Intelligent Investment

Economic Watch: Gently Slowing Job Market Keeps Fed on Course With Rate Hikes

October 7, 2022 3 Minute Read

Executive Summary

  • The U.S. added 263,000 jobs in September, slightly below the consensus expectation of 275,000. The gain, while strong, was down from 315,000 in August.
  • The September increase was paced by education and health services, which gained 90,000 jobs.
  • The unemployment rate decreased to 3.5%, in part due to a slight fall in labor participation to 62.3% as people left the workforce. Average hourly earnings were up 5.0% on a year-over-year basis.
  • Continued strong job and wage growth will keep the Federal Reserve on course to hike interest rates, with a 75 basis-point (bps) increase expected in November.
  • As with the labor market, real estate fundamentals are gently weakening with lower office and multifamily leasing. The capital markets have been hit harder by the Fed’s monetary tightening with sales and lending activity slowing sharply. We expect both trends to continue into 2023 before capital markets begin to recover late next year.

Impacts on Commercial Real Estate


Office-using jobs increased by 38,000, with professional & business services accounting for all of them. While the economy continues to steadily produce office-using jobs and the office market has pockets of strength, activity will continue to be hampered by a weakening economic outlook and uncertainty about occupiers’ long-term office needs.


Warehousing & storage sector job growth was flat (+200 jobs) and manufacturing added 22,000. We continue to see solid demand for industrial & logistics real estate, though it will likely soften as economic growth slows and higher interest rates and continued inflation curb consumer spending.


Traditional retail lost 1,100 jobs, while food services & drinking places added 60,000. Although consumers have remained resilient amid high inflation—thanks to a strong labor market —we expect a deteriorating macroeconomic environment to weigh on retail leasing.


The construction sector added 19,000 jobs. Weakness was particularly pronounced in residential construction and as higher interest rates cool the housing market, job growth will be constrained this year and next.

Health Care

Health care gained 60,100 jobs. Ambulatory health care (outpatient services) added 28,100, while hospital employment and nursing & residential care increased by 27,500 and 4,500, respectively. Health care properties should remain relatively resilient, fueled by an aging population and fewer pandemic-related challenges.


Accommodation services added 6,700 jobs. Pent-up demand as people resume leisure travel has supported the sector all year. However, slower economic growth and high inflation will pose headwinds in coming quarters.


The strong labor market has underpinned multifamily fundamentals, and rising mortgage rates and continued affordability issues in the single-family market should support continued multifamily demand. Nevertheless, we expect that multifamily rent growth will continue to slow in a weaker economic environment.

The Bottom Line

The U.S. labor market is slowing gently, but not enough to ease wage inflation. This will persuade the Fed to keep hiking interest rates. We expect a 75-bps increase in November and the federal funds rate to top out next year at about 4.5%. As always, it takes time for higher interest rates to affect consumer and business behavior and we expect those effects to be increasingly evident in the economy and real estate markets in the months ahead and into 2023.


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