Executive Summary
- The U.S. added 275,000 jobs in February, well above expectations of 198,000. Job gains in December and January were lowered by a combined total of 167,000.
- February job gains were led by health care, local government and food services & drinking places. There was a notable uptick in part-time jobs.
- The unemployment rate rose by 20 basis points (bps) to 3.9% and the labor force participation rate held steady at 62.5%. Average hourly earnings rose by just 0.1% for the month and 4.3% year-over-year, both slightly below expectations.
- February's job gains appear to validate the Federal Reserve’s cautious approach to lowering interest rates. We do not expect the central bank to begin cutting rates before June.
- The continued high cost of capital will temper real estate investment activity during the first half of 2024. On the upside, leasing activity should be stronger than expected due to resilient job growth.
Hotels
Accommodation services gained 3,000 jobs in February. Even as pandemic savings are drawn down, real income growth is supporting resilient consumer spending.
The Bottom Line
The U.S. labor market’s continued strong performance should allow the Fed to maintain its patient approach to cutting interest rates. We don’t expect the central bank to begin cutting rates until June. These anticipated cuts are key to our outlook for a soft landing, with inflation trending toward the Fed’s 2% target amid continued economic growth.
We expect a gentle decline in long-term interest rates to the upper 3% range by year-end. However, the strength of the labor market, as well as significant Treasury bond issuance to fund deficit spending, portends no substantive drop in long-term interest rates. This will limit investment activity. Leasing activity may be stronger than initially expected amid continued growth, although an uncertain business environment will likely temper occupier sentiment.