Commercial Forum Presentation: Economic Outlook in Uncertain Times

Economic Outlook in Uncertain Times
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at NAR Annual Meeting
New Orleans, LA
November 5, 2010

Federal Reserve FOMC
Ben Bernanke (Chairman):
“Outlook remains unusually uncertain”
Alan Greenspan (former Chairman):
“If home prices start falling again, we could be facing a double-dip recession”
James Bullard (St. Louis Fed):
“The U.S. is closer to a Japanese-style deflationary outcome”
Thomas Hoenig(Kansas City Fed):
“Too rapid money creation results in eventual high inflation”

U.S. Private Sector Job Gains(863,000 from Jan. to Sep. 2010)
Month-to-month job gains in thousands

Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)

How Many Years to Get Job Market Back to Normal?

GDP Growing, but Decelerating
annualized % growth rate

Consumer Expenditure (Inflation adjusted in GDP accounting)
$ billion

Personal Income(Inflation adjusted, with and without government transfer payments)
$ billion

Savings Rate

Corporate Profits and Business Spending
$ billion

U.S. Private Sector Job Gains(763,000 from Jan. to Aug. 2010)
Month-to-month job gains in thousands

Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)

How Many Years to Get Job Market Back to Normal?

Local Job Market Differences

Total Payroll Jobs in Michigan
In thousands
Source: BLS

Total Payroll Jobs in Washington D.C. Metro
In thousands
Source: BLS)

Weekly 1st time Unemployment Claims: Need to Fall Further
In thousands

Real Estate Price
Residential: Case-Shiller
Commercial: MIT

Imports and Exports
$ billion

U.S. Dollar Strength
Federal Reserve Board’s Trade Weighted Exchange Value of $

Retail Sales(Raw nominal dollar figures)
$ million

Retail Sales (adjusted for inflation)
5% higher
From 2000

Homeownership Rate

REALTORS® Commercial Activity: 2010.Q2

2010.Q3:
UP 115% Y-o-Y

REALTORS® Commercial Activity: 2010.Q2

10-Year Treasury impacted by Inflationary Expectations

Inflationary Pressure ?

U.S. Budget Deficit
Source: CBO, NAR estimate

Baseline Outlook
Moderate GDP Expansion 2 to 2.5% in the next 2 years (historical average is 3%)
1.5 million annual job additions in the next 2 years
Unemployment rate of 8% in 2012 … and normal 6% in 2015

Baseline Outlook Cont.
Commercial lending to steadily improve … because of record high bank profits
Net absorption steadily improve … because of recovering job market
Rents stabilize (but no meaningful increase) … because of very low newly built inventory
Cap rate falls … price floor established and because of improved investor confidence (to move money out of low yielding Treasuries)

Alternative Outlooks
High inflation … people desire tangible investment like real estate, but interest rate will be higher
Deflation … investors hold back for better price … holds back economy
Budget deficit tipping point … higher interest rate and sharp cut back in standard of living
Sharp 4% to 5% GDP growth … business spending returns in line with profits … faster job creation … faster commercial market recovery

Commercial Forum Presentation: Economic Outlook in Uncertain Times

by NAR Research on Nov 05, 2010

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Commercial Forum Presentation: Economic Outlook in Uncertain Times — Presentation Transcript