Economic & Real Estate Report – 2Q 2016

Real Estate & Infrastructure | Corporate Finance & Restructuring

August 31, 2016

As the U.S. enters its seventh year of recovery since the Great Recession, economic growth during the first half of 2016 was slower than expected. The advance estimate of 2Q16 GDP showed that the economy failed to generate any discernable momentum from the prior quarter, as growth recorded during the first two quarters was the lowest in five years. The recent slowdown was primarily driven by a decline in inventories, sluggish business spending, a retreat in homebuilding and falling government outlays, offsetting a surge in consumer spending, which grew at the strongest pace since 4Q14 and has supported the majority of recent economic growth.

The latest weak GDP reading is in contrast to numerous other positive economic indicators released in June, which show the U.S. economy has remained resilient in the face of global uncertainty.  Job growth rebounded considerably from the prior month, consumer confidence and small business optimism increased, retail sales exceeded expectations, wage growth trended upwards, industrial production improved and housing market fundamentals remained robust, marked by pricing growth, positive builder sentiment, increasing sales activity and more healthy starts.

After an early year market correction, triggered by global volatility (specifically China), a strengthening U.S. dollar and falling oil and commodity prices, U.S. equity markets have recovered prior losses, supported by a weakening dollar, which has lost roughly 5.0% against major currencies since 2015, steady consumer spending and recovery within the manufacturing sector. Although the June vote for the United Kingdom to leave the European Union, commonly referred to as Brexit, initially sent U.S. equity markets lower, losses were largely recovered by the end of the second quarter.

At its July Federal Open Market Committee meeting, the Federal Reserve (“Fed”) decided against a July interest rate increase, but signaled that greater labor market utilization and improving economic conditions may lead to an interest rate hike later in 2016.


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