Economy Takes Two Steps Forward, One Step Sideways

The March employment statistics fell short of expectations, but a disappointing month isn't out of the ordinary in an economic recovery, according to NAREIT Vice President of Research and Industry Information Calvin Schnure.

"That's just indicative of how the economic recovery has been going," Schnure said. "It has been two steps forward, one step sideways. This was not really a step back. It's just a step sideways saying the economy is taking longer to pick up speed."

Schnure pointed out, however, that even though the recovery has followed an uneven pattern, when the economy has gained momentum, the surge has been stronger than before.

"Each time the economy picks up speed, it gets a little bit stronger, it goes a little bit longer," he said. "We're hopeful that the economy is going to continue to pick up speed as we go through this year and next."

The tepid employment growth lends credence to the prevailing view that Federal Reserve Chairman Ben Bernanke will keep interest rates low for the near future. Treasury yields have fallen across the board, prompting debate that the Fed could alter its current interest rate policy. Schnure characterized the decline in yields as a function of consumers' flight to quality, a sign that the economic recovery is progressing slower than expected.

One trend to watch, according to Schnure, is the deleveraging of households.

"Households are not nearly as fragile as they were two or three years ago," he said.

At present, the household savings rate is in line with balance sheets, which is a sign that people feel more stable about their fiscal situation.

"Household balance sheets have actually progressed pretty far in their balance sheet restructuring," Schnure said. "With deleveraging and lower interest rates, the financial obligations ratio is the lowest it has been in 20 years. This is something that's really helping the consumer sector, so as the economic recovery continues, the consumers are not really robust, they're not leading any vigorous recovery, but they are well-positioned to increase their spending."

The potential increase in consumer spending bodes well for the retail sector of the commercial real estate industry, Schnure said.