IRVINE, CA-A reduction in the amount of uncertainty among businesses and households has been a key factor in the nation's economic recovery, according to Auction.com Research's managing director Peter Muoio, Ph.D. Muoio points out in the firm's Fall Quarterly Economic and Real Estate Update that many indicators to recovery are trending in a positive direction, and he maintains that the decrease in uncertainty is a significant factor.

“Human nature in the face of uncertainty is to hold back and wait for more clarity before making a decision,” Muoio tells GlobeSt.com. “The heightened level of uncertainty over the past five years or so has engendered caution on the part of both businesses and households regarding investing and spending. The uncertainty of recent years has included how much higher taxes would be, what medical coverage and costs would be, how new financial regulations would alter the risk/return of lending and investing, and what impact changing regulatory policies would have on the cost of hiring new employees.

“Some indicators of the impact of heightened uncertainty include record-level cash holding by businesses, stop-and-go investment spending and new orders for capital equipment, tepid hiring dominated by use of temporary workers, employment agencies and part-time help, unwillingness to commit to home purchases and see-sawing consumer confidence and retail sales,” he continues. “In our view, the sum total of these, and other, fallouts from heightened uncertainty helped shape a recovery that has been the slowest in modern record and one that has seen economic acceleration followed by sudden slowdowns.”

Auction.com's report shows that while US growth remains constrained, the economy reemerged from its late 2012 stall and has grown in the first half of the year. Second-quarter real GDP growth beat expectations at 2.5%, according to the second estimate. This suggests that the economy is gaining momentum, since it was up from just 0.1% in the fourth quarter of 2012 and 1.1% in the first quarter of this year, Muoio explains. “Employment growth has continued at a decent pace, and uncertainty has continued to ebb, two big potential drivers of future growth.”

The US office market recovery has been slow, both in local markets and on the whole. Auction.com reports that this recovery has been tepid and lethargic for several years now. While office absorption was positive for the 10^th consecutive quarter in the second quarter, according industry reports, vacancies remained flat from the quarter prior. The second quarter actually boasted the strongest absorption level seen in the office sector since the recession, according to Auction.com, with absorption measuring 7.2 million square feet. However, this was not strong enough to absorb the 7.6 million square feet of space that was added to the market in the quarter.

Retail absorption has been positive for eight consecutive quarters, but cyclical headwinds have limited the scope of demand, and modest supply additions have prevented a more significant improvement in vacancies, the firm reports. Vacancies measured 10.5% in the second quarter, according to industry reports, which is just a 10-bps improvement from the quarter prior. Vacancies are now just 30 bps lower than a year ago and 60 bps below their cyclical peak. The incremental improvement in vacancies has been matched by extremely slow growth in effective rents.

In the industrial sector, the national warehouse market continues to outperform the retail and office sectors since vacancies are falling and absorption is improving, Auction.com reports. The warehouse market benefited from the resurgence in global trade following the recession, particularly in major port cities, as well as the initial recovery in manufacturing and the restocking of inventories. However, there are concerns that the growth in trade and inventories is fading, following the path of the manufacturing recovery, which has lost steam following its initial burst.

Lastly, the multifamily supply/demand dynamics are playing out as experts have expected, according to Auction.com. Vacancies are low, sitting in the low 4% range nationally, which is a level not seen since 2000. Demand remains healthy, but completions are picking up. Nearly evenly matched absorption and completions in the second quarter left vacancies unchanged from the previous quarter, the first time this has happened since the apartment-sector recovery began in 2010.

Instant Insights /

Decreased Uncertainty Key in Recovery

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