Intelligent Investment
Economic Watch: Quarter-Point Fed Rate Cut Likely Following Strong September Jobs Report
October 4, 2024 3 Minute Read
Executive Summary
- The U.S. added 254,000 jobs in September, well above expectations of 150,000. Job gains in July and August were revised upward by a total of 72,000.
- Job growth in September was largely in the food services, health care and government sectors.
- The unemployment rate edged down by 10 basis points (bps) to 4.1%, while the labor force participation rate remained at 62.7%. Average hourly earnings rose by 4.0% year-over-year, up from July’s gain of 3.8%.
- Today’s jobs report supports CBRE’s view that the Fed likely will cut interest rates by just 25 bps in November. We expect that Treasury yields will remain at levels that continue to boost investment activity.
Impacts on Commercial Real Estate
Office
Office-using jobs increased by 22,000 in September. Financial activities gained 5,000, while professional & business services added 17,000. Although office-using job growth has been inconsistent over the past three months, continued economic growth and less uncertainty about work patterns will support leasing activity.
Industrial
The warehousing & storage sector lost 11,000 jobs in September and manufacturing lost 7,000. 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
Food services & drinking places gained 69,400 jobs in September, while 15,600 traditional retail jobs were added. This reflects resilience in consumer services and bodes well for experiential retail. Continued demand amid little new supply will maintain strong retail fundamentals.
Construction
The construction sector added 25,000 jobs in September, above its 12-month average of 23,333. Though traditionally very interest rate sensitive, construction activity has been bolstered by federal programs supporting infrastructure and manufacturing and by new residential construction.
Health Care
Health care gained 45,200 jobs in September, led by ambulatory services (24,300) and hospitals (11,500). September’s gain exceeded the sector’s monthly average of 43,100 over the past 12 months. We expect that health-care real estate demand will be fueled by an aging population’s need for more medical services.
Hotels
Accommodation services gained 6,600 jobs in September. While consumers are still spending on experiences, we expect that hotel demand will continue to moderate as pandemic-era savings are reduced.
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
The U.S. labor market showed outsized growth in September after slowing earlier this year. Although we expect relatively healthy Q3 GDP growth, September’s exceedingly strong job numbers may be revised down in subsequent months.
With the prospect of lower inflation, we retain our view that the Fed will cut rates by 25 bps in both November and December, reducing the federal funds rate by a full percentage point for the year. Lower interest rates and continued economic growth will support increased real estate investment activity and property values.
The economic environment supports leasing as well. While risks remain, including noticeable economic slowdowns in Europe and China, we continue to expect a soft landing for the U.S. economy.
