Intelligent Investment

Economic Watch: Strong February Jobs Report Complicates Fed Path

March 10, 2023 3 Minute Read

Executive Summary

  • The U.S. added 311,000 jobs in February, well above consensus estimates of 225,000.
  • The leisure & hospitality, retail, government, health care and professional & business services sectors had the biggest gains, while the information and transportation & warehousing sectors had the largest losses.
  • The unemployment rate ticked up by 20 basis points to 3.6% and the labor participation rate rose by 10 bps to 62.5%.
  • Average hourly earnings rose by 0.2% for the month and 4.6% for the year.
  • A tight labor market complicates the Federal Reserve’s policy path. This will heighten the importance of next week’s CPI report, which likely will determine whether the Fed hikes rates by either 25 or 50 bps at its March 22 meeting.
  • Interest rate volatility will weigh on commercial real estate markets over the next several months. We expect capital market activity to remain subdued until long-term interest rates peak later this year.

Impacts on Commercial Real Estate


Office-using jobs increased by 44,000 in February, with professional & business services gaining 45,000 and financial activities losing 1,000. This mixed picture is weighing on demand over the near term.


The transportation & warehousing sector lost 5,500 jobs, while manufacturing lost 4,000. Nevertheless, we expect industrial & logistics fundamentals to remain relatively resilient despite rising rates and slowing growth thanks to low vacancies and efforts to mitigate risks associated with potential supply chain disruptions.


Traditional retail gained 50,100 jobs, while food services & drinking places added 69,900. However, we expect rough going ahead for the retail market as the economy slows. The sector still benefits from relatively strong fundamentals, as very little new supply has been added to the market in recent years and consumers continue to spend pandemic-era savings on services.


The construction sector added 24,000 jobs in February, with gains in both residential and non-residential building. However, new construction activity has slowed and will remain subdued over the next several months due to higher interest rates.

Health Care

Health care gained 44,200 jobs in February. Ambulatory health care (outpatient services) added 11,100, while hospital and nursing & residential care employment increased by 19,400 and 13,700 jobs, respectively. Long-term demand for health-care properties should remain relatively resilient due to an aging population.


Accommodation services added 14,400 jobs in February. A slowing economy will impact the hotel sector but continued demand for travel will provide a buffer against economic headwinds until household balance sheets deteriorate.


Multifamily rent growth will ease as the economy slows. We expect any increase in unemployment this year will be relatively mild compared with prior recessionary years. A relatively strong labor market along with single-family housing affordability issues, exacerbated by rising mortgage rates and limited supply, will continue to support multifamily demand.

The Bottom Line

The U.S. labor market continues to show notable strength despite the Fed’s ongoing interest rate hikes. However, other economic indicators are beginning to weaken, particularly in capital-intensive industries such as real estate and manufacturing. The Fed will grapple with this mixed picture at its next meeting March 21 and 22. Although there was a strong job gain in February, average wage growth has decreased on a month-over-month basis since December, indicating the strong labor market is not as problematic for headline inflation as feared.

CBRE currently expects the Fed will hike the federal funds rate by 25 bps on March 22. However, should next week’s CPI reading come in higher than expected, the Fed could make a 50-bp hike. Such a scenario would cause the federal funds rate to top out at more than 5.5% this year.

We expect the lagged impact of rate hikes to weigh more heavily on economic growth as the year goes on. This will reduce leasing and investment demand for commercial real estate, as well as overall inflation pressure. A recovery in capital markets activity will begin after long-term rates peak later this year.


Insights in Your Inbox

Stay up to date on relevant trends and the latest research.