Glass Half Full With US Economy
By Carrie Rossenfeld | San Diego
January 15, 2016
SAN DIEGO—Despite substantial
headwinds, the overall and long-term
picture for the US economy and the
commercial real estate sector is
positive, said speakers at CREW San
Diego’s ‘Market-Leading Economic
Insights & Analysis’ event here on
Thursday. While recovery from the
recession has been slow, and some
might say true job growth has been
anemic, the US is still one of the
strongest economies in the world, and
global investors still view it as a safe
haven for commercial real estate
investment.
Joseph Quinlan, managing director
and chief market strategist for US
Trust, Bank of America Private Wealth Management, said there are both headwinds
and tailwinds affecting our economic growth that balance each other out. The fact
that we will be able to grow our economy by 2% to 2.5% in 2016 is a great thing, but
the fact that Donald Trump is still the forerunner for the Republican candidacy less
than a year from the presidential election “says something about the mindset of the
country”—namely, that a lot of people are fed up.
The US has an $18-trillion economy, but 2016 is not projected to be a great year
economically since we’re still experiencing rolling recessions—particularly in the oil
industry—and automation continues to stunt employment growth for white-collar
jobs, said Quinlan. The stronger dollar has meant exporting has pulled back, but
people are earning more and receiving tax cuts vis-à-vis lower oil prices. We’re
seeing instability in the stock market and the S&P 500, but the unemployment rate
continues to drop as wages rise modestly, and we will create roughly another two
million jobs by the end of the year nationwide, said Quinlan. Labor participation is
still very low, we’re losing high-wage jobs in the oil industry, there’s less pipeline
building and less investment in this area, but we have a “phenomenally strong
energy sector for the long term.”
In addition, the government is less of a headwind and more of a tailwind to growth
since finances are better and there has been less austerity than in the recent past,
said Quinlan. “US finances are improving, but as a result, legislators won’t make the
hard decisions to drive the economy forward.”
Internationally speaking, the troublesome economy will be “fine in the long term,
but in the near term will still be a headwind,” said Quinlan. “China is learning the
painful lesson of being globally integrated in the financial sector.”
Ultimately, the US is still a magnet for foreign capital, while the rest of the world—
particularly the Middle East—is a “mess,” said Quinlan.
He sees the Fed as out of step with the markets and said if it raises interest rates
four times this year as it has proposed to do, “I will come back here and eat this
podium. It won’t happen. They may raise it two or three times, but inflation is just
not there yet.” He added that monetary policy is 98% communication and 2% action
and Yellen is “failing.”
While the rest of the world is asking if we’re really going down the demagogic path
of Donald Trump, “in the end, I’m more optimistic than paranoid about the US
economy,” said Quinlan.
Spencer Levy, Americas head of
research for CBRE, spoke next. He
started out by saying he used to be
a lawyer, and Donald Trump was
his first client who taught him a
valuable lesson about business, so
he has a different view of the
candidate. “Donald Trump is the
face of commercial real estate, like
him or not.”
Looking at the big picture of
whether or not we are at the top of
the market, there are both bear
cases and bull cases to support
each viewpoint, Levy said. While
Vornado is hoarding cash and not
buying, foreign capital keeps
coming here, from China, Australia and mostly Canada. “Volatility is the US’s best
friend, but not too much volatility,” said Levy. Regarding China, he said that country
will not be a big problem for the US, but it could be a big problem for emerging
markets that have bet on China’s strength and lost.
Domestically, Millennials are one of our biggest strengths as well as one of our
biggest conundrums, said Levy. A majority of business decisions—particularly in
commercial real estate—are being made based on Millennials’ tastes and
preferences, but this cohort is not spending as much as previous generations
because they are saddled with student loans. They are also more likely to invest in
the stock market than in a retirement plan, and as such they are more vulnerable to
its ups and downs, he added.
Speaking of Millennials, “The acquisition of talent is the number-one factor driving
large office users today,” said Levy. He pointed out that GE moved to Boston, and it
won’t be the last large company to move to a secondary market because of its
promise for talent. Markets like Minneapolis and Pittsburgh have strong talent
pools, and as such will be attracting large companies.
Still, talent is a short-term factor, said Levy. Infrastructure, or the ability to provide
talent with what they seek, is an important long-term factor for a companies’ growth
and success. “But even more important than transportation infrastructure is
schools,” said Levy. “Cities with great dense locations for young folks will see them
leave once they start having kids” if they can’t provide them with good schools.”
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