NAR ECONOMIC OVERVIEW
With the snowy and negative first quarter firmly in the rear-view
mirror, economic activity picked up in the second quarter. Based on
the Bureau of Economic Analysis’s first estimate, gross domestic
product (GDP) rose at an annual rate of 4.0 percent during the
second quarter of the year.
GDP growth was driven by positive growth in consumer spending
and stronger business investments. Consumer spending advanced
at an annual rate of 2. 5 percent. The gains came from significant
purchases of durable goods, which jumped 14.0 percent during the
second quarter. Buoyed by warmer weather, consumers opened
their wallets and spent more money on motor vehicles (up 17. 5
percent), furniture and household appliances (up 13. 1 percent),
and recreational goods and vehicles (up 13. 4 percent). Consumer
purchases of nondurable goods rose by a more modest 2. 6 percent,
helped by a 6. 9 percent increase in spending on clothing and shoes.
Business spending growth outpaced consumer spending, albeit
it makes up a much smaller proportion of GDP. Companies’
investments in equipment rose at a healthy annual rate of 7.0 percent,
driven by significant expenditures on information processing and
industrial equipment, which rose by 21. 4 percent and 20. 1 percent,
respectively. Investments in intellectual property grew at a 3. 5
percent rate, while spending on structures advanced at 5. 3 percent.
International trade activity also picked up speed during the second
quarter, adding wind in the sails of the industrial sector, and
warehouses. After declining during the winter months, exports
gained 9. 5 percent, boosted by U.S. goods leaving for foreign
markets. Imports rose by 11. 7 percent, leading to a diminished
negative trade balance.
Government spending—a drag on economic growth over the past
three years—advanced at an annual rate of 1. 6 percent during
the second quarter, after declining 0.8 percent in the first. Much
healthier balance sheets at the state and local government levels led
to spending growth of 3. 1 percent in the second quarter. At the
federal level, government spending remained negative, declining
at a rate of 0.8 percent, dragged down by 3. 7 percent cuts in
nondefense expenditures. Defense spending rose 1.0 percent.
Economic activity proved positive across multiple indexes and data
points. Manufacturers’ new orders—which saw negative growth
early in the year—rose at an annual rate of 9. 7 percent in the second
quarter. Shipments of goods increased at an annual rate of 4. 3
percent, while manufacturers’ inventories increased by 6. 6 percent.
Meanwhile, merchant wholesale sales posted a 13. 9 percent annual
rate of growth during the period, led by double-digit growth in
both durable and nondurable goods. Concomitantly, the Institute
for Supply Management’s Composite Index of manufacturing and
nonmanufacturing activity reached a value of 55. 8 in the second
quarter, and was closing in on 60.0 as of July (values above 50
denote increasing activity).
Upbeat business sentiment was also reflected positively in the
employment figures. Payroll employment marked a solid second
quarter, with a total of 831,000 net new jobs. This was the strongest
quarterly increase since the first quarter of 2006, well before the
Great Recession. Goods-producing industries added 114,000 new
jobs, while service industries provided an additional 662,000
net new positions. The difference to the total number came from
Professional and business services added 202,000 new jobs, while
the information and financial services industries contributed a
combined 39,000 new jobs. The employment growth in office-using industries provides a welcome lift to demand for office space.
The industrial real estate sector received a welcome boost from
steady increases in online retail sales, as employment growth in
the warehousing and storage industries advanced by 4. 6 percent on
a year-over-year basis during the second quarter. In comparison,
employment in the retail trade industries rose by 2. 2 percent yearly
during the same period.
BY LAWRENCE YUN, SENIOR VICE PRESIDENT AND CHIEF ECONOMIST &
GEORGE RATIU, NAR DIRECTOR, QUANTITATIVE & COMMERCIAL RESEARCH
EMPLOYMENT GROWTH DRIVES
EXPANSION IN ALL SIOR
MARKETS IN SECOND QUARTER