Inflation and Employment Outlook

Labor market regains some footing in 2026. Employment trends have shifted positively, signaling a potential turning point after a prolonged slowdown. 

• Lackluster hiring last year was a major headwind to CRE, but labor market conditions are now showing signs of growth. 
• Between June 2025 and February 2026, the U.S. economy shed roughly 62,000 jobs, reflecting a period of sustained weakness.
• Recent data signals a reversal, with 172,000 positions added in May, and upward revisions to the prior two months, bringing year-to-date 2026 job creation to 569,000.
• The three-month moving average shows improvement, suggesting a break from the prior downward trend in employment.
• Job growth has been concentrated in service sectors — particularly health care — with hiring led by small businesses, while midsized firms have remained largely stagnant, and large companies are beginning to reaccelerate. 

Hiring momentum broadens. Firms recalibrating to higher costs and tapping a more experienced labor pool are supporting job creation, reinforcing demand across property types. 

• The forces shaping recent job growth appear twofold, beginning with businesses adapting to tariff-related cost pressures by adjusting pricing to reflect higher operating structures
• Hiring has focused on service-based industries, which have been less directly impacted by tariffs but are increasingly passing elevated costs on to consumers. 
• A second driver may be the emergence of a seasoned labor pool, as prior job losses have created a supply of skilled workers that businesses, particularly small firms, are now leveraging.
• The recent acceleration in employment represents a meaningful shift in momentum, providing a supportive backdrop for broader economic activity.
• Strengthening job creation supports housing demand, relocation activity, office utilization, and consumer spending, benefiting a range of property types. 

Rising inflation remains a headwind. Stronger labor market momentum and faster aggregate price growth are constraining the likelihood of near-term rate cuts.

• Though hiring has picked up, May's inflation reading complicates the outlook, with headline CPI rising to 4.2 percent year-over-year.
• Energy is among the primary drivers of rising cost pressures, with energy inflation up 23 percent over the past year. 
• Transportation costs are also elevated, rising 8.9 percent over the past year and increasingly flowing through to consumers.
• Stronger job growth reduces urgency for the Federal Reserve to cut rates, while elevated inflation limits its ability to ease monetary policy, potentially keeping rates unchanged near-term. 
• While improving employment is supportive, inflation and interest rate uncertainty should keep the 10-year Treasury near 4.5 percent and may temporarily widen bid-ask spreads before pricing recalibrates.

 October 2025 CPI data not published ** Through May
Sources: Marcus & Millichap Research Services; Automatic Data Processing; Bureau of Labor
Statistics; CME Group; CoStar Group, Inc.; Federal Reserve; Moody's Analytics; Radius+; U.S.
Census Bureau; Yardi Matrix