US economic growth increased last quarter to a healthy 2.8% annual rate. Find out the forecast for the US real estate market and which sectors are expected to outperform. Get ready for major central bank meetings and key earnings reports from tech giants. Stay informed about the pivotal events shaping the global economy.
Sources:
https://www.kiiitv.com/article/news/nation-world/us-economic-growth-increased-last-quarter/507-391ab748-97f7-45cf-b594-53aed7df1190
https://www.oxfordeconomics.com/resource/us-industrial-and-retail-outperform-over-the-next-five-years/
https://www.fxstreet.com/analysis/week-ahead-central-banks-earnings-economic-data-202407261638
https://realeconomy.rsmus.com/american-economy-grew-by-2-8-in-second-quarter-exceeding-forecasts/
Outline:
(00:00:00) Introduction
(00:00:42) US economic growth increased last quarter to a healthy 2.8% annual rate
(00:03:43) US Industrial and retail outperform over the next five years
(00:07:04) Week ahead: Central banks, earnings, economic data
(00:09:41) American economy grew by 2.8% in second quarter, exceeding forecasts
Simply Economics
US Economy Surges in Q2, Real Estate Market Forecast, Central Bank Meetings and Earnings Reports
US economic growth increased last quarter to a healthy 2.8% annual rate. Find out the forecast for the US real estate market and which sectors are expected to outperform. Get ready for major central bank meetings and key earnings reports from tech giants. Stay informed about the pivotal events shaping the global economy.Sources:https://www.kiiitv.com/article/news/nation-world/us-economic-growth-increased-last-quarter/507-391ab748-97f7-45cf-b594-53aed7df1190https://www.oxfordeconomics.com/resource/us-industrial-and-retail-outperform-over-the-next-five-years/https://www.fxstreet.com/analysis/week-ahead-central-banks-earnings-economic-data-202407261638https://realeconomy.rsmus.com/american-economy-grew-by-2-8-in-second-quarter-exceeding-forecasts/Outline:(00:00:00) Introduction(00:00:42) US economic growth increased last quarter to a healthy 2.8% annual rate(00:03:43) US Industrial and retail outperform over the next five years(00:07:04) Week ahead: Central banks, earnings, economic data(00:09:41) American economy grew by 2.8% in second quarter, exceeding forecasts
- Duration:
- 12m
- Broadcast on:
- 27 Jul 2024
- Audio Format:
- mp3
Good morning and welcome to Simply Economics. It's Saturday, July 27th. On today's show, U.S. economic growth increased last quarter to a healthy 2.8 percent annual rate and U.S. industrial and retail sectors are expected to outperform over the next five years. Plus, a look ahead at central banks, earnings, and economic data for the week. This coverage and more up next. I'm David and you're listening to Simply Economics. We start off with some positive news on the economic front. The U.S. economy accelerated in the second quarter, growing at a strong 2.8 percent annual pace despite high interest rates. This is a notable improvement from the 1.4 percent growth seen in the first quarter. For more on this, let's turn to our economics correspondent. So what drove this stronger than expected economic growth? Consumer spending, which is the heart of the U.S. economy, played a significant role in boosting growth last quarter. It rose at a 2.3 percent annual rate, up from 1.5 percent in the first quarter. Spending on goods like cars and appliances increased at a 2.5 percent rate after declining earlier in the year. Business investment also picked up, particularly in equipment. However, a surge in imports, which are subtracted from GDP, did shave off about 0.9 percentage points from the overall growth. The report also showed that inflation continues to ease, although it remains above the Federal Reserve's 2 percent target. What do the latest inflation figures tell us? The Fed's preferred inflation gauge, the PCE Index, rose at a 2.6 percent annual rate last quarter, down from 3.4 percent in the first quarter. When excluding volatile food and energy prices, core PCE inflation increased at a 2.9 percent pace, down from 3.7 percent in the previous quarter. These figures suggest that the Fed's aggressive interest rate hikes are helping to tame inflation without tipping the economy into a recession, the elusive, soft landing, that policymakers have been aiming for. With inflation edging closer to the Fed's target, many expect the central bank to start cutting interest rates soon. How might this impact consumers and the broader economy? If the Fed does indeed start cutting rates, likely beginning in September, it would gradually reduce borrowing costs for consumers on things like mortgages, auto loans and credit cards. This could provide a boost to consumer spending and overall economic growth. However, the Fed will need to carefully balance any rate cuts against the risk of inflation re-accelerating. They'll want to avoid a scenario where they have to abruptly reverse course and start hiking rates again. Despite the challenges posed by high interest rates, the US economy has proven remarkably resilient. Economists had warned that the Fed's rate hikes could trigger a recession, but that hasn't materialized. What's behind this economic resilience? A key factor has been the strength of consumer spending, which accounts for roughly 70 percent of GDP. Even as borrowing costs have risen, consumers have continued to spend supported by a strong job market and the savings they accumulated during the pandemic lockdowns. While the economy did slow at the start of the year, that was largely due to temporary factors like a surge in imports and a drop in business inventories, rather than underlying economic weakness. Thanks for your insights into the latest economic data and what it means for the outlook going forward. Speaking of economic trends, the real estate market has been on a rollercoaster ride in recent years, with the pandemic and economic uncertainty causing major disruptions. But according to a new report, some sectors are poised for a strong recovery in the coming years. For more on this, we turn to our economics correspondent. What can you tell us about the outlook for the real estate market? The report predicts that after the current pricing correction concludes this year, all property values will have fallen by 16 percent from their peak. However, the impact varies significantly by sector. Office and retail saw steep multi-year declines, while apartment and industrial had shorter two-year corrections with smaller drops in value. Moving ahead, industrial and retail are expected to record the smallest declines this year. And over the next five years, apartment and industrial are forecast to have the strongest value growth on average, even reaching their 2022 peak values again this decade. That's an interesting mix, with some sectors recovering faster than others. What's driving the stronger performance in industrial and retail properties? The surge in e-commerce during the pandemic accelerated demand for industrial space, like warehouses and distribution centers. That sector proved quite resilient and is well positioned going forward. Retail is a bit more surprising, given how much the sector struggled with lockdowns and the shift to online shopping. But many retailers have adapted with omni-channel strategies, and certain segments like grocery anchored centers and home improvement have done well. The pricing correction was also less severe than what retail experienced after the global financial crisis. So it's starting from a stronger base this time. And what about apartments? The report mentions a supply surge impacting returns in the short term. Can you explain that dynamic? Right, a lot of new apartment construction was started before the pandemic hit, so that new supply is just now coming onto the market. Space supply puts downward pressure on occupancy rates and rents in the near term, but the report sees that effect diminishing by 2025, allowing the sector's underlying strengths to shine through. Demographic trends like population growth and household formation should continue to drive apartment demand over time. Build to rent single-family homes are also an emerging segment to watch within the multifamily sector. Okay, so putting it all together, what's the bottom line for real estate investors? The report expects total returns for US real estate to average a solid 6% per year over the next five years as the market recovers. Industrial and retail are predicted to be the top performing sectors in that time frame. Apartments could see a short-term hiccup from the supply wave, but are poised for a strong rebound. Of course, real estate is all about location, so these are broad trends. Others will have to be selective in picking the right markets and assets. But overall, it paints an encouraging picture for the asset class after a very challenging few years. Thanks for the insights on what's ahead. And speaking of what's ahead, this week is shaping up to be a pivotal one for financial markets. The Federal Reserve, Bank of England, and Bank of Japan all have policy meetings, while tech giants Amazon, Apple, and Microsoft report second-quarter earnings. And to cap it off, the US releases its latest jobs report on Friday. Markets have been volatile lately, with sharp sell-offs and negative reactions to earnings, but with political risks receding, as President Biden opts out of the 2024 race, fundamentals are back in focus. For more, let's bring in our economics correspondent. And what's the latest on the US political front, and how is that impacting markets? Well, David, the latest polls show the 2024 presidential race is tightening up considerably. Nate Silver, a well-known pollster, projects Trump winning just 1.3% more of the popular vote compared to now nominee Kamala Harris. Her presence has energized Democrats and reduced the threat of third-party candidates. A close race makes it less likely Republicans can win both the White House and Congress, which markets prefer since that limits political interference in the economy. So with that political uncertainty waning, investors can zero in on the fundamentals, which is key given the jam-packed week ahead. And the marquee event is the Fed meeting concluding Wednesday. No rate change is expected, but investors are looking for clear signals of a September rate cut. What's your take on what we'll hear from Chair Powell and company? The Fed has built a solid case that inflation is cooling sufficiently and the labor market is softening. June's core PCE price index, the Fed's preferred inflation gauge, rose at the slowest pace in over three years. Personal income growth also slowed to 0.2% last month, suggesting easing wage pressures. While long-term inflation expectations did tick up slightly in the latest University of Michigan survey, it likely won't deter the Fed from cutting rates soon. Policymakers seem satisfied with the disinflationary trend that's resumed after a winter hiccup. But I think the Fed will emphasize that unemployment is now a bigger concern. It's part of their dual mandate, along with price stability. And the jobless rate has climbed 0.7 percentage points from January's 3.4% low. It's up 0.4 points this year alone, and a continuation of that pace could quickly lead to an economic crisis if the Fed doesn't act. Certainly a lot for the Fed to weigh, as it looks to engineer a soft landing for the world's largest economy. Speaking of which, the U.S. economy grew at a faster-than-expected pace in the second quarter, advancing 2.8% and exceeding forecasts. This puts year-over-year growth at 3.1%. For more on the details and implications of this economic report, we turn now to our correspondent at Simply Economics. So what stood out to you most in this latest GDP data? The composition of growth in the second quarter was quite encouraging. We saw a large increase in productivity-enhancing investments, with business spending on equipment surging 11.6% and outlays on intellectual property rising 4.5%. This supports the view that the U.S. economy is in the midst of a productivity boom that should lead to broad-based improvements in living standards over time. And what about on the consumer side? How did household spending hold up in Q2? Household consumption was one of the primary drivers of growth in the second quarter, along with business investment and inventory accumulation. Real final private demand, which is a good gauge of underlying economic momentum, advanced to solid 2.6% for the second straight quarter. So the private sector and households look to be on very solid footing. There has been a lot of recession talk lately. Does this GDP report change that narrative at all? It should help quiet some of the more dire recession predictions, at least for now. While the 2.8% headline growth figure was inflated a bit by that big inventory build, the first half-growth average of 2.1% is still quite healthy and hardly signals an economy on the brink. Key measures like real final sales and real private demand point to an underlying growth pace of 2.2.5%, which is essentially the economy's long-run potential growth rate. Okay, so a solid economic picture overall, but with growth and inflation still running above trend, what does this mean for the Federal Reserve and interest rates going forward? The Fed will likely take this in stride. It's probably not enough to get them to cut rates at next week's meeting, as some in the markets were hoping for. But our base case remains that they will cut rates by 25 basis points in September, followed by one more cut before year-end, as growth continues to slow towards trend and inflation pressures ease. The Fed can't afford to be patient, as long as growth holds up and doesn't fall off sharply. We'll be watching those key economic factors closely in the months ahead. Thanks to our simply economics correspondent for breaking down today's important data. And with that, we wrap up our stories for today. Thanks for listening to Simply Economics. We'll see you back here tomorrow. [MUSIC] [BLANK_AUDIO]