Intelligent Investment

Economic Watch: September’s Surprisingly Strong Job Growth Increases Pressure on Fed

October 6, 2023 3 Minute Read

Looking down on a city.

Executive Summary

  • The U.S. added 336,000 jobs in September, nearly double the consensus estimate of 170,000 and the biggest monthly increase since January. Job totals for July and August were revised upward by 79,000 and 40,000, respectively.
  • The leisure & hospitality sector had the most job gains in September with 96,000, followed by government with 73,000 and education & health services with 70,000.
  • The unemployment rate held steady at 3.8%, while the labor force participation rate remained at 62.8%. Average hourly earnings were up by 4.2% from a year ago.
  • Surprisingly robust job growth last month will add credibility to the view that interest rates will remain higher for longer despite the continued fall in inflation. Consequently, we believe the Fed will not raise short-term rates in November as higher 10-year Treasury yields cause financial conditions to tighten.
  • High long-term interest rates will pose a headwind for near-term real estate capital markets activity.

Impacts on Commercial Real Estate


Office-using jobs increased by 24,000 in September, with professional & business services gaining 21,000 and financial activities 3,000. Despite these gains, less office usage, more corporate cost cutting and continued economic uncertainty will suppress occupier demand and increase vacancy rates.


The warehousing & storage sector lost 3,800 jobs last month, while manufacturing gained 17,000. We expect industrial & logistics fundamentals to remain relatively strong, even as demand for space slows to more normal levels.


Traditional retail gained 19,700 jobs in September, while food services & drinking places gained 60,700. Restaurant employment is finally back to pre-pandemic levels. Although retail real estate fundamentals remain strong, we expect that the lagged impact of rate hikes and the restart of student loan payments will begin to limit consumer spending and demand for retail space.

Health Care

Health care gained 40,900 jobs in September. Ambulatory health care (outpatient services) added 24,300, while hospitals gained 8,400 and nursing & residential care 8,200. We expect long-term demand for health-care properties to remain resilient as an aging population boosts demand.


Accommodation services added 15,600 jobs in September. Although the sector is benefiting from pent-up demand, a slowing economy and the potential for less travel spending due to the restart of student loan payments will pose a headwind by year-end.


A strong labor market bolsters the outlook for multifamily properties, supporting household formation. Elevated single-family home prices, coupled with high mortgage rates, are putting homeownership out of reach for many and will continue to drive demand into multifamily over the near term.

The Bottom Line

A strong labor market, together with slightly slowing wage growth, may help support a soft landing for the U.S. economy. However, the market remains skeptical that inflation is under control. This, coupled with September’s surprising jobs surge, likely will push up long-term interest rates.

Tighter financial conditions will create serious headwinds for the U.S. economy, which is already challenged by the autoworkers strike, the restart of student loan payments, high gas prices and a potential government shutdown in November. These factors likely will keep the Fed from raising short-term rates in November.

We expect that tighter financial conditions will further temper commercial real estate leasing and investment activity. The 10-year Treasury rate is up by more than 100 basis points since mid-July. This will put further pressure on property prices. While we continue to expect the investment market to stabilize by mid-2024, the timing of this recovery will depend on long-term interest rates beginning to decrease. This should happen when economic growth slows and it finally becomes clear that inflation is under control—likely by no later than early 2024.