Intelligent Investment

Economic Watch: Despite Slower Job Growth in July, Labor Market Remains Tight

August 4, 2023 3 Minute Read

Looking down on a city.

Executive Summary

  • The U.S. added 187,000 jobs in July, below consensus estimates of 200,000. Jobs added in May and June were revised down by a combined 49,000. Job growth was below 200,000 for the second consecutive month.
  • The health-care sector gained the most jobs in July (63,000), followed by the social-assistance sector with 24,100. Sectors with the largest declines were information (-12,000) and transportation & warehousing (-8,400).
  • The unemployment rate fell to 3.5% from 3.6%, while the labor force participation rate remained at 62.6% for the fifth consecutive month. Average hourly earnings increased by 4.4% on a year-over-year basis.
  • Cooling job growth signals that the Federal Reserve’s rate-hiking cycle is beginning to have the desired effect.
  • With the economy remaining resilient, we do not expect that capital markets activity will pick up across the board until early 2024, followed by a recovery in leasing activity.

Impacts on Commercial Real Estate


Office-using jobs increased by 11,000 in July, with financial activities gaining 19,000 and professional & business services losing 8,000. Slower job growth, along with corporate cost cutting and structural changes in office usage, likely will weaken demand for office space in the near term.


The transportation & warehousing sector lost 8,400 jobs last month and manufacturing lost 2,000. We expect industrial real estate fundamentals to remain relatively strong, but demand may fall due to economic uncertainty.


Traditional retail gained 8,500 jobs in July, while food services & drinking places added 13,400. Retail real estate fundamentals remain strong, but we expect that lagged impacts of interest rate hikes and the restart of student loan payments in October will lead to less consumer spending and demand for retail space.


The construction sector added 19,000 jobs in July, with the majority in specialty trade contractors. Non-residential building added 10,500 jobs and residential lost 5,500. The construction industry has not been affected by higher interest rates as much as it has in the past, in part due to a housing shortage and the reshoring of some manufacturing activity aided by the CHIPS Act.

Health Care

Health care gained 63,000 jobs in July. Ambulatory health care (outpatient services) added 35,400, while hospitals gained 16,100 and nursing & residential care 11,500. We expect that long-term demand for health-care properties will strengthen due to an aging population.


Accommodation services added 2,800 jobs in July. The hotel sector continues to benefit from pent-up demand, but there is potential for less travel spending later this year as consumer spending weakens.


Multifamily leasing bounced back in Q2, largely due to easing concern over the economic outlook and less affordability of single-family housing. A softening labor market over the coming months could impact household formation.

The Bottom Line

This is the second consecutive month in which job growth fell below 200,000 versus the 400,000 average monthly gain in 2022. However, the labor market remains very tight as the employment rate ticked down to 3.5%. Wages increased by 4.4% year-over-year, well above the Fed’s 2% inflation target.

Despite our expectations for lower core inflation and a further-cooling labor market, one more Fed rate hike is possible this year. It’s unlikely that the Fed will cut rates until at least Q1 2024. Capital markets sentiment is improving but it is unlikely that investment activity will improve until the first half of next year. Leasing activity also likely will not rebound until 2024.


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