Intelligent Investment
Economic Watch: Job Growth Slows in January
February 7, 2025 3 Minute Read
Executive Summary
- The U.S. added 143,000 jobs in January, below expectations of 169,000, led by healthcare, retail and government.
- Job growth in November and December was revised up by a total of 100,000.
- The unemployment rate fell to 4.0%, while the labor force participation rate was unchanged at 62.6%. Average hourly earnings rose by 4.1% year-over-year.
- January’s employment report indicates that the labor market remains healthy. This means the Fed will have the policy flexibility to lower rates slowly in 2025 in light of potential risks of higher inflation.
- Continued job growth is positive for leasing, but mixed (due to implications for interest rates) for investment market activity, which we anticipate will be subdued over the coming quarters.
Impacts on Commercial Real Estate
Office
Office-using jobs fell by a net of 4,000 in January. Within that scope, financial activities gained 7,000 jobs, while professional & business services lost 11,000. Office-using monthly job growth has been inconsistent of late, but several factors are supportive of leasing activity. Those include: continued growth in the economy, less uncertainty around work patterns, more certainty around corporate taxes and a less burdensome regulatory environment.
Industrial
The warehousing & storage sector lost 4,600 jobs in January, while manufacturing gained 3,000. We expect that demand for industrial & logistics space, although slowing, will remain relatively resilient thanks to continued strength in consumer spending and e-commerce. However, we continue to monitor potential changes—both long-term and short-term—to trade policy, which could heavily influence market dynamics.
Retail
Food services & drinking places lost 15,700 jobs in January. This contrasts with a gain of 34,300 in traditional retail jobs. Despite this somewhat mixed picture, we anticipate that continued consumer spending will fuel retail demand amid already strong fundamentals. However, we continue to monitor potential changes to trade policy that could impact retailer margins and costs.
Construction
The construction sector added 4,000 jobs in January, less than its 12-month average of 14,800. Though traditionally very sensitive to interest rates, construction activity has been supported by federal policy. This has fueled large scale projects. Furthermore, dynamics in the housing market have bolstered new residential construction.
Health Care
Health care gained 43,700 jobs. Ambulatory services employment increased by 16,600, hospitals by 13,900 and nursing and residential care facilities by 13,200. January’s gain fell short of the sector’s monthly average of 55,100 over the past year. We expect that health-care property demand will be driven by aging demographics, increasing demand for medical services.
Hotels
Accommodation services lost 1,800 jobs in January. Consumers continue to spend on experiences. Even so, we expect that hotel demand will continue to moderate as spending cools.
Multifamily
Multifamily demand is expected to remain strong as high mortgage costs put homeownership out of reach for many would-be buyers. Continued job growth also supports household formation, which will aid absorption of new rental supply.
The Bottom Line
Healthy job growth in January, paired with an upward revision of 100,000 jobs in November and December, affirms confidence in the labor market’s health. This supports our view that the Fed is likely to lower rates slowly this year.
Continued economic growth will bolster leasing, particularly for office space. Retail should also see healthy demand, while industrial leasing should remain relatively resilient. This view is further supported by likely individual tax rate extensions later this year, as well as favorable corporate tax rates. We expect that cooling inflation over the course of 2025 will help ease bond yield volatility and support increased commercial real estate investment activity later in the year.
