August 2, 2019

Executive Summary

  • 164,000 new jobs were created in July, in line with expectations.
  • The unemployment rate remained at 3.7% and the labor force participation rate increased by 10 bps to 63.0%. A record 163.4 million Americans are now in the labor force.
  • Average hourly earnings were up by 3.2% over the past 12 months, a level that should not interfere with the Fed’s ability to remain flexible on monetary policy.
  • July’s solid job report and this week’s Fed rate cut were overshadowed by rising U.S.-China trade tensions, resulting in the 10-year Treasury yield falling below 1.90%—its lowest level since 2016.
  • July marks 106 consecutive months of job growth—the longest stretch in U.S. history—and the unemployment rate remained near multi-decade lows.

Impact on Commercial Real Estate

  • Office: Hiring in office-using sectors was healthy in July. Professional & business services added 38,000 jobs and financial services added 18,000. This brought the three-month averages to 32,300 and 8,700 per month, respectively.
  • Industrial: Hiring in warehousing & storage jobs totaled 3,200 in July, surpassing the monthly average of 2,300 over the past three months. The manufacturing sector gained 16,000 jobs in July, bringing the three-month average up to 10,000 new jobs per month. Continued trade tensions remain a risk for the manufacturing sector, although some reshoring could help offset some adverse impacts.
  • Retail: Food & beverage (F&B) employment rebounded in July, increasing by 15,400 jobs. Employment in the broader retail sector remained soft and was down by 3,600 jobs in July. Three-month averages show an average monthly gain of 9,200 F&B jobs and a loss of 7,500 retail jobs.
  • Construction: The pace of hiring in the construction sector slowed in July with 4,000 jobs created, below the three-month average of 7,700 per month.
  • Health Care: Growth in the health-care sector continued its steady march with 30,400 jobs created in July, above the three-month average of 25,600 jobs per month.
  • Multifamily: Labor market conditions remain broadly supportive of household formation and demand for multifamily. This was reflected in construction job growth, which was strongest in the residential sector.
  • Hotels: Strong gains in the office-using sectors should support demand from business travelers. Nevertheless, uncertainty in the broader economy is starting to weigh on business spending, clouding the outlook a bit. Continuing healthy wage growth and a strong labor market should support demand for leisure.

The Bottom Line

The pace of hiring slowed in July but was in line with expectations. This continues a broader trend of slower hiring. Average monthly job gains of 165,000 this year are down from 223,000 last year. This slower pace of hiring is not unexpected as the cycle matures and the pool of available workers continues to shrink. In short, labor market conditions remain broadly healthy.

The Trump administration’s decision to impose additional tariffs on Chinese products in September has rattled markets, as evidenced by a sharp decline in the 10-year Treasury yield. The Fed’s rate reduction on Wednesday now appears even more prudent as trade fears weigh on the outlook for global growth.

Continued moderate wage growth will allow the Fed to remain flexible in setting policy to respond to broader economic indicators. Even as economic growth slows, conditions remain broadly supportive of property market fundamentals.

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