Economic & Real Estate Report – 3Q 2016
In the face of uncertainty driven by the aftermath of the United Kingdom’s Brexit vote, the U.S. election cycle, the timing of the next anticipated Federal Reserve (“Fed”) rate hike, volatile oil prices and corporate earnings, the United States economy remained resilient during the summer months. As per the advance 3Q16 GDP estimate, growth accelerated to its strongest pace in more than two years and was driven by an increase in exports, stronger inventory building and healthy consumer spending. The latest report calmed fears of a slowdown following the growth of just 1.1% recorded during the first half of the year.
Other economic indicators have led to cautious optimism. During 3Q16, the labor market added 575,000 jobs while the labor market participation rate and wages continued their slow rise. In September, consumer confidence increased to a new post-recession high and retail spending rebounded from the prior month, driven by expenditures on big ticket items such as automobiles. Despite a decline in residential starts, housing market conditions remained positive, as rising household formations and low mortgage rates fueled the continued increase in the number of first-time homebuyers and pushed builder sentiment to its highest level in six months. Activity rebounded in both the manufacturing and service sectors in September, while industrial production and factory orders increased modestly during the month.
These latest figures, in conjunction with continued steady labor growth and an uptick in inflation, have increased expectations for a December interest rate hike. At its September Federal Open Market Committee meeting, the Fed voted to hold interest rates steady. Despite expressing confidence in the economy and denoting a strengthening labor market, the Fed voiced concerns regarding inflation trending below its 2.0% benchmark and also lowered projections for GDP growth for the remainder of 2016.