Economic Watch: April Job Growth Beats Expectations

Executive Summary

• The U.S. added 253,000 jobs in April, well above the consensus expectation of 180,000.
• Job gains occurred in all sectors except for wholesale trade. Professional & business services, health care and leisure & hospitality had the highest.
• The unemployment rate ticked down by 10 basis points (bps) to 3.4% and the labor participation rate was unchanged at 62.6%.
• Average hourly earnings rose by 0.5% for the month and 4.4% for the year, surpassing respective expectations of 0.3% and 4.2%.
• Revisions to previous jobs reports showed 149,000 fewer jobs were created in February and March than originally reported.
• Following the Fed’s quarter-point rate increase this week, today’s stronger-than-expected jobs report raises the probability that the Fed will increase interest rates another time this year.
• CBRE expects capital markets and leasing activity to remain subdued before beginning to improve in Q4.

Impacts on Commercial Real Estate

Office

Office-using jobs increased by 66,000 in April, with professional & business services gaining 43,000 and financial activities adding 23,000. However, this healthy growth is unlikely to materially boost office leasing as the broader economic outlook remains cloudy and companies focus on controlling expenses.

Industrial

The manufacturing sector gained 11,000 jobs, while transportation & warehousing added 4,000. We expect industrial & logistics fundamentals will remain relatively resilient, although demand for space may soften somewhat as economic activity slows.

Retail

Traditional retail gained 7,700 jobs in April, while food services & drinking places added 24,800. Even though retail real estate fundamentals remain strong, we expect that recent rate hikes will weigh more heavily on consumer spending going forward, dampening demand for retail space.

Construction

The construction sector gained 15,000 jobs in April, driven by specialty trade contractors. We expect that relatively high interest rates will dampen sector activity over the next several quarters.

Health Care

Health care gained 39,600 jobs in April. Ambulatory health care (outpatient services) added 24,200, while hospitals and nursing & residential care facilities had respective gains of 6,600 and 8,800. Long-term demographics should support health-care real estate demand for the foreseeable future.

Hotels

Accommodation services added just 200 jobs in April. While resurgent travel demand will support hotel occupancy in the near term, a slowing economy eventually will take a toll as household balance sheets deteriorate later in 2023.

Multifamily

A historically strong labor market bolsters the outlook for multifamily properties, supporting household formation. Although challenges to single-family housing affordability should continue to drive demand into multifamily, we expect such demand will lessen as the labor market cools in coming months.

The Bottom Line

The U.S. labor market remains tight, with 253,000 jobs added in April versus much lower expectations of 180,000. Annualized wage growth of 4.4% also exceeded expectations.

Despite the strong gains last month, the rate of job growth continues to fall: Average gains over the past three months are 33% lower than in the previous three. Furthermore, job gains in February and March were revised down by 149,000. Housing prices are also expected to fall soon and the additional squeeze on the economy from banking sector stress will play out over the next six months. This suggests that inflation will continue to ease. However, if high inflation persists, the Fed likely will increase interest rates another time this year.

CBRE anticipates the lagged effect of rate hikes and banking sector volatility will further tighten credit conditions. Job growth likely will slow further in the coming months as the economy slips into a moderate recession. This will negatively affect demand for commercial real estate across sectors. We expect that a broad-based recovery in capital markets activity will begin in Q4, followed by an improvement in leasing activity.