Intelligent Investment
Economic Watch: June Employment Report Keeps September Rate Cut on the Table
July 8, 2024 3 Minute Read
Executive Summary
- On Friday, the Labor Department reported that the U.S. economy added 206,000 jobs in June, slightly above expectations. April and May employment growth was revised down by 111,000 jobs.
- June’s gains were largely in healthcare, social services, government and construction.
- The unemployment rate edged up 10 bps to 4.1%, while the labor force participation rate increased to 62.6%. Average hourly earnings rose by 3.9% year-over-year, the slowest rise since 2021.
- Today’s report reflects a labor market that is continuing to rebalance, keeping alive a potential September interest rate cut.
- While the 10-year Treasury rate fell on today’s news, we expect investment activity to remain largely subdued until Q4. Leasing momentum is likely to continue amid resilient economic growth.
Impacts on Commercial Real Estate
Office
Office-using jobs fell by 8,000 in June. Financial activities gained 9,000 jobs but professional & business services lost 17,000. The resilient economy will support continued leasing activity, although slowing job growth will weigh on demand.
Industrial
The warehousing/storage and manufacturing sectors lost 2,300 and 8,000 jobs, respectively. Despite this, we expect demand to remain healthy for industrial properties thanks to relatively healthy consumer spending, particularly ecommerce.
Retail
Traditional retail lost 8,500 jobs and food services & drinking places shed another 3,100. The job losses reflect the impact of high interest rates, inflation and the depletion of pandemic-era household savings; however, real estate fundamentals remain strong amid little new supply.
Construction
The construction sector added 27,000 jobs, supported by federal government spending and increased building in response to the single-family home shortage.
Health Care
Health care gained 48,600 jobs, led by ambulatory health care (22,000 jobs) and hospitals (21,700). Nursing & residential care chipped in 4,900. We expect that healthcare property demand will continue to benefit from demographic trends.
Hotels
Accommodation services gained just 700 jobs. Consumers continue to spend on experiences, but we believe hotel demand will moderate as consumers continue to deplete their excess 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 the new rental supply.
The Bottom Line
The U.S. labor market remains strong, but is clearly cooling. This reflects progress in the Fed’s efforts to lower inflation to its 2% target. Slowing job growth keeps a September rate cut on the table, but much will depend on Thursday’s Consumer Price Index reading.
With Fed rate cuts likely later this year, we expect the 10-year Treasury yield to end 2024 at 4.1%. This level will support increased dealmaking activity and higher property values. Consequently, we expect capital markets activity to improve, particularly in Q4. Leasing will continue to benefit from resilient economic activity.
