Unemployment rate hits a near three-year high. Total employment increased by 114,000 jobs in July, the second-lowest monthly gain in 2024 and falling well under the trailing-year average of 215,000 roles added. That hiring slowdown contributed to unemployment rising by 20 basis points month-over-month to 4.3 percent, the highest measure since October 2021. Health care accounted for about half of the overall net July employment gain, while accommodations and food services as well as construction also recorded monthly increases of at least 20,000 jobs. Headcount reductions, however, spanned several labor segments. The sharpest drops occurred in the information, finance and insurance as well as educational services sectors. In total, the number of unemployed people rose by 352,000 to 7.2 million.

Joblessness uptick edges toward a historically reliable signal. The Sahm indicator — which activates once the three-month average unemployment rate rises by 50 basis points relative to the minimum three-month mean across the prior year — has identified the start of every recession since 1970. Climbing unemployment in July lifted the three-month average rate to 4.1 percent, approaching that threshold relative to the lowpoint in May to July of 2023. While this indicator has been accurate in the past, Fed Chair Jerome Powell warned that the Sahm rule is not an absolute determinant of a recession, and that the labor market continues to normalize. Although the Fed held the overnight benchmark rate firm at the most recent FOMC meeting on July 30-31, pressure is mounting to remain on track for a soft landing. Following the weaker-than-expected jobs report and near-activation of the Sahm rule, over 70 percent of Wall Street participants expected a 50-basis-point rate cut at the FOMC meeting in September.

Labor trends have mixed implications for investors. The increased likelihood of interest rate cuts, potentially at a greater magnitude than was previously expected, should start alleviating the headwinds real estate investors and lenders have faced. Lower debt costs could motivate capital accumulating on the sidelines to flow back into the market. At the same time, recession concerns could make investors and financiers diligent. Balancing out these fears, fundamentals remain healthy across most segments, highlighted by robust apartment demand and near-record low retail vacancy in the second quarter.

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* Date of July jobs report Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; CME Group; Federal Reserve; Moody’s Analytics; Real Capital Analytics; RealPage, Inc.