SIOR Index – Office and Industrial Conditions
Maintain Updward Momentum in the Third
Quarter 2010
Lawrence Yun is Senior Vice President
and Chief Economist at the National
Association of Realtors®. He writes regular
columns on real estate market trends,
creates NAR’s forecasts, and participates
in many economic forecasting panels,
including Blue Chip and the Harvard
University Industrial Economist Council.
He received his undergraduate degree
from Purdue University and earned his
Ph.D. from the University of Maryland.
George Ratiu is an Economist with
the National Association of Realtors®
in Washington, DC. He specializes
in mortgage finance, foreclosures,
and commercial real estate. Mr. Ratiu
produces NAR’s Commercial Real
Estate Outlook, which provides quarterly
forecasts for the office, industrial,
retail, and multi-family sectors. He
received his undergraduate degree from
Campbellsville University and earned
his graduate degree in Economics
from Western Kentucky University.
NAR Economic Overview
As we approach the holiday season looking for some joy and good cheer, the economy offers some hopeful fare. The third
quarter activity maintained the moderate
positive momentum. Consumer spending
continued to surprise with its resiliency
in the face of stubbornly high unemployment. But questions about the direction
of the economy remain, as evidenced by
the Federal Reserve’s second round of
quantitative easing measures (QE2) as
well as the condition of commercial real
estate.
Based on the Bureau of Economic
Analysis’s first estimate, gross domestic product (GDP) rose 2.0 percent in
the third quarter. Mirroring the second
quarter’s patterns, all major components—except net exports—advanced.
The gains were driven by double-digit
growth in business investments, along
with sustained expenditures by consumers and government. Business spending
increased 12. 8 percent during the quarter. While taking a slower pace compared
with the first half of the year, businesses
continued to spend on equipment—
software and transportation were up 12.0
percent and 42.0 percent, respectively.
On another hopeful note, after eight
consecutive quarters of declines, business spending on commercial real estate
ticked up 3. 8 percent.
The major economic driver, consumer spending stayed the course, gaining 2. 6 percent during the third quarter.
Consumers increased their spending on
both goods and services, particularly for
recreation and recreational goods, home
furnishings, transportation and health
care.
International trade expanded during
the quarter, as well. The balance of trade
remained negative, however, as imports
grew by 17. 4 percent and exports by 5.0
percent. In the face of growing deficits,
government spending moderated its
growth, gaining 3. 3 percent, mostly at
the federal level.
After a strong first half of 2010,
employment trends took a dive during
the third quarter. Businesses, while still
spending, are doing so more targeted and
not on jobs. While corporate profits are
back up to their peak before the recession,
companies are just sitting on cash and not
actively pursuing expansion plans. The
number of payroll jobs declined by 53,000
for the period. The decline was somewhat
offset in October, when the economy
added 151,000 jobs. But, employment
conditions remain mired in uncertainty.
The first-time unemployment insurance
claims have been stuck at around 450,000
per week. The figure needs to fall below
400,000 per week to ensure a meaningful,
consistent job creation. In addition, the
number of people drawing unemployment
benefits stayed above 4. 5 million. Not sur-
