Intelligent Investment

Economic Watch: Fed Likely to Raise Interest Rates This Month Despite Slower Job Growth in June

July 7, 2023 2 Minute Read

Executive Summary

  • The U.S. added 209,000 jobs in June, below consensus estimates of 240,000. Job growth was 306,000 for May (revised down by 33,000) and 217,000 for April (revised down by 77,000).
  • June marked the first month in more than a year that new job creation was below expectations and was the lowest monthly total since December 2020.
  • The largest job gains were in state & local governments with 60,000, followed by health care with 41,000, social assistance with 24,000 and construction with 23,000.
  • The unemployment rate fell by 10 basis points (bps) to 3.6%, while the labor force participation rate remained at 62.6% for the fourth consecutive month. Average hourly earnings continued to grow solidly, up by 4.4% on a year-over-year basis.
  • Despite the slowdown in job growth, we expect the Fed will increase the federal funds rate by 25 bps later this month. However, we believe that core inflation will fall in coming months, reducing the likelihood of additional rate hikes.
  • We do not expect that commercial real estate investment and leasing activity will begin to improve until the end of 2023 at the earliest. The bulk of that recovery likely won’t occur until next year.

Impacts on Commercial Real Estate


Office-using jobs increased by 31,000 in June, with professional & business services gaining 21,000 and financial activities 10,000. Despite these gains, structural changes in office usage and corporate cost cutting will continue to temper occupier demand.


The transportation & warehousing sector lost 6,900 jobs last month, while manufacturing gained 7,000. We expect industrial & logistics fundamentals to remain relatively strong, even as demand for space slows to more sustainable levels.


Traditional retail lost 11,200 jobs in June, while food services & drinking places lost 800. Although retail real estate fundamentals remain strong, we expect that the lagged impact of rate hikes and the restart of student loan payments will begin to lower consumer spending and demand for retail space.

Health Care

Health care gained 41,100 jobs in June. Ambulatory health care (outpatient services) added 13,800, while hospitals gained 15,000 and nursing & residential care 12,300. We expect long-term demand for health care properties to remain resilient as an aging population substantially boosts health care demand.


A historically strong labor market bolsters the outlook for multifamily properties, supporting household formation. Although challenges to single-family housing affordability should continue to drive demand into multifamily, additional cooling of the labor market could impact household formation.

The Bottom Line

Although June marked the first month in more than a year that job growth was below expectations, the labor market remains historically strong. Job growth was well above what is needed to absorb new entrants into the labor market, maintaining a historically low unemployment rate. Year-over-year wage growth of 4.4% in June remained above a level consistent with the Fed’s 2% inflation target, and prime-age worker employment (25 to 54) was at levels not seen since the early 2000s. Particularly with continued strong wage growth, we expect that the Fed will hike the federal funds rate by 25 bps later this month.

We expect the government to report a continued decline in the Consumer Price Index next week. This likely will lower the probability of further Fed rate hikes after this month. Nevertheless, the Fed will be in no hurry to cut rates until the labor market begins to weaken sometime next year. With the continued high cost of capital and persistant interest rate uncertainty, it is unlikely that investment activity will improve this year. However, leasing activity may improve if GDP growth remains solid in Q3. A full property market recover is unlikely until mid-to-late 2024.


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