Economic & Real Estate Report - 1Q 2016

Real Estate & Infrastructure

May 18, 2016

Similar to the past several years, U.S. economic growth was sluggish to begin 2016. During January and early February, fears of an economic slowdown increased, as leading U.S. stock indices fell considerably, due largely to continued economic weakness in China, the strengthening dollar and falling oil and commodity prices, which triggered more cutbacks in the U.S. energy sector. These concerns eased somewhat during the latter part of the quarter, as the dollar’s value began to decline, the price of crude oil rebounded and China undertook additional steps to steady its economy, which provided support for the rally of the stock market.

The advance estimate of 1Q16 GDP showed that the U.S. economy grew at its slowest pace in two years, primarily weakened by sluggish consumer spending and tepid business investment. As consumers continued to boost saving rates, retail sales declined in March and small business optimism and industrial production also fell during the month.

Despite these headwinds, numerous economic indicators were encouraging. Labor market conditions remained favorable, as 628,000 jobs were created during 1Q16 and the unemployment rate remained low. Per The Conference Board, consumer confidence rebounded in March. Housing market fundamentals were mostly positive, as builder sentiment remained strong and price appreciation continued. Total construction spending increased in March to near its prerecession peak set in late 2007. There was modest improvement in factory sector activity, as growth in new orders escalated, production expanded and the ISM headline figure indicated growth for the first time in six months.

At its April Federal Open Market Committee meeting, the Federal Reserve (“Fed”) decided for the third consecutive meeting to leave its federal funds rate unchanged at 0.25%, citing concerns regarding low inflation and a moderation in spending, as well as continued soft spots in business investment and trade. Despite no change being made, the Fed has hinted at the likelihood of interest rate hikes to come at some point in 2016.

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