Posts in Research
COMMERCIAL REAL ESTATE SECTOR PRESERVES STRENGTH

Markets predict Fed cut in March, even with bump in CPI. Headline inflation ticked up to 3.4 percent over the year ended December 2023, as both energy and shelter costs accelerated during the month. While this higher reading appears to complicate the Federal Reserve's stance on monetary policy in 2024, market probabilities for a rate cut in March ...

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RETAIL AND HEALTH CARE HIRING IMPLICATIONS FOR CRE

Non-cyclical and strike-impacted sectors log modest job creation. Last month welcomed 199,000 new positions as the labor market continued to exhibit resilience. Still, November’s headline number fell a fair bit below the trailing 12-month average of 240,000 roles as hiring velocity slows. While the overall growth eased back, hiring was still aggressive in non-cyclical sectors like health care and government, as well as in industries affected by recent labor disruptions, like manufacturing. Health care led in hiring last month with an above-average 77,000 added jobs. The 30,000 new positions in motor vehicles and parts manufacturing largely reflected the return of workers from strikes....

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UAW STRIKE RESTRAINS OCTOBER JOB CREATION

Unemployment inches up in October amid modest job creation. The tight labor market loosened slightly in October as 150,000 positions were created, the second-slowest month for hiring since the end of 2020. Additions were greatest in the health care and public sectors, with the onboarding of 58,000 and 51,000 personnel on net, respectively   ...

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EVEN AMID STRONG JOB GROWTH, LABOR DISPUTES COULD IMPACT ECONOMY

Staffing additions hit eight-month high, holding unemployment flat. Employers across the country created 336,000 new jobs in September, above the year-to-date monthly average of 260,000, and the strongest month for hiring since January. Employment growth occurred across a broad range of industries, led by the onboarding of 96,000 personnel in the leisure and hospitality sector, as well as 73,000 in government roles, including public education. Hiring was also prevalent in professional and business services, as well as in health care. Strong job creation held the national unemployment rate flat at 3.8 percent, sustaining a tight sub-4 percent for the 20th consecutive month...

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FED HOLDS RATES STEADY, WHILE TAKING NOTE OF EMERGING ECONOMICS

Fed opts for a rate hike hiatus. On September 20, the Federal Open Market Committee announced there would be no change in the federal funds rate, while the institution would continue to reduce securities holdings. This will maintain the current lower bound of 5.25 percent first set in July, and mark the second meeting in 2023 during which the Fed chose to forgo a rate increase. Labor market dynamics played a major role in the FOMC’s decision-making. Although labor demand still exceeds supply, job openings have declined as recruitment has tapered. Chairman Powell also reiterated the Fed’s open-ended, data-dependent stance at the meeting. This contrasts the language used during June’s pause, which explicitly referred to that decision as a skip, foreshadowing the increase in July..

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ResearchCasey SandersResearch
NATURAL DISASTERS AND INSURANCE RISK

Hurricane Idalia was the latest in a recent string of disasters that inflicted more than $1 billion in property damages. Beyond the impact to real estate, Idalia and other weather events have caused owners’ insurance to rise drastically in several states, which will have implications for demographics and investment. The growing incidence of natural disasters may, over time, motivate investors to place more emphasis on geographic diversification to manage this long-term risk.…

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ResearchCasey SandersResearch
NORMALIZING RENT GROWTH POINTS TO FUTURE COOLING IN CORE INFLATION

“Supercore” CPI at favorable level. The headline consumer price index increased by 3.2 percent year-over-year in July, trending up slightly from June's 3.0 percent reading. Accelerated cost increases for food and some forms of energy ticked up the headline statistic for the first time since June 2022. While this could signal a bumpier inflation path ahead, market expectations for a continued CPI slowdown are anchored by a cooling job market and easing price pressures for most goods and services. Core CPI, which omits food and energy costs, slowed to 4.7 percent year-overyear in June, its lowest rate since October 2021. Further removing shelter from the measure, “supercore” CPI only lifted by 2.5 percent year-overyear. The housing component of inflation tends to be a lagging indicator that is expected to materially subside, reducing inflationary pressure.

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HIRING DOWNSHIFT PAVES WAY FOR INTEREST RATE STABILITY

Job growth returns to more familiar, positive territory. Employers added 187,000 new positions in July, the second-slowest month for employment growth since December 2020, when staff counts retracted. July’s hiring was nevertheless still 61,000 roles ahead of the monthly average going back to 1980. The drawback in job creation was not unexpected, as the 9.6 million open positions in June was the lowest in two years. Together, these statistics reflect a downshift in the demand for personnel; although, the labor market is still tight in a broad sense. This slowdown to a more typical level of job creation is far from a concern, however, posing positive implications for both the economy at large and commercial real estate in particular. ...

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GDP REAFFIRMS RESILIENCE IN THE ECONOMY, BOOSTS PROSPECTS OF A SOFT LANDING

U.S. economic growth accelerates. Real gross domestic product increased at an annualized rate of 2.4 percent in the second quarter of this year, outpacing consensus expectations for 1.5 percent growth. It also marked an acceleration from the 2.0 percent advance during the first three months of 2023. Gains in consumer spending, non-residential fixed investment, private inventory investment, as well as state, local and federal government spending, contributed to this momentum. The U.S. economy has now expanded at a 2-plus percent pace in each of the past four quarters, following a mild reduction in early 2022.

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FED RESUMES RATE INCREASES

Hiatus short-lived as Fed re-commences rate hikes. On July 26, the Federal Open Market Committee announced the first fed funds rate increase in nearly three months, raising the metric by 25 basis points to a lower bound of 5.25 percent. This follows a pause in June during which the target rate remained ...

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CORE INFLATION COOLING BUT STILL HIGH

Inflation continuing to trend down. The headline consumer price index climbed by 3.0 percent year-over-year in June, the smallest increase since March 2021. A 16.7 percent decline in energy costs helped slow the overall inflation rate to a third of its June 2022 peak. However, prices for other categories of consumer goods and services, such as housing and medical care, continue to ascend. Core CPI inflation, which omits more volatile food and energy costs, rose by 4.8 percent year-over-year in June.....

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STURDY LABOR MARKET SUSTAINS POSITIVE MOMENTUM

Employment growth strong, but down from recent periods. Monthly hiring dropped below the 300,000 mark for the fourth time this year with the creation of 209,000 jobs in June. While the softest period for employment growth since December 2020, June’s total is still well above the past 30-year average of 126,000. Staff additions were led by ...

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BETWEEN A ROCK AND A CPACE: FINANCING ALTERNATIVE

The 10-Year Treasury sits in the upper-3 percent range, with one-month Term SOFR in the low-5 percent zone. The cheapest interest rates for new origination are almost 6 percent, with max leverage agency debt constantly pricing north of that for non-mission executions. CMBS debt for riskier property types, such as office and hospitality, is often in the 7.0 percent to 8.0 percent band or more. ...

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