Ready to March

• Fiscal stimulus faded in February
• Inclement weather also impacted economy
• Pandemic-associated measures improving
• March a bridge to faster growth
• Enthusiasm for CRE already increasing

Positivity about the economy continues to abound. Calendar-year growth in 2021 should reach its strongest level since 1984. But as February’s numbers showed, the turning point in the economy where we leave the crisis fully behind us is not yet appearing in the data. While January’s data surprised to the upside, February’s data disappointed. What happened? Two key developments.

Fading fiscal stimulus in February

First, the impact of the fiscal stimulus passed in late December, which boosted the economy in January, faded by February. This phenomenon manifested across a variety of metrics. During the month, personal income declined by 7.1%, disposable income declined by 8%, and real disposable income declined by 8.2%. Personal spending contracted by 1% while real personal spending contracted by 1.2%. All these metrics fared worse than expected. Meanwhile, the personal savings rate, highly sensitive to fiscal stimulus over the last year, declined by 630 basis points (bps) during the month, reversing the increase from January. With the most recent round of fiscal stimulus approved and checks distributed during March, February should prove an ephemeral blip. And March will likely signal and upswing in income, spending, and savings. 

Winter of our discontent

The other factor contributing to disappointing results in February should also boost prospects in March: the weather. Inclement winter weather caused a chill in several indicators. Existing home sales and new home sales declined more than expected in February, even accounting for limited inventory and rising mortgage rates. Meanwhile, durable goods orders declined for the first time in 10 months, with a notable decline in automobile orders. And construction spending for February, due out this week, should show a slight decline too. 

Yet, the arrival of Spring and warmer weather not only brought an end to last month’s severe economic disruption, but also portends brighter times ahead. Rising temperatures (and the commensurate end to winter precipitation) will increase the opportunity for many to partake in economic activity outdoors (such as dining) that proved more challenging if not impossible across a swath of the country during the cold winter months. 

In like a lamb, out like a lion

In addition to fiscal stimulus and the end of winter disruptions, a change in pandemic-related issues also sets March up as a transition month. Vaccinations continued to increase throughout the month, with the seven-day rolling average for doses administered per day recently reaching roughly 2.7 million. Meanwhile, several states are easing pandemic-associated restrictions that also impact economic activity. This week could demonstrate the impact of these developments.

Consumer confidence should increase in March, driven by improving expectations and current conditions. The labor market should show notable improvement across a variety of metrics in March. Job gains should reach well into the hundreds of thousands, weekly unemployment claims should continue their downward trend during the month, the labor force participation rate should slightly increase, and the unemployment rate should slightly decrease.  The ISM Manufacturing Index for March should show another increase, with most components of the index continuing to improve. Overall, March looks to bridge the economic disruptions in February and a meaningful acceleration in economic growth during the second quarter. 

|  What it means for CRE  |

Commercial real estate also looks like it made a similar transition during February and March. Interest in space from users appears to be gradually warming up, even if that ultimately means lower asking rents for a time. Meanwhile, investor interest continues to increase as the macro view comes into focus. None of these discount the challenges ahead this year, but gradually the situation on the ground is changing. To varying degrees, we see evidence of this across property types and markets. We expect an acceleration in enthusiasm and interest from both users and investors as GDP fully recovers by midyear and heads toward the other side of the pandemic. It could be a surprisingly (for some) busy year in the CRE markets. 

|  Thought of the week  |

The National Retail Federation (NRF) expects total Easter spending of $21.6 billion, roughly equivalent to the amount spent last year.