(August 18, 2026) -- The U.S. economy continues to expand at a moderate pace, but weakening job growth and persistent inflation are creating a more complicated outlook for the Federal Reserve and commercial real estate heading into the final months of 2026.
According to the August Economic Outlook from Marcus & Millichap Research Services, gross domestic product growth is tracking near 2 percent, providing continued support for commercial real estate demand even as labor market momentum slows.
Recent revisions to employment data reduced year-to-date job creation from 550,000 positions to 426,000. Mean monthly hiring has slowed by roughly 50 percent to 61,000 jobs, while the three-month average has fallen to just 20,000 positions. Marcus & Millichap said the revisions, including a nearly 70 percent downward adjustment to May job growth, make the labor market more difficult to assess.
The unemployment rate declined to 4.1 percent, but labor force participation slipped to 61.4 percent. The report attributes much of that decline to increased retirements and an aging workforce rather than widespread worker discouragement.
If the current hiring pace continues, Marcus & Millichap projects that approximately 750,000 jobs will be created in 2026, a level that could temper demand for commercial real estate space in the second half of the year. The report notes that projected job growth would be 52 percent below the 10-year average.
Inflation remains another concern for policymakers. Headline consumer price inflation eased to 3.4 percent year over year, while core CPI, excluding food and energy, declined to 2.5 percent. Both measures fell 10 basis points in the latest reading.
Marcus & Millichap cautions that the improvement could prove temporary. Lower energy costs helped moderate inflation following the temporary reopening of the Strait of Hormuz, but renewed shipping disruptions since early July have contributed to higher fuel prices and increased inflation risk. Inflation also remains above the Federal Reserve's 2 percent target.
The combination of softer employment growth and elevated inflation leaves the Federal Reserve facing competing pressures. Although labor conditions have weakened, the report says policymakers remain more focused on inflation risk, increasing the possibility of additional monetary tightening before year-end.
Financial markets currently anticipate one additional 25-basis-point interest rate increase during the remainder of 2026. Much of that expected move may already be reflected in borrowing costs, however, with the 10-year Treasury holding near 4.7 percent and the five-year Treasury remaining in the low- to mid-4 percent range.
Treasury yields could move higher if inflation accelerates, but the prevailing outlook calls for relatively stable borrowing costs through year-end. Marcus & Millichap said geopolitical and policy uncertainty will continue to create volatility, although longer-term economic forces remain supportive of the commercial real estate outlook.
For commercial real estate investors and developers, the outlook suggests a market that continues to benefit from economic expansion but operates under tighter financial conditions. Slower hiring could moderate space demand in some property sectors, while borrowing costs are likely to remain elevated even if they stabilize during the balance of 2026.
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