END OF MARCH ECONOMIC UPDATE
Written by: Harrison LaHaie
What’s in the News
Initial jobless claims remain low, showing that layoffs have stayed focused in the tech sector. Regulators are questioning whether regulations on banks, particularly mid-size banks, has become too loose. Former President Donald Trump has been indicted by a grand jury in New York. It turns out that Norfolk Southern, the rail company responsible for the chemical spill in East Palestine, had reduced railcar inspection to 1 minute.
What's Next for CRE
The reality of commercial real estate is that it reflects the economy at large, and right now the outlook for the economy is not ideal. With the Federal Reserve continuing to hike rates, securing loans for the purchase of large assets such as commercial properties will be more expensive. However, these rates will not remain high forever. Once a real recession hits the U.S. economy in which consumption drops, the Fed will have to reduce rates. When that happens, credit will loosen and investors who have positioned themselves well will be able to get cheap credit to buy properties once again. Long-term, most Fed officials see the neutral rate as sitting around 2.5%. This high-rate environment is not forever.
Since the recent banking incidents with SVB and Signature, the economy seems like it may finally be coming to an inflection point. For the last year, talking heads have traded predictions as to when a recession would come, and there was no real consensus. With rates having been elevated for a somewhat extended period, inflation has started to decline, although it remains sticky. Some on Wall Street predict that the recent banking crisis will cause a credit crunch, which appears to have already been happening as consumer credit indicators have come down significantly in the first couple months of 2023. There is no way to be certain until it has already happened, but if credit does crunch significantly, we could finally be looking at a recession.
Sources: Globe St, WSJ, First Trust, Federal Reserve.