END OF NOVEMBER ECONOMIC UPDATE
Written by: Harrison LaHaie
What’s in the News
Chinese citizens began protests of COVID-19 lockdowns, after 3 years of highly restrictive measures. China is set for economic struggles as the economy continues to reopen and shutdown. Central bank officials across the globe are concerned that continuing an aggressive hiking cycle will cause a deep recession. However, many Fed officials have hinted that more rate hikes are to come, albeit at a slower pace than recently. Live Nation and Ticket Master’s merger is under investigation for monopoly power. Equities continue to stagnate as the Bear Market continues.
Economic Outlook for CRE
It would be redundant to say that the continual rate hikes by the Fed are unfavorable for CRE transactions, but it does not change the fact that it is true. This cycle of monetary tightening combined with natural market forces could be detrimental for the office sector in some major markets. In particular, class B and C buildings may struggle to compete in a market with a lot available supply. However, this trend does not seem to be all encompassing for the sector. Fewer remote jobs have been offered in recent months, and employers are pushing for a return to the office. While some firms may downsize, it does not look like the workforce is making the dramatic shift to fully remote. In other words, office may struggle in the coming year, but in the long run is here to stay.
Economic indicators such as the Conference Board’s 10 Leading Indicator’s index are pointing to a recession at the end of Q1 2023. This may be slightly early, as the labor market has not shown real weakness and personal income continues to grow. Still, much can change in 4 months. The recent New Orders for Durable Goods surprised on the upside, showing that demand has not tapered off significantly in the economy. For a recession to be labeled as such, one would expect significant demand destruction led by falling consumer spending and followed by the labor market showing real weakness. Until these conditions are met, the current cycle cannot be considered a recession. However, the Fed’s continued monetary tightening will inevitably cause something to break. With rates above neutral for an extended period of time, something has to give
Sources: Globe St, WSJ, First Trust, Federal Reserve.