Three and one-half years after the Great Recession ended, the economy is still sluggish, and real job growth is not even keeping up with population growth. There is the damage and aftermath of Hurricane Sandy to deal with, the fiscal cliff is right around the corner, and there are fresh warnings from Fitch and Moody’s that they will cut the nation’s credit rating if our $16 trillion debt is not addressed. This is the new normal—and these difficulties and uncertainties will be with us for the foreseeable future.
This is the lot we are left with as we run our businesses and invest in the future. It seems that there are more questions than answers as we determine how the new healthcare laws and regulatory and tax burdens will affect our businesses. For commercial real estate investors, finding opportunities in a slow-growth environment may be one of the more daunting challenges we have faced.
Growth Improves Slightly
Economic growth in the U.S. inched up a bit in third quarter 2012, increasing at an annual rate of 2.0 percent from the 1.3-percent revised growth rate in second quarter, according to the Bureau of Economic Analysis (BEA). The increase in GDP during third quarter 2012 was due primarily to a 9.6-percent increase in federal spending, including a 13.0-percent increase in national defense and a 3.0-percent increase in non-defense spending.
Consumer spending also increased during third quarter 2012, with real personal consumption expenditures increasing 2.0 percent, according to the BEA. However, business spending pulled back, with non-residential fixed investment declining 1.3 percent in third quarter. In addition, real exports of goods declined 1.6 percent, as the recession in the European Union (EU) takes its toll. This is the first time in more than 3 years that exports have declined, indicating that the slowing global economy is now more directly affecting the U.S. economy.
The Federal Reserve lowered its official forecast for economic growth for 2012 to between 1.7 percent and 2.0 percent. However, the Federal Reserve raised its estimate for 2013 growth to between 2.5 percent and 3.0 percent. The Organization for Economic Cooperation and Development (OECD) expects the world’s major economies (except the UK and Brazil) to continue to slow over the near term as well, with the EU continuing to drag down growth, particularly in the U.S. and Japan.
As we come to terms with the results of a generally no-change election, we can expect that the new normal will be very similar to what we have experienced during the past few years. As we look to the future, investors should expect:
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Investment Trends Quarterly's Copyright© 2012 by Real Estate Research Corporation (RERC) and the CCIM Institute.