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NAI Economic Briefing

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Economic uncertainty discourages economic activity, and according to Dr. Peter Linneman, NAI Global’s Chief Economist, uncertainty remains above average. Linneman shared his observations during NAI Global’s Quarterly Market Outlook webcast with 660+ Members and clients registered. While GCP and GDP per capita are at an all-time high, there is a huge gap between actual vs. trend real GDP, representing $2.3 trillion and 18 million workers without jobs. The gap is caused by underproduction of single- and multi-family homes, under-repaired and maintained homes, and under production of autos. Linneman states that the gap is due to overall economic uncertainty caused by uncertain tax, economic and regulatory policies. However, when we see that gap start to close, the US is poised to move from a “dark era” to a “golden era” of growth.

Energy and retail remain the two sectors to watch. We still have a long way to go on growth and recovery, but the energy sector will continue to generate jobs, provide new capital sources and drive new businesses. The retail sector has reached a new peak and is back to pre-recession levels. Linneman notes that the US has added six percent to the population in the past seven years, so there is still a way to go before we can say the market is fully recovered. Store-driven sales remain flat with no net growth, and most growth over the last three years has been internet sales, which poses the question whether internet sales may be peaking as well. However, consumer confidence has risen dramatically since 2009, and we’re seeing recovery broaden every day, particularly in high-end markets.

There is an abundant supply of capital, yet bank loans are three times below capacity. Banks are currently lending $7 trillion, but they can lend an additional $20 trillion. Linneman says binding guidelines of stress tests have resulted in banks sitting on capital rather than making loans. Commercial real estate is moving into a capital boom, and as we near the end of Q3 there seems to be a tremendous amount of dispositions as fund managers sell properties at a profit.

Jay Olshonsky, President, NAI Global asked Dr. Linneman if he was amending his forecast from last quarter when he advised it was the time to “borrow, borrow, borrow and buy, buy, buy.” Linneman stressed that he’s not saying to go to no debt, and there are still plenty of opportunities, but investors should keep leverage low.


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