| The economy grew at an annualized rate of 2.0 percent in the third quarter, up slightly from 1.7 percent in the second quarter according to the advance estimate from the Bureau of Economic Analysis. Consumer spending picked up moderately and thus was the largest contributor to third quarter GDP, accounting for 1.8 percentage points of the overall 2.0 percent growth rate. Businesses continued to restock inventories, adding 1.4 percentage points while net exports shaved 2.0 percentage points as import growth once again outpaced export growth. Businesses continued to invest in equipment and software, but the rate of increase cooled in the third quarter as they await more clarity in the direction of the global economy and the results of the midterm elections. Overall the report paints a picture of an economy that is expanding at a sluggish pace, not yet enough to trigger a self-reinforcing cycle of hiring and spending. The sluggish recovery makes the economy more vulnerable to unanticipated shocks such as the European debt crisis or improper foreclosure recordkeeping by banks. The silver lining is that the slow recovery is likely to keep inflation at bay while the Federal Reserve implements another round of quantitative easing (QE2) designed to reduce long-term interest rates and boost growth. For commercial real estate, the muted economic recovery translates into slow improvement of leasing market fundamentals even as the low interest rate environment fuels investor demand for property, especially high-quality assets in primary, supply-constrained markets.
Source: Bureau of Economic Analysis, Grubb & Ellis