January 10, 2020

Executive Summary

  • 145,000 jobs were created in December, missing expectations of 160,000.
  • October and November employment reports were revised downward by a combined 14,000 jobs, putting the three-month average at 184,000 per month.
  • The unemployment rate and labor force participation were unchanged at 3.5% and 63.2%, respectively.
  • Average hourly earnings were up by 2.9% over the past 12 months, continuing healthy wage gains experienced throughout 2019. However, this was the first time that wage growth was below 3% on a year-over-year basis since July 2018.
  • Tempered employment and wage growth in December will give the Fed room to maneuver policy should negative developments in the economic outlook materialize.
  • November marked 111 consecutive months of jobs growth—the longest stretch in U.S. history—and the unemployment rate remained at a 50-year low.

Commercial Real Estate Highlights

  • Office: Hiring in office-using sectors slowed in December. Professional & business services added 10,000 jobs and financial services added 6,000, bringing their respective three-month averages to 32,700 and 12,000 per month.
  • Health Care: Growth in the health-care sector remained strong with 28,100 jobs created in December, close to the three-month average of 30,400 per month.
  • Industrial: Warehousing & storage jobs decreased by 2,200 in December, bringing the three-month average to 700 per month. The manufacturing sector lost 12,000 jobs as trade tensions continued to weigh on the sector, bringing the three-month average to 300 jobs per month.
  • Retail: December’s employment report showed strength in retail during the holiday season. Food services & drinking places added 15,900 jobs for the month. The broader retail sector added 41,200 jobs in December. Three-month averages show an average monthly gain of 28,200 food & beverage jobs and 19,300 retail jobs.
  • Construction: The construction sector added 20,000 jobs in December, well above the three-month average of 12,000 per month.
  • Multifamily: Drivers of multifamily demand remain intact. From a cyclical perspective, a strong labor market will support continued household formation. Over the long term, a structural demand shift will favor the multifamily sector.
  • Hotels: Continued employment gains across industries bode well for business travel demand in the near term. Nevertheless, heightened economic uncertainty remains and could weigh on business travel. Demand from leisure travel will be supported by a strong labor market.

The Bottom Line

Although December’s employment report missed Wall Street expectations, it is respectable at this point in the cycle. Some estimates put required job growth to absorb new entrants into the U.S. labor force as low as 100,000 per month. Furthermore, monthly reports are volatile and when looking at three-month averages, most sectors are seeing very healthy growth. Where there is weakness, it is not unexpected. For example, trade tensions continued to weigh on manufacturing. Lastly, wage growth was lower in December likely due to timing of the survey, but average hourly earnings growth remained close to 3%.

CBRE expects economic growth will moderate in 2020, but near the U.S economy’s estimated long-term growth potential of 2%. Importantly, an apparent easing of trade tensions appears to be developing between the U.S. and China. While a degree of uncertainty will remain, the strong consumer sector will propel the economy. Furthermore, nothing in December’s jobs report constrains the Fed’s ability to respond if economic conditions deteriorate. With supportive monetary policy and consumers in a strong position, the U.S. economy will continue to expand at a pace that broadly supports property market fundamentals.

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