SVN® International Corp. Economic Update – Keeping our clients up-to-date about the latest real estate landscape trends.
In the second quarter, the US economy grew at an annualized rate of 2.8%, an improvement from 1.4% in the first quarter and surpassing the expected 2%. This growth was primarily driven by a rebound in consumer spending, particularly in goods consumption, which rose by 2.5%. Private inventories also contributed positively after being a drag in previous quarters. Government spending rose, notably in defense, although net trade remained a drag due to faster growth in imports compared to exports.
The Federal Reserve’s Beige Book highlighted that economic growth was modest across most districts, with five of twelve districts experiencing flat or declining activity. Despite the GDP acceleration, some regions are experiencing stagnation. Wages continued to rise modestly, while price increases and household spending remained stable. The Beige Book indicated varied activity across residential and commercial real estate markets, and a softer demand for loans. Expectations for the upcoming months suggest a slowdown in economic growth, influenced by factors such as domestic policy, geopolitical uncertainties, and inflation.
The stronger-than-expected GDP growth shifted market expectations regarding future interest rate cuts. While a September rate cut is still largely anticipated, there is now an 87.7% chance that rates will remain steady for the rest of the year following an initial cut. The mid-year commercial property outlook suggests a bottoming out of transaction activity, with expected further declines in valuations due to rising cap rates. Additionally, the CHIPS and Science Acts are likely to increase demand in commercial real estate sectors, particularly in regions with strong labor markets and diverse supplier bases.
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