The Labor Department reported that there were 213,000 jobs created in the U.S. economy in June, above the consensus expectation of 195,000.  This followed an upwardly revised gain of 244,000 jobs in May (originally reported as 233,000) and an upwardly revised gain of 175,000 in April (originally reported as 159,000).  The two-month revision was a positive 37,000 new jobs.  After revisions, payroll gains have averaged 211,000 per month over the past three months and 215,000 per month since the beginning of the year.  In 2017, they averaged 182,000 per month.

The unemployment rate rose to 4.0% in June from 3.8% in May. The increase was largely due to 601,000 workers entering the labor force.  Despite the increase, the jobless rate is still 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).

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—rose to 7.8% in June from 7.6% in May but was down from 9.2% as recently as December 2016.  May’s rate was the lowest level in 17 years.  The number of long-term unemployed (those jobless for 27 weeks or more) increased by 289,000 to 1.5 million and accounted for 23% of the unemployed.

Average hourly earnings for all employees on private nonfarm payrolls rose in June by five cents to $26.98. Over the past 12 months, average hourly earnings have increased by 72 cents, or 2.7%.  This is the same as in May and up from 2.5% on average in 2017.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work increased by 0.2 percentage point to 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.

Health care added 25,000 jobs in June and has increased by 309,000 over the year.

Separately and earlier this week, the Labor Department reported that 3.4 million workers quit their jobs in April, near a 2001 peak and twice the 1.7 million who were laid off from jobs in April.  Workers are more confident and willing to quit because the economy and the labor markets are strong.  Workers who quit experienced a nearly 30% larger pay increase in May than those who remained in the same job over the past 12 months according to research by the Federal Reserve Bank of Atlanta.

The June jobs report as well as indications that GDP growth was strong 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 fund rate anticipated in 2018 (two of which have already occurred), up from an earlier expectation of three.  Further increases 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.

Tech expert Vivek Wadhwa to speak at 2018 NIC Fall Conference

Global tech entrepreneur, author, academic and advocate, Vivek Wadhwa, will be the 2018 NIC Fall Conference luncheon speaker. Wadhwa will focus on the practical solutions that new technological advances will make possible in the near future. The concept of robots disrupting seniors housing and care, or artificial intelligence and healthcare apps improving property performance may sound like science fiction today, but, according to Wadhwa, the tech innovations that will change the industry are just around the corner.

For those interested in how tech solutions will impact the way they do business, Vivek Wadhwa’s presentation will be thought-provoking and insightful. A Distinguished Fellow at Carnegie Mellon University’s College of Engineering, he is a globally syndicated columnist for The Washington Post and author of several books: “The Driver in the Driverless Car: How Our Technology Choices Will Create the Future”; “The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent”—named by The Economist as a Book of the Year of 2012; and “Innovating Women: The Changing Face of Technology”—a documentation of the struggles and triumphs of women. Wadhwa has held appointments at Duke University, Stanford Law School, Harvard Law School, Emory University, and Singularity University.

In the coming days, NIC will announce our opening general session speaker, a highly sought-after global figure, who will complement Wadhwa’s presentation, and reflect our theme, with a conversation on the U.S. and global economic landscape.

• Occupancy Continues to Fall, Despite Typical Seasonal Influence
• Managed Medicare represents increasingly larger share of skilled nursing revenue

NIC released its first quarter 2018 Skilled Nursing Data Report last week, which includes key monthly data points from October 2011 through March 2018.

Here are some key takeaways from the report:

1. First quarter national occupancy decreased 30 basis points from the fourth quarter to 81.6%, deviating from the expected historical trend which usually shows an uptick in occupancy from the fourth to the first quarter. Occupancy initially increased in both January and February before slipping back in March. March 2018 occupancy was down 210 basis points from the March 2017 rate of 83.7%. Occupancy declined on a year-over- year basis for both urban and rural areas, while it increased for urban cluster properties from the prior quarter.

2. Skilled mix increased at the national level from the prior quarter as Medicare and managed Medicare patient day mix increased 56 and 54 basis points to 13.0% and 6.6%, respectively. This suggests that seasonality did influence the data as higher acuity patients are often admitted during the winter/flu season which in turn often drives an increase in overall occupancy. However, as overall occupancy decreased there may be other factors at play which are offsetting this influence such as pressures on admissions or length of stay. Skilled mix increased across all reported geographic areas in urban, rural, and urban cluster markets. Rural area properties are now at the highest level of skilled mix within the time-series, ending the quarter at 24.4%.
3. Managed Medicare revenue mix reached a time-series high at the national level in February 2018, demonstrating the growing influence of this payor source. Even among rural properties, where revenue mix for managed Medicare is less than half the revenue mix reported in urban areas, the trend is consistent. Rural areas have been less affected by managed Medicare than others, but the trend warrants attention in the years to come, in all geographic areas. The revenue per patient day (RPPD) from managed Medicare continued to decrease from the prior quarter in all areas, except for urban cluster where it increased slightly.
4. Medicare revenue mix increased in the first quarter and was close to the highs of one year ago in urban cluster and rural settings. While the Medicare revenue mix for urban area properties was up quarter-over-quarter, at 23.7%, it was far below previous first-quarter highs of approximately 28% last seen in 2015. Year-over- year, urban area Medicare revenue mix declined 157 basis points from March 2017. It is now down a total of 474 basis points over the past three years.

5. Nationally and consistently across geographic areas, private revenue per patient day continues to increase, with the fastest growth in rate occurring in rural and urban cluster areas. Nationally, private RPPD reached a six-year high of $262 in February 2018 before ending the quarter at $260. Revenue mix for private revenue reached a six-year low at 7.7%, as the share of private revenue continues to drop.

The NIC Skilled Nursing Data Report is available at http://info.nic.org/skilled_data_report_pr. There is no charge for this report.

The report provides aggregate data at the national level from a sampling of skilled nursing operators with multiple properties in the United States. NIC continues to grow its database of participating operators in order to provide data at localized levels in the future. Operators who are interested in participating can complete a participation form at http://www.nic.org/skillednursing. NIC maintains strict confidentiality of all data it receives.

First-quarter data showed continued downward pressure on occupancy rates, with assisted living occupancy falling to its lowest level since NIC began reporting data in 2006—85.7%.  A broader measure, the occupancy rate for all of seniors housing (independent and assisted living) for the 99 Primary and Secondary markets tracked by the NIC MAP^® Data Service, had a first quarter occupancy rate of 88.1%, not the lowest on record, but a nadir since mid-2011 and down from 90.0% as recently as Q4 2015.  During the nine quarters since then, inventory growth has exceeded demand by 23,000 units (70,000 units of inventory growth versus 47,000 units of net absorption).

Occupied Penetration Rates. Based on this data, the occupied penetration rate for seniors housing in the 99 Primary and Secondary markets was 9.9% in the first quarter, defined as occupied units divided by the number of households over 75.  If the occupied penetration rate increased by 20 basis points to 10.1%, the occupancy rate would be 90.0% based on first quarter inventory levels.  For this to happen, an additional 17,000 units would need to be absorbed, an achievable number since this number of units was more than absorbed on a net basis in the past four quarters.

For an occupancy rate of 95%, a rate that is often underwritten as a stabilized occupancy rate for a property recently opened, today’s penetration rate would need to increase by 70 basis points to 10.6%, the equivalent of 64,000 units of additional net absorption.  This is equal to the number of units that have been absorbed in the 99 Primary and Secondary markets on a net basis since the third quarter of 2014 through the first quarter of 2018.

Its notable, however, that a 95% average occupancy rate has never been achieved for the aggregated 99 Primary and Secondary markets; since the fourth quarter of 2009, the average occupancy rate has been 88.9% and only in four of the thirty-four quarters that NIC has reported this data has the aggregated occupancy rate reached 90% or more. That said, this is not the case for individual metropolitan markets (such as San Jose, Baltimore, Portland, Sacramento, Pittsburgh, Seattle, New York, Boston, Los Angeles, Sand Diego, San Francisco and Philadelphia which all had first quarter 2018 seniors housing occupancy rates that were 90% or higher.)

Seniors Housing Inventory versus Multifamily Inventory.  For another perspective on recent market fundamentals, it may be helpful to look at the multifamily sector, where completions (inventory growth) as a share of total inventory equaled 1.8% in 2017 according to estimates by CBRE, the equivalent of 266,000 units.  For seniors housing, inventory grew by 30,000 units from year-earlier levels in the first quarter for the 99 Primary and Secondary markets.   While seemingly small on the surface, for seniors housing this equals a 3.3% increase in inventory.  A comparable estimated increase for the nation would be roughly 45,000 units (under the assumption that the 99 Primary and Secondary markets represent approximately two-thirds of the national inventory which equals the share of 75-plus households for this geographic aggregate relative to the nation).

Further, a comparable increase of 3.3% in apartment stock equals 490,000 units or 41,000 units per month.  The sizeable differences of course are due to orders of magnitudes of differences in the stock of multifamily units versus seniors housing.  Indeed, the multifamily sector is significantly larger than seniors housing (14.7 million units versus an estimated 1.4 million seniors housing units at the national level or 927,000 for the 99 markets).

And How Do Demographics Fit In?  Another way to gain perspective on recent market fundamentals for seniors housing is to compare the estimated 45,000 units of new supply delivered nationally in the past year against the demographic growth in the number of Americans in the 83-plus year cohort for the comparable period. The selection of 83-plus may be viewed as a proxy for those individuals who could be potential residents in seniors housing.  Based on recently updated estimates from the Census Bureau, in 2017 this equated to 8.5 million individuals. In 2018, an additional 138,000 people are projected to age into the 83-plus cohort and by 2025, the Census Bureau estimates that there will be 10.2 million people in this cohort for an increase of 1.6 million people over the eight-year period from 2017 to 2025.  With a penetration rate of roughly 10%, this suggests the need for 164,000 additional units of seniors housing supply over this eight-year period. Using the numbers cited above for the current national run-rate of 45,000 units of stock added in the past 12 months, 164,000 additional units could be added in 3.7 years, outpacing the potential eight-year demand requirement.

However, it is notable that a similar analysis done for a younger cohort–those 80 and older–yields a different conclusion.  In 2017, there were an estimated 12.4 million individuals aged 80 and older versus the 8.5 million figures cited above for those over 83.  By 2025, the Census Bureau estimates that there will be 15.6 million people in this cohort for an increase of 3.2 million people over the eight-year period from 2017 to 2025.  This compares with the growth of 1.6 million for the 83 and over cohort.  With a penetration rate of roughly 10%, the 80-plus cohort growth suggests the need for 316,000 additional units of seniors housing supply over this eight-year period.  Using the numbers cited above for the national run-rate of 45,000 units of stock added in the past 12 months, today’s supply pace of 45,000 units per year would be shy of the demand by roughly one year’s worth of today’s inventory growth or 45,000 units.

So, where does this leave us?  An estimate of demand using the 80-plus cohort suggests that today’s supply run-rate will leave us short of inventory by 2025, ceteris paribus, while the 83-plus cohort analysis suggests excess inventory by 2025.  The answer is probably somewhere in the middle of these two results and points out how sensitive the analysis is to the age-cohort assumption used.

From a practical point of view, there are two ways to prevent today’s occupancy rate of 88.1% from falling lower. The first would be to slow the rate of new supply delivery to below today’s pace especially in markets where occupancy rates are below the national averages due to excessive inventory growth. The second would be to boost demand by growing today’s occupied penetration rate.  And one way to do this would be to attract younger residents because today’s greatest demographic growth is oriented toward the younger old.  (For more thoughts on growing penetration rates see:  http://www.nic.org/blog/boost-market-performance-penetration-rates/)

Benchmark data can inform project projections

By Lana Peck, Anne Standish and Beth Mace

Among the many factors that determine the profitability of a project is the pace of initial move-ins or leasing momentum. A well-located and rapidly leased-up project can build forward momentum for steady demand, high occupancy and solid revenue growth, and build a strong reputation in the trade area among potential residents and their adult child influencers. This Blog explores the topic of leasing and provides occupancy rate benchmarks by segment type on the median time it takes to lease units at newly opened properties based on a 12-year plus time series of leasing patterns collected by the NIC MAP Data Service.

Broadly, data on range of lease-ups and national trend data for seniors housing and care properties can be used in setting proforma occupancy in new development, studies to support financing, and benchmarking occupancy for non-stabilized communities as they fill up. This can help determine, for example, whether a marketing budget will be sufficient during the fill period or how new assisted living units with 45% occupancy four-quarters post-opening stacks up against others.

Some of the factors that affect lease-up rates include: depth of target market demographics, supply penetration, age and size of the property, quality of and proximity to competition, condition of the residential real estate market, consumer familiarity and acceptance, levels of presales before opening, and operator quality.

The table below provides the median occupancy rate achieved by newly opened distinct care segments by the number of quarters the property has been open. The data blends together properties in the NIC MAP 31 primary metropolitan markets since 4Q2005 and properties in the secondary markets since 1Q2008. To help assess upside and downside probabilities, the exhibits outline the realized range for the 25th and 75th percentiles as well.

As the table shows, eight quarters after opening, assisted living units and memory care units had the highest median occupancy rates of 89%, while independent living was lowest at 84%. After 16 quarters, the median occupancy for assisted living was 95%. Nursing care was lowest at 92%. It is worth noting that median occupancy rates are typically higher than the more frequently cited average occupancy rates.

More detail can also be ascertained from the NIC MAP Data Service data by segment type.  For example, for newly opened independent living care segments during this period, the median reached 84% occupancy eight quarters following the property opening. At the same time, the lowest-performing quartile of these segments had less than 66% occupancy and the highest quartile had above 97% occupancy. By the end of 16 quarters after opening, median occupancy was 93%. The lowest quartile had 82% occupancy or less, and the highest quartile had reached 99% occupancy or more. (Note: The lowest quartile is not always made up of the same units, as low-performers improve and previously strong performers slip.) The median size of an independent living segment at a property opened during this period was 100 units.