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Executive Summary:

• The pace of hiring slowed considerably in May with 75,000 new jobs created vs. expectations of 175,000.
• Combined with ongoing trade disputes and other indicators of slowing economic activity, particularly in the manufacturing sector, this jobs report increases the odds of one or two Fed rate cuts in 2019.
• The unemployment rate remained at 3.6% and the labor force participation rate remained at 62.8%.
• Inflationary signals also remain in check as wage growth remained strong, but not accelerating, at 3.1% in May.
• The May employment report marks 104 consecutive months of job growth, the longest stretch in U.S. history, and the unemployment rate remained at its lowest level since 1969.

Commercial Real Estate Highlights:

• Retail: Although growth cooled, a healthy 16,900 food & beverage jobs were created in May. Employment in the broader retail sector decreased by 7,600 jobs.
• Office: Professional & business services and financial activities were resilient in May with a combined 35,000 new jobs for a three-month average of 46,700 jobs per month.
• Health Care: Growth continued with 15,700 jobs created in May, putting the monthly average for the past three months at 31,100.
• Construction: Hiring in this sector cooled in May with an increase of just 4,000 jobs, putting the three-month average at 16,300 per month.
• Industrial: Warehousing & storage jobs essentially held steady at 1,200 new positions in May for a monthly average of 1,900 over the past three months. Manufacturing was stable from the previous month with 3,000 jobs created, beating the three-month average of 1,700 new jobs per month.
• Multifamily: Positive job gains, along with continuing wage growth of more than 3%, support multifamily market dynamics.
• Hotels: Continued gains in the office-using sectors should support demand from business travelers. Additionally, healthy wage growth and a strong labor market will support leisure demand.

The May jobs report was well below expectations and revisions to the March and April numbers subtracted 75,000 jobs from previous growth estimates. Average monthly gains so far this year stand at 164,000 compared with 223,000 for all of 2018.

Today’s jobs report, combined with ongoing trade disputes and no acceleration of wage growth, increases the odds of one or two rate reductions by the Fed this year.        

CBRE maintains its view that the U.S. economy is in good shape. Even with cooling job growth, the broader employment picture is strong and will support real estate market fundamentals and investment activity across property types. Barring any major escalation in trade tensions or any major economic shocks, we expect 2019 to remain on a positive track.