**Decelerating Employment Growth and Real Estate Consequences**
The Bureau of Labor Statistics’ July jobs report has raised concerns as it revealed significant downward revisions to previously reported employment numbers. Specifically, there were 258,000 fewer jobs added to the economy in May and June than initially reported.
According to a recently released brief by Marcus & Millichap, these revised figures suggest that the labor market is “roughly balanced but clearly slowing.” This trend is beginning to influence the performance of the commercial real estate sector.
In the multifamily housing market, renter demand remained strong during the second quarter of the year. Analysts at Marcus & Millichap attribute this to high barriers to homeownership, such as elevated home prices and mortgage rates. The brief also notes that the national rental market has managed to recover from the record-high supply deliveries of the past two years. However, the analysts caution that a weakening labor market could slow household formation during the latter half of the year.
In contrast, the retail and industrial real estate sectors experienced more space being given up than absorbed during Q2. Analysts point to tenant consolidation and economic uncertainty — especially related to trade — as factors causing businesses to hesitate in making new real estate commitments. Of the two sectors, the supply-demand balance appears healthier in retail, thanks in part to historically low and declining levels of new construction activity.
On a more positive note, the strong 3% GDP growth in the second quarter led Wall Street participants to reduce expectations for a September cut in the Effective Federal Funds Rate. Still, the weakening labor data has increased the probability of a rate cut to over 80%.
Looking ahead, additional economic data will be released before the Federal Reserve’s next meeting on September 17, which may influence upcoming policy decisions.
