Fundamentally Speaking: Economy Still Gaining Strength

In the latest edition of Fundamentally Speaking, Calvin Schnure, NAREIT’s senior vice president for research and economic analysis, concludes that the United States economy continues to recover despite a mixed bag of recent data.

Schnure pointed out that the big slowdown in fourth quarter gross domestic product (GDP) after six months of increased momentum “is like the recovery we’ve had all along. It’s uneven, but it’s gathering strength.”

He stressed that despite weaker GDP data, the economy has more strength than it did a year or two ago. Schnure also highlighted solid monthly job growth numbers.

“This is really a solid fundamental for the economy going forward,” he said.

Looking ahead, Schnure said he will be closely watching four factors that could impact the U.S. economy. Those factors include growth in the rest of the world, the stronger dollar, lower oil prices and higher interest rates. He noted that weakness in Europe and slower growth in China and other Asian countries will continue to drag down the U.S. economy. The stronger dollar, meanwhile, is hurting exports, but helping consumers and holding down inflation.

Lower oil prices should provide the consumer segment with momentum going forward, according to Schnure. At the same time, “it’s pretty clear we are going to see a change in the interest rate environment” in 2015, he said.

Schnure stressed that despite some “bumps in the road,” fundamentals are going continue to support the economy. “This is actually quite a favorable environment,” he said.

Regarding the real estate market, Schnure pointed out that against a backdrop of a healing economy and rising occupancy levels, “rising rents are going to beat rising interest rates every time.” While there will be volatility as the market adjusts to the Federal Reserve’s timing for an interest rate increase, “it’s not something that’s going to derail the long-term picture of a healthy recovery for commercial real estate,” he said.