61SOCIETY OF INDUSTRIAL AND OFFICE REALTORS ®
NAR ECONOMIC OVERVIEW
The end of the year brought about much-needed clarity about the state of the economy in 2013. The year provided much uncertainty, tension and hand-wringing.
Based on preliminary estimates, the economy did fine, if
not great. Gross domestic product advanced at a 1. 9 percent
annual rate in 2013, bolstered by a cautiously optimistic
consumer and a hedging business owner. The third quarter
provided the largest boost, with growth of 4. 1 percent,
followed by a surprisingly robust fourth quarter, which
recorded 3. 2 percent annual growth rate.
Consumer spending stayed moderately positive throughout
the year, surging at year-end 3. 3 percent and providing a boost
to the economic balance. Consumers upped their spending of
goods, with durables rising 7. 2 percent for the year, as well
as services. In a sign of improving confidence, purchases of
recreational vehicles and goods rose 10. 3 percent during the
year, adding to the 5. 1 percent growth rate from automobile
purchases. With a rebound in residential markets and house
prices, consumers were more willing to spend on remodeling
and furnishings. Consumption of furniture and household
equipment rose at an annual rate of 6. 3 percent in 2013.
After solid investments during the second and third quarters,
business investments tapered at the end of the year. However,
the government shutdown did not prove a stumbling block,
as businesses increased investments by 3. 8 percent in the
fourth quarter. For all of 2013, business investments advanced
at a rate of 2. 6 percent—moderate, but fitting the cautious
approach to impending regulations, government budgetary
wrangling and fiscal uncertainty. Business spending on
structures rose 1. 3 percent during the year. Spending on
equipment increased 2. 9 percent while investments in
intellectual property were up 3. 1 percent for the year. In
relation to corporate profits, however, business spending is
still underperforming, possibly due to less robust confidence
among top managers.
International trade added strong lift to GDP in the latter
half of the year. Exports advanced 11. 4 percent in the fourth
quarter, as imports gained 1.0 percent in the same period.
The end result was a shrinking trade deficit. With rising
import and export activity, the industrial sector welcomed
the increase in traffic through ports and warehouses, posting
noticeable improvement in fundamentals.
Government spending, a major contributor to GDP, closed
the year in the negative, declining at a 2. 2 percent annual
rate. The drag came mostly from the federal level, which cut
spending by 5. 1 percent during the year, as the government
reduced defense spending as part of “sequestration.” State and
local governments’ spending was curtailed by 0.2 percent, the
smallest post-recession decline. With improving residential
markets and stabilizing employment, state and localities
should be in a much better fiscal position in 2014.
The economic gains were evident in other indicators of
activity. Financial markets advanced at double-digit rates
BY LAWRENCE YUN, SENIOR VICE PRESIDENT AND CHIEF ECONOMIST &
GEORGE RATIU, MANAGER, QUANTITATIVE & COMMERCIAL RESEARCH
MARKETS IN 2013