MID-JUNE ECONOMIC UPDATE
Written by: Cade Polter
What’s in the News
Inflation in the United States stands well above the 2% target inflation rate, but the rate hovering above 4% is more promising than the 9.1% rate we faced last June. The Consumer Price Index (CPI) rose only 0.1% over the month of May, showing a slightly better outlook as it rose 0.4% through the month of April. The CPI measures the change in prices paid by consumers for goods and services. The Federal Reserve will decide this week whether to increase interest rates. This follows 15 months of interest rate hikes trying to combat the high inflation. The rate hikes have led to higher costs for mortgages, credit cards and more. However, the gradual decline of overall inflation seems to show the rate hikes have had decent success.
What's Next for CRE
Lasting effects of the pandemic continue to weigh on CRE, with people beginning to distinguish which effects are here to stay. Currently, the national office vacancy rate sits at 18.6%, the highest rate since 1993. This shouldn't come as a surprise, as the pandemic created a new way of working during the lockdowns. The U.S. census believes that by 2025, the number of Americans working from home will increase from 27.6 to 36.2 million. This increase will alter the office space needed for companies to run, but the CRE market is constantly adapting to stay useful. There are still some bright spots of CRE that haven’t begun to waiver. For example, medical office space will continue to be in demand, as some of the largest United States populations continue to age.
The United States might not be in as much trouble as we once thought. Currently, it’s being projected that the economy will expand by 1% this year, nearly doubling the March projection of 0.4%. The stock market seems to believe the Fed will skip the interest rate hike, as there appears to be bullish indicators in the market. After passing the Fiscal Responsibility Act to extend the debt ceiling, it will be interesting to see where the spending cuts begin to take place throughout the U.S. Government.
Sources: Globe St, WSJ, First Trust, Federal Reserve.