% by year end.  The Federal Reserve also upgraded its view of the economy by substituting the word “strong” for “solid” in the statement that policy makers released after its meeting.  Further increases in the fed funds rate are anticipated in 2019.  Their projection for the fed funds rate in 2020 is 3.4%.  Hence, it is likely that there will be another 25-basis point increase announced by the Fed at its September and December FOMC meetings.

Many of you are familiar with the Future Leaders Council (FLC), the prestigious volunteer board for emerging leaders in the seniors housing and care space. The FLC is one notable program designed to deliver on NIC’s mission of nurturing leaders. But did you know NIC is also a sponsor for the National Emerging Leadership Summit (NELS)? As a member of the steering committee and a NELS Alumna, I represent NIC at this annual three-day summit in Washington, D.C., where rising stars in the seniors housing and care industry learn about leadership, advocacy, and career opportunities. NELS appears almost as an “FLC Light,” attracting property-level executives in the early stages of their careers. Like the FLC program, NELS challenges its participants to complete group projects, but for a one-year instead of FLC’s three-year commitment.

After working with this year’s cohort of NELS attendees in July 2018, I am filled with optimism for our nation’s elders living in seniors housing, skilled nursing, or receiving hospice. This group of around 30 young professionals brought positivity, ambition, and spirit to the summit rarely seen at your typical conference. Attendees spent time on Capitol Hill where Kripa Sreepada, also a NELS alumna and current staffer for Rep. Joe Crowley (D-NY), and I gave a presentation on how legislation and regulation impact property operations. We discussed opportunities to participate in that process, including membership in trade associations and how to submit comments to regulators on new rules and regulations.

While Kripa and I shared with them with the ins-and-outs of legislative and regulatory processes, the star of the show was Sen. Tammy Baldwin (D-WI), who addressed the attendees directly in an intimate setting. Sen. Baldwin shared her own personal story of the challenges of finding quality seniors housing for her grandparents, explaining how that experience led her to become an advocate for seniors through her work in Congress. As she put it, we must do more to ensure seniors can live “independently and vibrantly.” Well rest assured, Sen. Baldwin, the NELS attendees will strive to achieve just that.

The attendees also enjoyed a panel of experts including Randy Lindner, President and CEO, National Association for Long Term Care Administrator Boards; Theresa Forster, Vice President for Hospice Policy and Programs, National Association for Home Care and Hospice; Paul Williams, Vice President of Government Relations, Argentum; Matthew Mauthe, CEO, Marquardt Village; and Dr. Douglas Olson, Professor, University of Wisconsin – Eau Claire.

An interesting twist this year was the decision to represent hospice both in the pool of attendees and on the panel. Like NIC’s Spring Conference thesis that expects the future of the continuum to break down the silos among segments of housing and care, NELS too viewed this additional perspective as necessary to fully represent the spectrum. As NELS Director Kevin Hansen put it, “As we continue to think about the continuum of health and aging services, and the expansion of the continuum, it becomes ever more important to think about leadership in and across various lines of service that older adults may need at some point in their lives.” He also reminded that hospice and palliative care are distinctive, and that hospice is a service accessed throughout the continuum including in assisted seniors housing. Matt Mauthe added that “the days are gone that you can remain in your silos.” Yes, the evolution of the housing and care industry is apparent even at NELS.

You might be thinking, “How can I participate in such an exemplary leadership opportunity?” NELS is held each summer in D.C., and applications will open in the spring 2019. Though most attendees are property-level executives, this year’s group included a vendor, an HR specialist, and other professionals who could benefit from and contribute to the engaging week. I encourage you to send your best and brightest (or yourself!) to this fulfilling experience in 2019.

For more about NELS, click here.

NIC MAP^® Data Service clients attended a webinar in mid-July on the key seniors housing data trends during the second quarter of 2018. Key takeaways included the following:

Takeaway #1: Seniors housing occupancy fell to 87.9%

• The all occupancy rate for seniors housing, which includes properties still in lease up was 87.9% in the second quarter, down 40 basis points from 88.3% in the first quarter of 2018, and down 80 basis points from the second quarter of 2017. This was the lowest occupancy rate in seven years or since 2Q 2011. Meanwhile, assisted living occupancy fell to a record low rate of 85.2% in the second quarter.
• The quarterly decline in the occupancy rate stemmed from a significant increase in inventory in the second quarter—6,492 units. This was the largest unit increase in inventory since NIC began reporting the data in 2006. This in turn can be traced to gains in assisted living inventory which also registered the largest increase in unit inventory in the time series. Independent living inventory also increased, but it did not set a record.

Takeaway #2: Annual inventory growth outpaced annual absorption for both assisted living and independent living

• Assisted living inventory growth has been ramping up for a longer period than independent living in the Primary Markets. In mid-2012, the occupancy rate of independent living was the same as for assisted living at 88.8%. Since that time, there has been a clear divergence in occupancy performance reflecting the differences in supply growth and demand for the two property types.
• As of the second quarter, annual inventory growth for assisted living was 4.8%, up from 4.7% in the first quarter, but below the record high 5.2% pace seen in the middle of 2017. Annual absorption accelerated to 3.5% from 3.2% and was the strongest since the second quarter of 2016.
• For majority independent living properties, annual inventory growth was 2.1%, above the growth in absorption of 1.7%. In contrast, annual absorption outpaced annual inventory growth from the first quarter of 2011 through the second quarter of 2016.

Key Takeaway #3: Six Markets Account for Nearly Half the Inventory growth in Past Year

• The most absolute unit growth in seniors housing in the past year occurred in Chicago, followed by Minneapolis, Atlanta, Houston, Detroit, and Washington D.C. These six markets each had more than 1,000 units of new inventory brought on line in the past year, with Chicago leading the pack with nearly 1,900 units. These six markets accounted for 46% of all new inventory in the Primary Markets in the past year.
• In terms of percentage growth in inventory, the largest gains took place in Houston, Atlanta, Detroit, Orlando and Minneapolis. The strongest net absorption also occurred in many of these markets as seen by the markets. This includes Atlanta, Houston, Minneapolis and Denver.

Key Takeaway #4: Same-store rent growth decelerated

• Same-store year-over-year asking rent growth for assisted living was 2.8% for the second quarter, down 20 basis points from the first quarter. For independent living, rent growth accelerated to 2.6% from 1.9% in the first quarter.
• There is wide variation in rent growth, however. Among the Primary markets, the top ranked metropolitan areas for year-over-year rent growth in overall seniors housing were Portland Oregon, San Francisco, Seattle and Los Angeles. Poorest rent growth was in Dallas, Kansas City, San Antonio, Detroit and Atlanta. Many of these same markets have some of the lowest occupancy rates in the nation as shown in earlier slides (Dallas, San Antonio, Atlanta, Houston and Chicago).

Key Takeaway #5: Closed Seniors Housing & Care Dollar Volume: $2.3bn for 1Q18

• Preliminary estimates of seniors housing and care transactions volume totaled $1.7 billion in the second quarter. That includes $1.2 billion for seniors housing and $500 million in nursing care transactions. The total volume was down 40% from the previous quarter’s $2.8 billion and down 25% from the second quarter of 2017 when volume came in at $2.2billion.
• Current figures show a 42% drop in single-property deals from 110 closed in the first quarter to 64 closed in the second quarter. Portfolio deals also decreased 42% from 19 closing in the first quarter of 2018 to only 11 in the second quarter.

First-quarter investment return data for the NCREIF-reported seniors housing properties equaled 2.14%, composed of a 0.79% capital return and a 1.36% income return. The annual total return through the first quarter of 2018 was 12.79%, overshadowing the NCREIF Property Index (NPI) result of 7.12% and the apartment result of 6.38%. However, at 13.53% industrial total returns outpaced seniors housing.

Despite the relatively strong showing, the total annual return for seniors housing has been trending down since mid-2014 when it peaked at 20.37%.   This pattern can also be seen in the broader NPI index and is due to the appreciation return which tends to slow at this point in the real estate cycle.

Looking more closely at the components of total returns, appreciation returns for seniors housing exceeded all major property types on a 10-year basis.  Hotel and office both experienced negative capital returns over this period, while seniors housing had a 3.73% capital return.   More recently, the capital return was 6.94% on a one-year basis, dwarfing all other property types except for industrial, which has benefited from e-commerce which has increased demand for last-mile warehouse space.

With the exception of the hotel sector, seniors housing income returns have also exceeded the NPI as well as the other main property types on both a one-year and a ten-year basis.

These performance measurements reflect the returns of 104 seniors housing properties, valued at $5.3 billion in the first quarter.  This is the first quarter that the market value of the NCREIF universe of seniors housing has exceeded $5 billion.

Newt Gingrich, Larry Summers, Ben Bernanke, and Timothy Geithner have all presented at the NIC Fall Conference in recent years with the sharp observations and timely insights that can only come from top government officials. These speakers provided their unique perspectives to NIC’s seniors housing and care executive audiences.

This year’s upcoming conference continues NIC’s tradition of featuring nationally prominent speakers. NIC has announced that the opening general session of the 2018 NIC Fall Conference will feature a conversation with the former Director of the National Economic Council and the former President and COO of Goldman Sachs, Gary Cohn.

As seniors housing and care navigates a shifting market and evolving economy, its leading decision makers face a number of potential business challenges, such as the impact of a tight labor market, increasing wages, and rising interest rates.

Cohn will share his insights and observations on the U.S. economy and where it is headed as the influences of a changing global economy, more restrictive monetary policy, and tax reform take root. He will also speak to his views on the potential impact of tariffs on trade, the economy, and inflation; today’s very tight labor market, including staffing challenges for business expansions; regulatory, healthcare, and immigration reform; and the direction of interest rates.

Cohn’s insights on where today’s economy is taking us promise to be highly relevant to our conference attendees, while effectively highlighting the 2018 NIC Fall Conference theme: “Navigating the Present Market and Anticipating the Future.”

The 2018 NIC Fall Conference will be held October 17-19 at the Sheraton Grand Chicago. Click below to register.