Hey, what happened to our positive economic outlook? Last I checked when we clinked the New Years champagne, we were very confident in 2016. Yes sir, a chicken in every pot and a car in every garage!
Then this happened….
- The Wall Street Journal reported on Saturday the 9th: “The Dow industrials tumbled more than 1,000 points this week, marking the worst first five days of any year, as volatility across the globe rattled investors.”
- And the New York Times: “Worries that China’s huge economy is slowing down have prompted a dismal start to the new year. That has helped send the price of oil plunging to its lowest level since 2004, the latest blow to American energy companies.”
- The Financial Times pronounced the first few trading days of 2016 were “the worst start to the market year in two decades.”
What in the world is going on here? Should we all buy protein bars and water for our emergency bunkers?
You Observe a Lot By Watching – Yogi Berra
Just in time to understand this global financial cold, I attended a joint CoreNet/CREW real estate forecast in Atlanta on January 7th. Dr. Marci Rossell, Former Chief Economist, CNBC was the keynote speaker and did her normal terrific job of explaining how we got to such a troubling spot seemingly so quickly (this is her 9th year of forecasting in Grits country).
“While the narrative around China seems to be changing before our very eyes, their slowdown actually began 2 years ago,” she said. “The Chinese stock market peaked in June of 2015, and this situation we are in is, in fact, a debt crisis, not a stock market crisis.” We are in the third waive of debt problems; US first, Greece second and now the Chinese, she said.
She went on to explain that the Chinese launched a giant spending spree a few years ago to the tune of $660 billion on an incentives program to prop up their economy. Marci called the program the “worst gross allocation of resources the world has ever seen.” She reported that there are multiple major office buildings that will never have tenants all over China. My, what a contrast to the US.
Now that the Chinese stimulus party is over and they’ve slammed on the spending brakes, the world is impacted. One way this issue presents itself is in commodity prices. The good news is metals, energy and food will get cheaper. The bad news is some will be losers as a result, including US farmers and their suppliers.
Let The Good Times Roll – BB King
But Marci helped us understand that on the nation by nation level, there will be two huge winners in all this turmoil: India and the United States. India has the educated labor that the world needs. The US also has labor, a fully recovered housing market and cheap energy. Plus our economy is at a great cadence already – we are off and running.
I then rang up Ken McCarthy, Cushman & Wakefield’s Principal Economist and asked him about our potentially troubling situation. He was immediately very optimistic about the US also, and specifically the commercial real estate markets.
Some of his comments:
- Despite the buffeting from global uncertainty, the U.S. economy remains fundamentally sound with GDP growth expected at somewhere between 2.5% and 3.0% in 2016. Consumers are expected to boost spending as wage growth accelerates and the benefits of lower oil prices increase discretionary income.
- Job growth was robust in both 2014 and 2015 and we expect more of the same in 2016. After adding more than 3.1 million jobs in 2014 and an additional 2.6 million in 2015, the U.S. economy is projected to add 2.5 million jobs in 2016. This would make the 2014-16 period the strongest for job growth since 1997-99. (Note that the Dow crested 7,000 for the first time that year…should have bought AAPL then!)
- As the U.S. economy continues to shift toward services, office using employment is likely to grow even more rapidly. We anticipate an additional 800,000 office using jobs to be created in 2016.
- With most companies working to use office space more efficiently, the overall impact on occupancy may not be as great as it was in the past. Nevertheless, job growth will lead to more demand for space and lower vacancy rates in most markets.
Take Two Aspirin and Call Me In The Morning – Dr. Feelgood
What a relief, then. The US has a positive diagnoses from two experts. But you didn’t really need me to tell you – you see it too. The labor markets are frothy, the buildings are full and seemingly everyone is working on huge deals and big expansions. It is not a mirage; we WILL indeed have a great year in US real estate.
So, put your head down and make it happen in your job this year. If your gig is to make deals, I think you will be very happy in December 2016. And keep your eye on the long term relative to the abymsal stock market. What goes down, must come up, especially when Wall Street realizes that the US will survive this onset of Asian unpleasantness. As a friend of mine said recently when discussing the precipitous stock decline, “they just had a winter sale in the stock market.”
Smile and shake it off when you hear news on China. In 2016 it’ll be OK after all in the good ol’ US of A.
Should we have another glass of champagne to celebrate?