Cooling Jobs and a Firmer Rent Outlook for 2027
The energy shock that rattled the spring did less damage to growth than the early numbers suggested. GDP for 2nd quarter was revised up to 2.2% annualized in the Bureau of Economic Analysis' third estimate, well above the 1.5% first reported, with consumer spending, investment and exports adding to growth while higher imports took some back. Growth in1st quarter was also revised higher, to 2.5%. The Federal Reserve's own September projections moved the same way, with 2026 growth now seen at 2.3%.
Hiring lost steam as the summer went on. July turned out to be a loss of 10,000 jobs after revisions, August added 133,000 positions and September managed just 29,000 additions, which works out to 152,000 jobs for the quarter, or about 51,000 per month. The unemployment rate and participation ticked up to 61.8% from 61.5% in June. Pay is cooling along with hiring. Average hourly earnings were up 3% year-over-year, compared with 3.5% at midyear.
Prices are still running hot enough to keep the Fed on the offensive. Headline PCE was up 3.4% from a year earlier in August, still a long way from the 2% target, while core PCE, which leaves out food and energy, was calmer at 3%. In September the Federal Open Market Committee voted unanimously to lift the federal funds rate by one quarter point to 3.75% to 4%, aiming to bring inflation back to 2% sooner. The median projection now puts the rate near 4.1% by year-end, which implies one more increase, with PCE inflation expected to ease to 2.3% in 2027.
In our latest forecast, rents find firmer footing over the coming year. Effective rents are projected to rise about 2.4% nationally from 4th quarter 2026 to 3rd quarter 2027, and more markets are joining the leaders, with nine of the top 50, or 18%, in the 3% range. San Francisco and Milwaukee lead at 3.8%, followed by Phoenix at 3.7%, and Miami, Cincinnati, Oakland, Los Angeles, Denver and San Diego all come in at 3.1% or better. Most markets, some 64%, fall between 2% and 2.9% growth, including Dallas, Austin, Chicago, Boston and Seattle. Seven markets land in the 1% range, among them New York, Washington, DC, Fort Worth and Atlanta. Only Houston (0.5%) and San Antonio (0.8%) fall below 1% as they work through recent supply. No market in the top 50 is projected to see rent decline.
New supply keeps coming. We project roughly 320,000 apartments will be delivered over the next four quarters, about 85% of those units in the top 50 markets. Dallas sits at the head of the line with just over 20,000 units, trailed by New York and Newark at roughly 17,000 to 17,500 units, while Phoenix, Houston and Charlotte each add about 13,000 to 13,500 units. At the other end, Memphis, Virginia Beach, Cleveland and Oakland will each see fewer than 800 new units, with Pittsburgh and San Francisco not far behind at roughly 1,000 to 1,100 units.
