Employment

Job Growth Defies Constraints, Supporting Rental Demand and Consumer Spending

U.S. economy less exposed to oil shocks. The oil shock from the Iran conflict has not materially weighed on hiring, though uncertainty around the Strait of Hormuz could still pressure business activity. Resilience likely reflects America’s reduced reliance on oil imports, lower oil intensity, and a more service-oriented economy. A recent Boston Fed study found that a 33 percent oil shock in the 1970s was associated with a roughly 180-basis-point decline in year-ahead employment growth. In contrast, a comparable shock today would have essentially no national employment impact. That appears consistent with recent hiring momentum and should support commercial real estate demand, particularly multifamily, as elevated interest rates continue to steer newly employed households toward rentals.

 Labor constraints shape job outlook. Slower labor-force growth may limit the ability to sustain the recent hiring pace. Prime-age employment remains elevated, with the 25- to 54-year-old employment-population ratio near 81 percent, above its post-2000 average of 78 percent. Participation also edged up to about 84 percent in May, indicating that much of the core labor pool is already engaged. Aging demographics and slower immigration are also reducing the flow of new workers. This may reinforce a low-hire, low-fire environment as firms focus on retaining existing staff. For multifamily properties, reduced worker mobility could translate into fewer household moves, supporting already elevated renewal conversions of roughly 57 percent in April and new lease terms near record highs of 13 months.

AI cuts contrast with rising openings. Challenger data showed AI was cited in 40 percent of May job cuts, the highest share on record, while BLS data showed job losses in information and financial activities. Still, some firms may be using AI to justify broader cost cuts after prior overstaffing. Software engineering openings rose roughly 10 percent year-over-year in May, and professional and business services openings surged by 600,000 to their highest level since 2023. Rising openings suggest office-using labor needs are shifting, not fading, with potential support for space demand if hiring follows.

Modest pay gains may limit inflation pressure. Wage growth has remained contained despite stronger hiring momentum. Average hourly earnings rose 0.3 percent month-over-month and 3.4 percent yearover-year in May, consistent with gradually cooling wage pressures. Steady income gains should support consumer spending, while the moderate pace limits the risk that labor costs add to broader inflation. Uncertainty remains, however, over whether sustained labor demand and slower labor-force growth will eventually push employers to raise wages more aggressively to attract and retain workers.