Intelligent Investment
Economic Watch: Cooling Labor Market Sets Stage for Fed Rate Cut This Month
September 6, 2024 3 Minute Read
Executive Summary
- The U.S. added 142,000 jobs in August, below expectations of 161,000. Job gains in June and July were revised down by 86,000.
- Job growth in August was largely in the construction, health care and leisure & hospitality sectors.
- The unemployment rate edged down by 10 basis points (bps) to 4.2%, while the labor force participation rate remained at 62.7%. Average hourly earnings rose by 3.8% year-over-year, up from July’s gain of 3.6%.
- Slower job growth and lower inflation in recent months has set the stage for the Fed to cut interest rates by at least 25 bps on September 18.
- CBRE expects that a combination of lower inflation and short-term rate cuts will help to suppress long-term bond yields, which should boost commercial real estate investment activity.
Impacts on Commercial Real Estate
Office
Office-using jobs increased by 19,000 in August. Financial activities gained 11,000, while professional & business services added 8,000. Although office-using job growth has been inconsistent over the past three months, the gain in August is a good sign for office leasing activity.
Industrial
The warehousing & storage sector gained 3,900 jobs in August, while manufacturing lost 24,000. Although slowing, we expect that demand for industrial & logistics space will remain relatively healthy due to resilient consumer spending and e-commerce growth.
Retail
Food services & drinking places gained 29,900 jobs in August, which was partly offset by a loss of 11,100 traditional retail jobs. This reflects continued resilience in consumer services and bodes well for experiential retail. Additionally, little new retail real estate supply bodes well for future fundamentals.
Construction
The construction sector added 34,000 jobs in August, well above its monthly average of 21,700 over the past three months. Though traditionally very interest rate sensitive, construction activity has been boosted by efforts to address the housing shortage and by federal programs that support large-scale construction projects.
Health Care
Health care gained 30,900 jobs, led by ambulatory services (23,900) and hospitals (9,600). August’s gain was well below the sector’s monthly average of 42,000 over the past three months. We expect that health-care property demand will remain resilient as the U.S. population ages.
Hotels
Accommodation services gained 3,600 jobs in August. While consumers continue to spend on experiences, we expect that hotel demand will moderate as the economy slows and consumers reduce spending.
Multifamily
Multifamily demand is expected to remain strong as high mortgage costs put home-buying out of reach for many. Continued job growth also supports household formation, which will aid absorption of new rental supply.
The Bottom Line
The U.S. labor market is showing the effects of restrictive monetary policy. August’s relatively slow job growth, along with lower inflation, supports our view that the Fed will begin cutting the federal funds rate this month. We think the initial reduction is likely to be 25 bps, but a 50-bp cut is possible given the softer labor market. Lower interest rates will support increased real estate investment activity and property values. Nevertheless, the Fed’s current restrictive policy stance poses a risk to economic growth and real estate activity.
