Intelligent Investment
Economic Watch: December Job Growth Far Exceeds Expectations
January 10, 2025 3 Minute Read
Executive Summary
- The U.S. added 256,000 jobs in December, far exceeding expectations of 155,000. Job gains in October and November were revised down by a total of 8,000.
- Job growth in December was largely in health care, leisure & hospitality and government.
- The unemployment rate fell slightly to 4.1%, while the labor force participation rate remained unchanged at 62.5%. Average hourly earnings rose by 3.9% year-over-year.
- The 10-year Treasury yield jumped to 4.75% earlier today and likely will remain above 4% throughout 2025. We still expect a continued recovery in commercial real estate investment activity.
Impacts on Commercial Real Estate
Office
Office-using jobs increased by 41,000 in December. Professional & business services gained 28,000, while financial activities added 13,000. Although office-using job growth has been inconsistent from month to month, continued economic growth and less uncertainty about office utilization patterns should support improved leasing activity.
Industrial
The warehousing & storage sector gained 2,100 jobs in December, while manufacturing lost 13,000. Although slowing, we expect that demand for industrial & logistics space will remain relatively resilient due to continued strength in consumer spending and e-commerce.
Retail
Traditional retail gained 43,400 jobs in December and food services & drinking places added 29,800. Continued demand amid little new supply and a resilient economy will maintain strong retail fundamentals.
Construction
The construction sector added 8,000 jobs in December, well below its monthly average of 14,500 over the past year. Though traditionally very interest rate sensitive, construction activity has been aided by federal programs supporting large scale projects, as well as by a housing shortage spurring new residential construction.
Health Care
Health care gained 46,100 jobs, led by ambulatory services (20,600) and home health services (15,200). December’s gain was less than the sector’s monthly average of 52,900 over the past year. We expect that health-care property demand will be fueled by aging demographics and increasing demand for medical services.
Hotels
Accommodation services gained 6,000 jobs in December. While consumers continue to spend on experiences, we expect that hotel demand will moderate as spending cools due to reduced savings.
Multifamily
Multifamily demand should remain strong as high mortgage costs make home-buying unaffordable for many. Continued job growth also supports household formation, which will aid absorption of new rental supply.
The Bottom Line
Strong job growth in December increases confidence in the labor market’s continued health. This supports our view that the Fed will pause its rate reductions later this month and lower rates more slowly throughout the year.
Financial conditions have tightened in the past month over concerns about the inflation outlook. This jobs report will create further bond market volatility, which will be a near-term headwind to investment activity. However, we expect cooling inflation over the course of 2025 will help lower bond rates and improve commercial real estate investment activity. Continued economic growth will aid leasing as well, particularly with current federal individual tax rates likely to be extended later this year.
A significant slowdown in European and Chinese economic growth poses a potential risk to our outlook. Nevertheless, we expect generally favorable economic conditions that support the U.S. real estate sector.
