Intelligent Investment
Economic Watch: Fed Rate Cut Still Likely Even With Strong November Job Growth
December 6, 2024 3 Minute Read
Executive Summary
- The U.S. added 227,000 jobs in November, exceeding expectations of 214,000. Job gains in September and October were revised up by a total of 56,000.
- Job growth in November was led by the health care and leisure & hospitality sectors, with gains also seen in the office-using financial activities and professional & business services sectors.
- The unemployment rate edged up by 10 basis points (bps) to 4.2%, while the labor force participation rate fell by 10 bps to 62.5%. Average hourly earnings rose by 4.0% year-over-year.
- Barring an unexpected jump in the Consumer Price Index next week, the Fed likely will cut the federal funds rate by 25 bps on December 18. Although we expect the 10-year Treasury yield to remain above 4%, a moderate recovery in investment activity will continue.
Impacts on Commercial Real Estate
Office
Office-using jobs increased by 43,000 in November. Professional & business services gained 26,000 jobs, while financial activities gained 17,000. Although office-using monthly job growth has been inconsistent, continued economic growth and increased office attendance bode well for future leasing activity.
Industrial
Manufacturing gained 22,000 jobs in November, largely due to settlement of the Boeing strike, while the warehousing & storage sector lost 1,400. 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
A gain of 28,900 food services & drinking places jobs in November was offset by the loss of nearly the same amount of traditional retail jobs. Continued demand for retail space amid little new supply, coupled with a resilient economy that supports consumer spending, will maintain strong retail fundamentals.
Construction
The construction sector added 10,000 jobs in November, well below its monthly average of 17,600 over the past year. Though traditionally very interest rate sensitive, recent construction activity has been supported by federal programs to boost infrastructure and manufacturing. Additionally, the ongoing housing shortage is spurring more residential construction.
Health Care
Health care gained 53,600 jobs, led by ambulatory services (22,400) and hospitals (19,300). November’s gain was less than the sector’s monthly average of 59,000 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 5,700 jobs in November. While consumers continue to spend on experiences, we expect that hotel demand will moderate further as spending cools due to reduced savings.
Multifamily
Multifamily demand is expected to remain strong as high mortgage costs put home-buying out of reach for many. Continued job growth also supports household formation, which will aid absorption of new rental supply.
The Bottom Line
Strong job growth in November, along with upward revisions in September and October, underscores the health of the labor market. We retain our view that the Fed will cut interest rates by 25 bps this month, with the federal funds rate down by a full percentage point for the year. CBRE expects another 75 bps in rate cuts next year.
Long-term bond yields should remain at levels that support a moderate recovery in investment activity and property values. Continued economic growth will aid leasing as well, particularly with greater likelihood of stability in federal tax policy. A significant slowdown in European and Chinese economic growth poses a potential risk to our outlook. Nevertheless, we expect favorable economic conditions that support the U.S. real estate sector.
