CommercialRealEstateIndex

BY LAWRENCE YUN, SENIOR VICE PRESIDENT AND

CHIEF ECONOMIST &

GEORGE RATIU, NAR DIRECTOR

QUANTITATIVE & COMMERCIAL RESEARCH, NAR

INDUSTRIAL GROWTH BOOSTS SIOR MARKET IN FIRST QUARTER

2014

NAR ECONOMIC OVERVIEW

The first quarter GDP looks to be a downer just when the economy seems to be picking up steam. The third estimate of the Bureau of Economic Analysis’s gross domestic product performance for last quarter showed a stronger-than-expected performance. The fourth quarter 2013 GDP was revised upward to 2.6 percent from 2.4 percent, on the basis of higher consumer spending. But the impact of unusually snowy early months and the sudden setback in exports seems to have measurably slowed GDP growth in the first quarter.

However, the job market in the first quarter 2014 points to improving conditions, despite the bouts of severe winter weather. Payroll employment advanced over the quarter to the tune of 533,000 new jobs. Added to the 7.7 million new jobs created post recession, the U.S. economy is up 8.2 million jobs from the 2008-09 trough. Of course, the recession led to the destruction of 8.7 million jobs, so we still have a way to go toward closing the gap.

Professional and business services provided the bulk of new jobs during the first quarter of this year, accounting for 187,000 new positions. In a positive development, the construction sector provided the second-highest number of new jobs— 88,000 positions. The leisure and hospitality sector came in third, accounting for 83,000 new jobs, followed by education and health services which generated 81,000 new jobs. Wholesale trade, along with transportation and warehousing added 39,900 and 18,000 new jobs, respectively. The two sectors together accounted for one-in-ten new jobs during the

quarter, indicating rising demand in the industrial real estate arena. Retail trade and the information industries lost jobs in the first three months of the year, to the tune of 2,100 and 9,000, respectively. Government payrolls declined by 13,000 net jobs during the quarter, all at the federal level.

In spite of the gains, the unemployment rate remained unchanged at 6.7 percent during the first quarter. Even more importantly, the labor force participation rate remained well below historical averages over the period, indicating that a significant proportion of Americans continued to be completely out of the labor force. Looking at the time period 2000-13, the U.S. population has gained 34 million people. Over the same period, the economy has added only 6.6 million net new jobs. The road to sustainable employment growth seems to be a long and winding one.

Several other economic indicators added wind into the economic sails during the first quarter. Durable orders were up 2.2 percent in February. Personal income rose 0.3 percent during the same month. In February, factory orders increased 1.6 percent, exceeding analyst estimates. Auto sales ran at slightly over 15 million annual sales in the first quarter. In addition, equity markets advanced during the quarter, along with residential real estate prices. In turn, consumer confidence hit the highest value in March—82.3—since the first quarter of 2008.

However, not all was bright during the first quarter. Unemployment insurance claims rose into March, adding to the number of people receiving unemployment insurance