Intelligent Investment

Economic Watch: December Job Growth Does Not Add Pressure on Fed

January 6, 2023 3 Minute Read

Executive Summary

  • The U.S. added 223,000 jobs in December, above the consensus expectation of 200,000.
  • Job gains were uneven across sectors, with health care and leisure & hospitality adding the most.
  • The unemployment rate decreased to 3.5%, while the labor participation rate increased by 20 basis points (bps) to 62.3%. Average hourly wages were up 4.6% on a year-over-year basis, below expectations of 5%.
  • Financial markets reacted positively to today’s jobs report, with equity markets rising broadly and long-term interest rates falling.
  • However, the economic outlook remains guarded. Considering that the labor market is a lagging indicator of the economy, higher interest rates are expected to curb job growth over coming months. This in turn will affect real estate markets.

Impacts on Commercial Real Estate


Office-using industries lost 1,000 jobs in December, with professional & business services losing 6,000 and financial activities gaining 5,000. We expect office demand will remain relatively subdued in the near term before beginning to recover in early 2024.


The warehousing & storage sector lost 3,000 jobs, while manufacturing gained 8,000. Although we expect higher interest rates will slow the economy, industrial & logistics market fundamentals are very strong and will likely remain so throughout 2023.


Traditional retail gained 9,000 jobs, while food services & drinking places added 26,300. We expect that a slowing economy will reduce demand for retail space in coming months. Nevertheless, the sector is heading into this period of greater uncertainty with relatively strong fundamentals, as very little new retail space has been added to the market in recent years.


The construction sector added 28,000 jobs in December, with gains in both residential and non-residential building. Nevertheless, the mix of higher cost of capital and a slowing economy indicates growth in the sector will be subdued over the near term.

Health Care

Health care gained 54,700 jobs in December. Ambulatory health care (outpatient services) added 29,900, while hospital employment and nursing & residential care increased by 15,700 and 9,100, respectively. Demand for health-care properties should remain relatively resilient due to an aging population and a return to pre-pandemic patterns of health-care utilization.


Accommodation services added 10,000 jobs in December. The recent shift in consumer demand from goods to services continues to benefit the sector. Pent-up demand for travel should help limit impacts of an economic slowdown on the sector.


We expect multifamily rents will soften as the economy slows, even though a relatively strong labor market favors the sector. Multifamily demand will be underpinned by less single-family housing affordability, exacerbated by rising interest rates and limited supply.

The Bottom Line

Continued labor market tightness will keep the Fed on track to continue raising interest rates in the first half of 2023. Although the headline rate of inflation and wage growth have eased, the fight against inflation is not yet over. The last thing the Fed wants to do is loosen its monetary policy too early and risk a revival of rampant inflation. Further reductions in aggregate demand are required to avoid this outcome.

We expect that slower job growth in 2023 will adversely affect real estate fundamentals before a broader economic recovery in 2024 improves market conditions. Capital markets activity likely will remain subdued over the near term but should recover ahead of the broader economy around midyear 2023.