Intelligent Investment

Economic Watch: Employment Surpasses Pre-Pandemic Levels

August 5, 2022 3 Minute Read

Executive Summary

  • The U.S. added 528,000 jobs in July, more than double the consensus expectation of 258,000. 
  • Education & health services gained 122,000 jobs, the most of any sector.
  • The unemployment rate fell by 10 basis points (bps) to 3.5%, as did the labor participation rate to 62.1%. Average hourly earnings were up 5.2% on a year-over-year basis.
  • This level of job growth confirms our view that the U.S. economy is not yet in recession despite a second consecutive quarter of negative GDP growth in Q2. The strong labor market will reinforce the Federal Reserve’s plan to continue raising interest rates this year, with a hike of 50 or 75 bps expected in September.
  • Strong job growth will continue to support real estate fundamentals in the short-term. However, rising interest rates will increasingly inhibit economic activity as the year progresses, likely causing a recession in 2023.

Impacts on Commercial Real Estate


Office-using jobs increased by 102,000 in July, mostly in the professional & business services sector. Notable job growth in office-using sectors will support leasing over the near term, although a cloudy economic outlook and flexible working continue to weigh on demand.


The warehousing & storage sector lost 1,600 jobs in July while manufacturing gained 30,000. Continued strength in retail trade that supports the warehouse market could wane as economic growth slows.


Traditional retail gained 21,600 jobs in July, while food services & drinking places added 74,100. With strong job and wage growth, consumers are continuing to spend despite rising prices. However, post-pandemic “revenge spending” likely will wane as inflation erodes purchasing power, savings are drawn down and higher interest rates raise borrowing costs.


The construction sector added 32,000 jobs in July. Nonresidential building added 4,900 jobs, while residential gained 2,900. We expect that higher interest rates and a cooling housing market will weigh on the construction sector later this year and next.

Health Care

Health care gained 69,600 jobs in July. Ambulatory health care (outpatient services) added 47,300, while hospital employment increased by 12,900 and nursing & residential care added 9,400. With favorable long-term demographics and fewer pandemic-related disruptions, demand for health care facilities should remain positive.


Accommodation services employment remained relatively flat, losing 200 jobs in July. Travel has been a prime beneficiary of the consumer spending shift from goods to services. However, the sector may soon face headwinds from slower economic growth and rising prices.


Demand for apartments should remain strong as the single-family housing market is challenged by higher mortgage rates and continued affordability issues. However, we expect that multifamily rent growth may slow in a deteriorating economic environment.

The Bottom Line

The U.S. labor market continued a remarkable run in July and has now regained and exceeded all the jobs lost during 2020. Strong job gains and annual wage growth of 5.2% will keep the Fed on its aggressive rate-hiking path, with an increase of 50 or 75 bps likely in September. It always takes time for monetary tightening to impact the real economy. We expect higher interest rates will result in slower economic growth later this year, with some companies trimming their payrolls.

July’s exceptional job growth reaffirms our view that the U.S. has not yet entered a recession and that high inflation may persist longer than expected. The prospect of a “soft landing” for the economy is fading. We expect economic conditions to worsen later this year as the impact of higher interest rates takes effect. This will weigh on economic growth, as well as real estate fundamentals and investment volumes later this year and into 2023.


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