For all the discussion about tariffs and economic uncertainty expected to result from President Trump’s policy activities during his first five months in office, the tangible impacts on economic indicators have yet to surface in a meaningful way.
President Trump has issued 161 executive orders during the first few months of his second term, compared with 220 he issued during his entire first term. But the policy bringing the most uncertainty and financial market volatility is tariffs, said John Chang, chief intelligence and analytics officer at Marcus & Millichap.
“Many economists expected to see a slowdown in hiring and an uptick in inflation, but these haven't materialized yet,” he said. “A lot of people are wondering about the disconnect.”
Chang said these types of shifts generally take several months to reflect in behavior changes and for economic metrics to capture those changes. In addition, the economy remains structurally sound, with an average of 135,000 jobs added per month over the past three months and the unemployment rate remaining at 4.2% during the same period. Retail sales have continued to grow at a modest pace and headline inflation has been fairly stable at about 2.4%, according to Chang.
However, he noted data is backward-looking. Many companies front-loaded their orders to bring in as much inventory as possible before tariffs were scheduled to take effect. If the duties remain in place, higher prices will eventually trickle into the market.
Price changes have been minimal. The cost of food, shelter and medical care ticked up slightly in May, but the prices for energy and apparel dropped. Bigger increases were seen in the cost of audio equipment and major appliances, but overall, the impact of tariffs for most goods has yet to materialize.
“It'll take time for the true effects to materialize, and that's why the Federal Reserve is holding rates flat,” said Chang. “So far, all the metrics look fine, but the risks are still out there.”
This leaves commercial real estate in its own wait-and-see mode from an economic standpoint, he further noted. However, investors who take action today are unlikely to regret doing so, especially if they act sooner rather than later, he predicts.
“Assuming there are no huge changes in the tariff policy, I believe the most significant short-term factor for investors will be interest rates,” said Chang. “I only see two things that could cause rates to fall: a short-term flight to safety from stocks into bonds due to a significant economic shock or a full-fledged recession while inflation is still low. If we enter a recession while inflation is rising, I think the Fed would likely keep rates elevated.”
If interest rates rise, deals may be more difficult to close, but the long-term performance outlook for CRE remains positive, according to Chang.
“We may see some short-term choppiness driven by a variety of economic forces or even a recession, but fundamentally, supply risks are diminishing while demand drivers remain sound,” he said.
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