Grubb & Ellis Montana Commercial, LLC

Monthly Change in Total Consumer Credit Seasonally Adjusted Annual RateMarch 8, 2010

Overshadowed by Friday’s employment situation report from the Labor Department, the Federal Reserve released its G19 report, which stated that total consumer credit increased by 2.4 percent in January, ending a string of 11 consecutive monthly declines. This report, together with last week’s report from ICSC that chain store sales rose by 3.7 percent in February, suggests that consumers are beginning to climb out of their bunkers and cautiously make some purchases that they put on hold last year. If the trend continues, it would be good news not only for retailers and shopping center landlords but also for overall GDP, 70 percent of which is fueled by consumer spending. Source: Federal Reserve, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist

Monthly Home Sales In Millions, Seasonally Adjusted Annual Rate March 1, 2010

Sales of both new and existing homes have slipped in recent months, raising doubts about the durability of the housing market recovery. January new home sales fell to a seasonally adjusted annual rate of 309,000, the lowest level on record (since 1963), while existing home sales of 5.05 million retreated to mid-2009 levels. Extreme weather played a role as did the tax credit for first-time buyers, which was scheduled to end in November until Congress extended and expanded it to include repeat buyers. Sales are likely to bump up in the spring as a follow-on wave of buyers seeks to take advantage of the extended tax credit before it ends in April. Besides the impending expiration of the tax credit, the housing market is facing other headwinds. Approximately 7.7 million homeowners are behind on mortgage payments, and over 4 million are now delinquent and going through foreclosure. This will be a destabilizing force on housing prices and add to the shadow supply of rental units. Moreover, the Federal Reserve is scheduled to complete its purchase of $1.25 trillion in mortgage-backed securities by the end of March, a program that has kept mortgage rates low. On the positive side, the return of employment growth this year will support housing demand. Look for the market to firm up gradually but fitfully over the next few years. Source: Census Bureau, National Association of Realtors, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist

Federal Debt as Percent of GDP February 22, 2010

The Obama administration’s recently released budget for fiscal year 2011 forecasts some fairly hefty deficit and debt totals in the coming years. Publicly held debt as a percent of gross domestic product is projected to increase from 53.0 percent in 2009 to 63.6 percent this year and 72.9 percent in 2015. As retiring baby boomers drive up the cost of Social Security and Medicare, the ratio is projected to rise to 77 percent by 2020. There is not a specific threshold above which the debt ratio becomes a threat to the stability of the financial system and the economy, but economists generally seem to prefer ratios below 60 percent and are made nervous by ratios above 80 percent. Uncomfortably high levels of debt could undermine faith in the dollar, causing investors to shun U.S. Treasuries. This, in turn, could cause interest rates to spike as the Treasury would be forced to offer higher rates to attract investors willing to finance its debt, with higher inflation as a result. Debt levels rise during recessions as tax collections fall and outlays such as unemployment insurance increase. This is how it’s supposed to work as federal expenditures help stabilize the economy, although reasonable minds can disagree on the size of those expenditures. But the long-term rise in the debt-to-GDP ratio even after the economy recovers could pose danger to the financial system and will likely require increased taxes, reduced entitlement spending or a combination of both to return the ratio to a lower, more sustainable level. For commercial real estate, a financial environment featuring low interest rates and low to moderate inflation would offer the best climate for growth and rising property values. Source: Office of Management and Budget, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist

Retail Sales Seasonally AdjustedFebruary 16, 2010

Consumers are getting back in the game. Total retail and food sales increased in January by 0.5 percent, seasonally adjusted, while core sales, which exclude autos and gas, rose by 0.6 percent. During the 12 months ending in January, total and core sales increased by 4.7 and 2.0 percent, respectively, with total sales boosted by the cash-for-clunkers program. Nevertheless, total sales remain 6.3 percent below their recent peak, and core sales are still down by 2.2 percent. As the labor market begins to improve, consumers will carefully ramp up their spending, including some purchases that were deferred during the depths of the recession. Consumer spending accounts for about 70 percent of total gross domestic product, so even a sluggish recovery in retail sales will help put a floor under the economy and reduce the chances for a double-dip recession. This will support leasing demand for commercial real estate, particularly shopping centers. Source: Census Bureau, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist

Job Losses Related to Post-War Recessions February 8, 2010

The January employment report from the Labor Department revealed an unexpected decline in the jobless rate from 10.0 to 9.7 percent, but other parts of the report were less hopeful. The Labor Department revised the number of jobs lost over the past year down by 902,000 in its annual benchmark adjustment to unemployment insurance tax records. Since the recession began in December 2007, employers have shed 8.4 million payroll jobs, a decline of 6.1 percent, which would make this the sharpest decline in employment associated with any recession since the Great Depression. Only the extended jobless recovery that followed the 2001 recession lasted longer. Despite the new benchmark, the labor market still appears to be bottoming out, and the question remains how long it will languish at the bottom. Surging labor productivity, strong temporary hiring and an increase in hours worked suggest that employers may soon begin hiring full-time workers. One theory is that employers slashed jobs so deeply when commercial paper markets froze in September 2008 that they will have to start rehiring those workers sooner than they did after the 2001 recession. Grubb & Ellis expects net payroll job growth totaling 500,000 to 1 million by year-end 2010, which, although a step in the right direction, would be just a down payment on the 8.4 million jobs lost since the recession began. Source: U.S. Bureau of Labor Statistics, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist

<!–Noah Shlaes is Managing Director of Grubb & Ellis’ Strategic Consulting Group
–>

ISM Manufacturing Index Values > 50 = Expansion February 1, 2010

The Institute for Supply Management’s purchasing managers index rose in January to 58.4, its highest level since August 2004. Index values above 50 indicate an expanding manufacturing sector, while values below 50 indicate contraction. The index is a composite of nine other indexes including new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export orders and import orders. The production index increased to 66.2, its highest level since April 2004 while new orders, a leading indicator of production, rose to 65.9. Inventories remained below 50, a sign that production activity will remain strong for the next few months as manufacturers replenish their depleted inventories. A recovery in the manufacturing sector will boost demand for manufacturing properties, and it translates into more goods flowing through corporate supply chains, which will support demand for warehouse/distribution space. Source: Institute for Supply Management, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist

<!–Noah Shlaes is Managing Director of Grubb & Ellis’ Strategic Consulting Group
–>

Commercial Real Estate Vacancy Rates January 19, 2010

The average U.S. vacancy rates for the four core property types – office, industrial, retail and apartment – continued to rise in the fourth quarter, but the rate of increase slowed for office and industrial. Vacancy rates last quarter increased by 30 basis points for office and 20 basis points for industrial compared with third-quarter gains of 50 and 30 basis points, respectively. This raises the possibility that the office and industrial leasing markets may bottom out as early as mid-year with modest, positive absorption possible in the second half of 2010. In the office market, a prerequisite for this relatively early bottoming would be for employers to begin adding jobs in the first half of this year, which would also provide support for the apartment and retail markets. For the industrial market, continued improvement in the drivers of demand for industrial space – production activity, freight shipments and global trade – would help the market bottom out around mid-year. Source: Reis, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist

January 11, 2010

Commercial RE Loans at Commercial Banks
Percentage of All Bank Loans and Leases, November 2009

Commercial real estate loans accounted for 24 percent of all loans and leases at commercial banks in the U.S. as of November. The Federal Reserve defines these to include “construction, land development, and other land loans, and loans secured by farmland, multifamily (5 or more) residential properties, and non-farm nonresidential properties.” Large domestically chartered banks – the 25 largest in terms of domestic assets – held 17 percent of their loans and leases in commercial real estate while small domestically chartered banks held 41 percent in this category. The preponderance of commercial real estate loans at small banks suggests more failures to come as distressed assets continue to accumulate. Moreover, small banks lend to small businesses, which are job incubators; commercial real estate loan problems at small banks could impinge upon their ability to lend, which could dampen the labor market recovery.
Source: Federal Reserve, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist

Home Sales In Millions January 4, 2010

Sales trends for new and existing homes parted company in November. The National Association of Realtors reported that existing home sales rose 7.4 percent from October to a seasonally adjusted annual rate of 6.54 million units, the highest level since February 2007. Meanwhile, the Census Bureau reported that new home sales sank to a seasonally adjusted annual rate of 355,000 units, down 11.3 percent from October and the weakest level in seven months. Sales of foreclosed and other distressed properties are inflating existing home sales at the expense of new home sales, having accounted for 33 percent of existing sales last month. The tax credit for first-time buyers, which was set to expire at the end of November, helped both new and existing home sales. But new home sales are counted when the sales contract is signed or a deposit is accepted while existing home sales are counted when the sale is closed, meaning that new home sales attributable to the tax credit likely showed up earlier in the data. The extension of the tax credit through April 2010 and its expansion to include some repeat buyers will provide a boost to home sales as the spring selling season gets underway. Besides ending the tax credit next year, the government will wind down its purchases of mortgage-backed securities, which has helped keep mortgage rates low. The withdrawal of these support programs will be a test to see if the housing market can continue to recover on its own or whether there could be another leg down in prices as foreclosures continue to mount. Note to our readers: The Weekly Market Update will not be published next Monday because we will be releasing our annual forecast reports. Source: Census Bureau, National Association of Realtors, Grubb & Ellis

Bob Bach is our Senior Vice President, Chief Economist