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Jobs Gained in June: 372,000

Average Monthly Gain Past Three Months: 375,000

Unemployment Rate: 3.6%

Executive Summary

• The U.S. added 372,000 jobs in June, beating the consensus expectation of 250,000.
• Education and health services gained 96,000 jobs, the most of any sector.
• The unemployment rate remained at 3.6%, while the labour participation rate fell slightly to 62.2%. Average hourly earnings were up 5.1% on a year-over-year basis.
• This level of job growth likely will keep the Fed on an aggressive rate hike path. We expect the Fed will raise interest rates by at least 50 basis points (bps) at its next meeting later this month.
• Robust and broad-based job growth will continue to support strong real estate fundamentals across property types over the short-term. However, the outlook for the U.S. economy later this year and in 2023 is becoming increasingly challenged by rising inflation and interest rates.

Impacts on Commercial Real Estate

Office

Jobs Gained in June +75,000

Average Monthly Gain Past Three Months +76,300

Office-using jobs increased by 75,000 in June, nearly all of them in professional & business services. Notable job growth in office-using sectors will support the sector’s fundamentals over the near term, although a cloudy economic outlook and flexible working continue to weigh on demand.

Industrial

Jobs Gained in June +46,500

Average Monthly Gain Past Three Months +54,300

The warehousing & storage sector gained 17,500 jobs in June and manufacturing added 29,000, further underpinning the long-running strength of the industrial & logistics market. We continue to see robust demand for industrial & logistics real estate, though it could soften as economic growth slows.

Retail

Jobs Gained in June +56,200

Average Monthly Gain Past Three Months +27,400

Traditional retail gained 15,400 jobs in June, while food services & drinking places added 40,800. While robust job growth is encouraging for the retail sector, consumer demand could wane amid a weaker economy later this year.

Construction

Jobs Gained in June +13,000

Average Monthly Gain Past Three Months +14,000

The construction sector added 13,000 jobs in June. Most of this tepid gain was in commercial construction. We expect that higher interest rates and a cooling housing market will continue to weigh on the construction sector this year and next.

Health Care

Jobs Gained in June +56,700

Average Monthly Gain Past Three Months +37,400

Health care gained 56,700 jobs in June. Ambulatory health care (outpatient services) added 28,200, while hospital employment increased by 20,500 and nursing & residential care added 8,000. With favourable long-term demographics and fewer pandemic-related disruptions, demand for health care properties should remain positive.

Hotels

Jobs Gained in June +14,800

Average Monthly Gain Past Three Months +15,500

Accommodation services added 14,800 jobs in June. Travel has been a prime beneficiary of the consumer spending shift from goods to services. However, the sector faces headwinds in coming quarters from slower economic growth and persistent inflation.

Multifamily

Continued strong job growth bodes well for the multifamily sector. We expect that demand for apartments will remain strong as the single-family housing market is challenged by higher mortgage rates and continued affordability issues. We expect that multifamily rent growth likely will slow in a deteriorating economic environment.

The Bottom Line

The U.S. labour market continued to run hot in June. Strong job gains and annual wage growth of 5.1% signal that the Fed will continue to aggressively raise interest rates to curb inflation. While a hike of 50 bps later this month is almost certain, a 75-bp increase remains a distinct possibility. We expect higher interest rates will result in slower economic growth and possibly some companies trimming their payrolls later this year.

Whether the Fed can engineer a “soft landing” for the economy remains uncertain. Economic conditions should support real estate fundamentals over the next several months, but slower growth will weigh on real estate fundamentals and investment volumes later this year and into 2023.

By CBRE