Intelligent Investment

Economic Watch: Labor Market Shows Further Signs of Cooling

September 1, 2023 3 Minute Read

Looking down on a city.

Executive Summary

  • The U.S. added 187,000 jobs in August, above consensus estimates of 170,000. Job growth in June and July was revised down by a combined 110,000.
  • The average monthly job gain over the past three months has fallen to 150,000 from 312,000 in Q1 2023 and 400,000 in 2022.
  • The health-care sector gained the most jobs in August (70,900), followed by the social-assistance sector (26,400). Sectors with the largest declines were transportation & warehousing (-34,200) and information (-15,000).
  • The unemployment rate rose to 3.8% from 3.5%, while the labor force participation rate rose by 20 basis points to 62.8%—its highest level since right before the pandemic. Average hourly earnings growth stayed strong, up by 4.3% year-over-year.
  • The labor market remains tight but is beginning to soften. This jobs report likely reduces the chance of a Fed rate hike in September.
  • With the federal funds rate at 5.25% to 5.5%, we do not expect a broad recovery in capital markets activity until the first half of 2024, followed by a recovery in leasing activity.

Impacts on Commercial Real Estate


Office-using jobs increased by 23,000 in August, with professional & business services gaining 19,000 and financial activities adding 4,000. Slower job growth, corporate cost cutting and structural changes in office usage are near-term headwinds for office demand.


The transportation & warehousing sector lost 34,200 jobs last month, while manufacturing gained 16,000. The large drop in transportation & warehousing jobs was primarily due to the bankruptcy of trucking company Yellow. Transportation job growth will be further strained by rising fuel and labor costs. Industrial real estate fundamentals remain relatively strong, with continued demand for units of less than 300,000 sq. ft.


Traditional retail gained 6,300 jobs in August, while food services & drinking places added 14,900. Retail real estate fundamentals remain strong, but we expect that lagged impacts of interest rate hikes and the restart of student loan payments will lead to less consumer spending, lowering demand for retail space.


The construction sector added 22,000 jobs in August, mostly among specialty trade contractors. Non-residential building construction added 1,800 jobs and residential construction added 2,400. The construction industry has not been affected by higher interest rates as much as it has in the past, in part due to a housing shortage and government subsidies for certain infrastructure and manufacturing projects.

Health Care

Health care gained 70,900 jobs in August. Ambulatory health care (outpatient services) added 39,900, while hospitals gained 14,500 and nursing & residential care 16,500. We expect that demand for health-care properties will strengthen in the long-term due to an aging population.


Accommodation services added 8,600 jobs in August. The hotel sector continues to benefit from pent-up travel demand, but there is potential for less leisure spending later this year as consumer spending weakens.


Multifamily leasing bounced back last quarter, largely due to continued strength of the economy and less affordability of single-family housing. A softening labor market over the coming months will reduce household formation, but the overall lack of homes relative to demand is a powerful offset.

The Bottom Line

The U.S. labor market remains tight, with an unemployment rate of 3.8% and an increasing labor force participation rate. However, signs of weakness are emerging. The average monthly job gain over the past three months has fallen to 150,000 from 312,000 in Q1 2023 and 400,000 in 2022. This week’s release of the Job Openings and Labor Turnover Survey for July shows that hires, quit rates and job openings have fallen significantly from their post-pandemic highs. A slowing labor market will cause the Fed to take a cautious approach to further rate hikes.

With core inflation trending downward and further cooling in the labor market expected, the Fed likely will hold interest rates at their current level for the rest of this year. However, the Fed is unlikely to cut rates before Q1 2024 at the earliest. Long-term rates will remain elevated but ease from current levels throughout the year. Capital markets activity is unlikely to improve until the first half of next year, followed by a rebound in leasing activity.