Job numbers from recent Bureau of Labor Statistics (BLS) reports have been daunting. First, only 22,000 jobs were added to the economy in August. Second, revisions to the June and July employment numbers suggested that employment in those combined months was 21,000 lower than previously reported.
Finally, the total number of jobs created between April 2024 and March 2025 was revised downward by 911,000.
While the above will undergo a revision (or two) before more hard numbers are released in February 2026, “all these indicators are telling us that the U.S. economy is weaker than we thought and the combination of elevated uncertainty and heightened caution will likely continue to weigh on the employment market,” said John Chang, senior vice president with Marcus & Millichap. “That suggests the risk of a recession within the next year or so, maybe higher than many believe just a couple of months ago.”
The Silver Lining?
In a recently released Marcus & Millichap video, “CRE at a Crossroads: Jobs, Rates and Market Liquidity,” the weak job numbers might bolster commercial real estate, mainly because of the Federal Reserve’s mandate to support job creation (while keeping an eye on inflation). For the first time since December 2024, the Fed cut the Effective Federal Fund Rate (EFFR) by a quarter point on Sept. 17, while suggesting that two more cuts could be implemented by the end of the year.
While it’s anyone’s guess how much more the Fed is willing to reduce the EFFR, “it’s widely believed that the Federal Reserve will reduce the overnight rate by 75 basis points by the end of the year, taking the overnight rate down to about 3 1/2%,” Chang said.
This, in turn, could mean downward pressure on the 10-year Treasury, which has fallen to about 4% already. With that, Chang said that more for-sale properties could make more sense to investors.
Additionally, “lower rates will shift more assets into positive leverage territory and the underwriting starts to work, which in turn suggests that deal flow and transactional liquidity could increase as long as the financing costs remain contained,” he said.
The Caveat
The Treasury and EFFR rates don’t always correlate. Chang commented that when the Fed cut rates by 50 basis points in September 2024, Treasury rates increased. The same thing happened when the Fed cut rates by 100 basis points at the end of the year. The 10-year Treasury moved from 3.7% to 4.6%.
Additionally, a cost-of-capital reduction doesn’t always translate into automatic higher property values and lower cap rates. Finally, there is still confusion about federal policies and trade, which contributes to what Chang called a “choppy short-term outlook.”
And Back to the Silver Lining
Chang pointed out that the long term looks pretty good for commercial real estate. A decreasing EFFR could mean that “well-priced assets have a higher likelihood of clearing the market,” he said. Shrinking construction pipelines means a favorable impact on supply and demand, which Chang said should bolster long-term occupancy trends across the sector.
Still, “We are in a very fluid economic cycle and things can change quickly,” he added.
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