Beige Book, June 2022. Economic activity in the First District increased slightly amid strong wage and price growth. Labor shortages remained a widespread problem, with staff numbers increasing only slightly. Restaurant profits have plummeted due to sharp increases in input prices. The outlook for summer tourism was bright, but the optimism of many contacts was clouded by growing recession fears.
Employment (BLS.gov). Total non-farm payroll employment increased by 372,000 in June and the unemployment rate remained at 3.6%. Notable employment gains were recorded in professional and business services, recreation and hospitality, and health care. For households, the unemployment rate was 3.6% for the fourth consecutive month, and the number of unemployed was virtually unchanged at 5.9 million in June. These measures are little different from their values in February 2020 before the coronavirus.
Consumer confidence. The Conference Board® Consumer Confidence Index fell in June, after falling in May. The index now sits at its lowest level since February 2021 The Current Conditions Index – based on consumers’ assessment of current business and labor market conditions – has fallen slightly… The index expectations – based on consumers’ near-term outlook for income, business and labor market conditions…Expectations have now fallen well below an 80 reading, suggesting weaker growth in the second half 2022 as well as a growing risk of a recession by the end of the year… “Purchase intentions for cars, houses and major appliances have remained relatively stable.
Oil price/interest rate. Some relief has occurred in gasoline prices, coinciding with the summer travel season. Interest rates, not so much. Watch out for new increases. Not a bad thing for bond type investments, not so good for things like mortgage rates.
Several families. CoStar notes: “The rebound in U.S. apartment and condominium construction, a sign of strength for the country’s multifamily sector, is expected, according to one of the nation’s largest mortgage lenders, to slow for the remainder of the year. he year… The Commerce Department reported Tuesday that multifamily housing starts rose 15% in June from May, after falling from the previous month, and rose 16, 4% compared to the previous year.
The National Association of Home Builders tells us“Builder confidence plunged in July as high inflation and rising interest rates stalled the housing market by significantly slowing sales and buyer traffic.” “Rising interest rates, building material supply chain bottlenecks and high construction costs continue to dampen the single-family housing market. For the first time since June 2020, single-family home starts and permits fell below an annual pace of one million. Permits in the northeast are 5.1% lower in the northeast, but slightly higher elsewhere. Affordability is seen as an issue.
Warren Group. In June, it was reported that the “median sale price of single-family homes and condominiums continued to set records in May…the number of sales of single-family homes in Massachusetts was down more than 7%…During this time, the median sale of a single-family home price rose 12.4% year-over-year.
Sotck exchange. The S&P, although below the peak reached in early 2022, before the war in Ukraine, is still a little above the pre-pandemic peak of January 2020.
Participation in Major League Baseball. Entering the MLB All-Star break is down for 23 of 30 teams from the same time in 2019, down 6.4% league-wide.
So why do we feel so out of balance? Expectations? Overdependence on short-term emotions? Are we heading into a recession? It is true that inflation is at its highest level in 40 years: a large part of this inflation is due to short-term peaks in commodities. The labor market is solid. Real estate continues to be positive. As interest rates have skyrocketed, this negative factor must be balanced against the good that higher rates can do in curbing inflation.
Amateur economic analysis aside, what to expect from commercial real estate. Some cooling of passions as interest rates weigh on cash flow, commodity prices affect spending, but sectors like self-storage and multi-family can digest higher costs as rental demand continues to evolve positively. The common wisdom is that the apartment rental market will benefit from those potential buyers who are closed to home ownership.
These are clearly uncertain times. I make no predictions. Some of these questions raised interesting lines of thought. Pursue them. Take the time to enjoy summer, family, friends and life!
Bill Pastuszek, MAI, ASA, SRA leads Shepherd Associates, Needham, Mass.