The Bureau of Labor Statistics July job report, indicating large downward revisions to the May and June numbers, caused a great deal of consternation. Specifically, 258,000 fewer jobs were added to the economy than previously thought.
According to a recently released Marcus & Millichap brief, such metrics “point to a labor market that is roughly balanced but clearly slowing.” The brief also showed that this particular dynamic is affecting commercial real estate performance.
In the multifamily sector, renter demand remains strong during Q2. “Demand for rentals has been bolstered by steep barriers to homeownership, including both final prices and mortgage rates,” Marcus & Millichap analysts explained. The brief also noted that the national rental market has recovered from the record number of supply deliveries over the past two years. The one caveat in this good news scenario is a softening labor market. The analysts note that such a market could “slow the pace of household formation in the second half of the year.”
Meanwhile, “more space was relinquished than absorbed in the second quarter across both retail and industrial sectors,” the analysts wrote. The trend is driven by tenant space consolidation plus uncertain trade and economic outlooks that are prompting hesitation when it comes to real estate decision-making. “Between the two tariff-affected sectors, the supply-demand balance is stronger among retail, where construction has been both historically low and declining in recent quarters,” the brief pointed out.
Getting back to somewhat more positive news, Marcus & Millichap analysts indicated that Wall Street participants decreased their expectation for a September cut in the Effective Federal Fund Rate, due to the 3% GDP growth in the second quarter. However, the softening labor market bumps that probability to over 80%.
Still, “new data will continue to come in before the Fed’s September 17 meeting, which could change the picture further,” according to the brief.
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