Personal Income & Personal Consumption Expenditures

Personal income has trended lower in recent months, which has kept a lid on spending according to a report released last week by the U.S. Bureau of Economic Analysis. Personal income fell 0.1 percent in August compared with July. Wage income, an important component of personal income, fell 0.2 percent, not surprising in light of the weak labor market. Personal consumption expenditures managed a weak gain of 0.2 percent last month as consumers trimmed their savings rate in order to continue spending. Real (inflation-adjusted) expenditures were flat, however, as inflation rose 0.2 percent.
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Consumer Confidence

Under normal circumstances, consumer confidence surveys are not very informative. They do not correlate well with consumer spending because consumers respond to what is going on rather than driving it. But in the “new normal,” consumer and business confidence appears to be playing an unusually large role in the recent bout of economic and financial market weakness. The S&P 500 plunged sharply during the first several trading days in August when the debt ceiling standoff was coming to a head, and it has been...
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Real Annual Gross Domestic Product - Historic & Forecast

The Federal Reserve released its quarterly summary of economic projections last week, reducing its forecast of GDP and raising its forecast of the unemployment rate in 2011 and 2012. In doing so, the Fed acknowledged what many private economists have been saying for several months – that the pace of the recovery has slowed this year. The Fed's previous GDP forecast range of 3.1 to 3.3 percent for 2011 was reduced to a range of 2.7 to 2.9 percent, and the previous unemployment range of 8.4 to 8.7 percent for the fourth quarter of 2011 was raised to a range of 8.6 to 8.9 percent. Forecasts for 2012 were downgraded as well. While acknowledging the recent spike in inflation, the Fed believes that inflation will remain at or below its target range of 1.5 to 2.0 percent through at least 2013. Fed Chairman Bernanke said in his press conference last week that temporary factors such as high oil prices and supply chain disruptions related to the disasters in Japan are depressing output, but other, longer-lasting factors could be at play, too. Such factors could include the failure of the housing market to stabilize, reduced bank lending and persistently high levels of consumer and government debt. For commercial real estate, this economic scenario would translate into continued sluggish leasing activity with the exception of apartments and hotels. Although investors have begun targeting riskier assets this year, i.e. non-core properties and properties in secondary markets, the slow leasing market recovery could delay broader interest in value-add and opportunistic properties, where success requires strong leasing demand and rising rental rates for higher quality properties.