Although the US recession of 2001 was among the mildest on record, the lingering effects of the downturn are still being felt as the economic engines have sputtered and recovery has been painfully slow. The good news is that listless real estate fundamentals–rising vacancies and declining rents–have bottomed and a gradual upturn will start in 2003, gaining momentum in 2004, assuming we don’t encounter any economic or political shocks.

Relatively healthy GDP growth of 2.5% to 3% is currently expected for 2003. This is in line with the long-term growth rate for the US economy but well below the historical 5% in the four quarters coming out of a recession. Strength in retail sales and housing throughout the recession, spurred by historically low interest rates and availability of capital, has left little pent-up demand to boost the recovery. At the same time, the business sector is still struggling to recover from the late ’90s investment and stock-market bubbles.

Just as important, the shadow of uncertainty is making corporate CEOs cautious. The possibility of war, further terrorism, global tensions and corporate scandals are the main culprits. As a result, employment growth will likely remain weak through mid-2003, particularly since companies need to post sustainable profit improvement before investment and hiring can resume.

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