admin / July 12, 2017
As we begin the second half of the year and await the preliminary GDP estimate for the second quarter (to be released on July 28), economists generally believe that growth has accelerated this spring after (yet) another slow winter. Actually, first quarter growth wasn’t as slow as first believed, as the government again upgraded its GDP estimate to 1.4%, fully double its initial figure of 0.7%.
Still, the most recent data has been below expectations: retail sales, consumer confidence, housing starts, durable goods orders and inflation all dropped in the latest reports. However, both new and existing home sales rose in May — the rare exceptions to the downward trends. Little wonder then that the Q2 2017 forecasts from the Atlanta Fed’s GDPNow model have been dropping. The GDPNow model still calls for a relatively robust 2.7% annualized growth during the second quarter, but the figure was 4% as recently as a month ago. Other sources suggest rates between 2.5% and 3%.
Regardless, U.S. job growth appears to have peaked and is slowing as we near full employment, notwithstanding the strong June jobs report. This trend carries significant implications for property markets as jobs are the single greatest driver of space absorption. Firms tend to lease more space when they are adding headcount, although to a lesser degree today than in prior cycles as firms are being more efficient in space usage and more employees are working remotely.
Job growth has been among the strongest economic indicators in this expansion, helping to fill space vacated during the recession and new space constructed since. But as shown in the chart here, quarterly job growth peaked in mid-2014, and the four-quarter moving average has now declined for eight of the past nine quarters through Q2 2017. Accordingly, net absorption of both office and industrial space has been slowing in recent quarters.
Thank you to Andrew Nelson for sharing this economic snapshot to Colliers Knowledge Leader! Andrew is the U.S. Chief Economist for Colliers International, where he provides thought leadership about commercial real estate, capital markets, financial investment and related sectors. He’s held a variety of leadership roles in both the public and private sectors.Previous  Next »