Gas Prices - A Solid Triple

It wasn’t quite a grand slam of good news this week because the Federal Reserve reduced its growth expectations for 2011 and 2012 (click here for the details). But it was a solid triple:
  • FedEx Corp. posted a 12 percent increase in revenue and a 33 percent jump in net income for its fiscal fourth quarter compared with a year ago, citing an improved economy and strong customer demand across all transportation segments. The company forecasts earnings per share of $6.35 to $6.85 in fiscal 2012, up from $4.90 in FY 2011 and $3.76 in FY 2010. This implies more goods flowing through corporate supply chains, stronger trade, and growth in both consumer spending and business capital spending – helpful tailwinds for the industrial property market.
  • Gas prices are falling. The average price of a gallon of regular gas averaged $3.65 this week across the U.S., down by 32 cents over the past six weeks. This puts more money in consumers’ pockets for other spending, which is good news for the economy (consumer spending accounts for 70 percent of GDP) and especially good news for retailers and shopping center owners.
  • Real Capital Analytics reported that commercial property sales in May totaled $15.6 billion, up 124 percent from May 2010. According to RCA, “the growth trend was broad, as every property type registered its most active month this year and both pending deals and new offerings point to a strong June.” Year-to-date property sales are more than double the first five months of 2010, a sign that investor demand is spreading into secondary markets and non-core assets.

Back to the Fed’s downbeat forecast: There is a silver lining. Inflation, which rose to 3.6 percent in May compared with a year ago, is expected to fall back into the range of 1.5 to 2.0 percent over the next two years as gas and commodity prices recede. This would be at or below the Fed’s informal inflation target.