Intelligent Investment

Economic Watch: Robust Job Growth Keeps Fed Cautious

February 2, 2024 3 Minute Read

Looking down on a city.

Executive Summary

  • The U.S. added 353,000 jobs in January, nearly twice as much as the 185,000 that analysts had been expecting. Employment growth was revised up by a combined 126,000 jobs in November and December.
  • Job gains spanned nearly all sectors, except mining and logging. Professional services and healthcare paced the growth.
  • The unemployment rate was unchanged at 3.7%, while the labor force participation rate held steady at 62.5%. Average hourly earnings remained strong, rising 4.5% year-over-year.
  • Although this month’s employment report was much stronger than expected, the labor market is unlikely to maintain this pace of expansion. But we expect it will keep Federal Reserve rate cuts on hold until May.
  • Continued high cost of capital will temper real estate investment activity during the first half of 2024. We anticipate leasing will be hampered by an uncertain business environment but will remain resilient.

Impacts on Commercial Real Estate


Office-using jobs increased by 82,000 in January, with professional & business services gaining 74,000 and financial activities gaining 8,000. We expect strong economic growth to bolster leasing activity even amid hybrid work and an uncertain business climate.


The warehousing and storage sector gained 5,500 jobs last month, while manufacturing gained 23,000. We expect demand for industrial and logistics properties to remain healthy and support strong fundamentals, even with a surge in new supply.


Traditional retail gained 45,200 jobs in January, while food services & drinking places lost 2,400. Retail real estate has benefitted from steady demand and little new supply in recent years. Looking ahead, we expect demand to moderate as rising real interest rates slow consumer spending.


The construction sector added 11,000 jobs in January, with gains in the residential and nonresidential sectors. We anticipate that high interest rates will slow new construction; however, this is offset by a single-family home shortage and fiscal policy supporting manufacturing and infrastructure that will bolster resilience in the sector.

Health Care

Health care gained 70,300 jobs in January. Ambulatory health care (outpatient services) added 33,400, while hospitals gained 20,400 and nursing & residential care 16,500. We expect that healthcare employment will remain strong thanks to a persistent healthcare worker shortage, pent-up demand for medical procedures and over the long term, an aging population. All of this bodes well for medical property demand.


Accommodation services lost 3,100 jobs in January. Although it has remained relatively resilient, this sector likely will cool as consumers work through excess savings.


Multifamily is expected to remain strong thanks to high mortgage costs making renting a more attractive option. Continued job growth also supports household formation, which will aid the absorption of new supply.

The Bottom Line

The U.S. labor market continues to outperform expectations. While this is welcome news, it validates the Fed’s cautious approach to cutting rates. Still, we expect a reduction in the federal funds rate in May. This will be necessitated by cooling inflation, which will increase real interest rates, heightening risks to economic growth.

Today’s employment report has increased bond market volatility, but we expect the 10-year Treasury yield will gradually fall to 3.6% by year end. This will lead to a pickup in commercial real estate investment activity in the second half of the year. We expect leasing to remain relatively resilient, though hybrid work and an uncertain business environment will likely keep occupiers cautious in 2024.