2010 Global Market Report - NAI Commercial Real Estate

US OverviewBy Dr. Peter Linneman, Chief Economist, NAI GlobalThe current recession is the worst downturn in economic activity since the GreatDepression, a downtown that has been hurt more than helped by government interventionand inconsistent—and often unpredictable—government policy. But barring more government“salvation,” we hit bottom in May 2009. Without disastrous government “salvation,”we probably would have bottomed in January 2009. Contrary to rhetoric, governmentinterventions both lengthened and massively deepened the current super-recession.GDP grew at an annualized rate of 2.8% in the third quarter and employment will lag byabout a year. When job declines end, there will be a net loss of about 8.5 million jobs.This is equivalent to more than four years of normal job growth.To put the situation in perspective, real GDP was about $14.8 trillion (2008 $) at the startof September 2008, falling by 3.8% (US$566 billion) year-over-year.The US trade deficit has plunged, reflecting the horrific loss of global confidence in theintegrity and productivity of US capital markets. The US trade deficit has fallen to -2.8%of US GDP, and -0.9% of rest-of-world GDP. Always remember that the US trade deficitis not a reflection of the lack of competitiveness of our goods and services, but rather areflection of our capital market superiority.The fundamental problem remains: It is impossible to predict what will happen next,as every day brings new seemingly ad hoc rules. A perfect example occurred whenthe list of autos eligible for clunker tax rebates was suddenly revised on the eve of theprogram without any explanation. And tax, healthcare and regulatory proposals abound,with little clarity as to the ultimate outcomes or costs.Early in 2009, monthly job declines were wiping out 500,000-750,000 jobs. In July, thatnumber had diminished to just over 3,000,000, diminishing even further to 111,000 inOctober and 11,000 in November. Year over year through November 2009, the US lost3.5% of all payroll jobs.On a 12-month moving average basis through September, just 26% of industries are addingworkers, versus the eight-year average of 46%. Not surprisingly, all sectors by major SICcode, except the government (+132,000), experienced significant losses from the beginningof the recession in December 2007 through November 2009. On an absolute basis, thebiggest losers were the manufacturing (-2.1 million); trade, transportation, and utilities(-1.7 million); construction (-1.6 million); and professional and business services (-1.3 million)sectors. On a percentage basis, construction (-20%) and manufacturing (-15.5%) were theworst performers. However, job losses continue to slow with a decline of just 11,000 inNovember 2009. Professional and business services bottomed in August 2009 andgained 148,000 (0.9%) over three months through November. This was driven largely byeducation and health services, which increased throughout the recession by 858,000(4.6%) between December 2007 through November 2009.Real GDP Growth RateYear-Over-Year Percent Growth1086420-2-4-61984 1989 1994 1999 2004 2009PercentIn November 2009, the unemployment rate stood at 10%, an increase of 510 basispoints since December 2007. Over the same period, the median unemployment durationhas risen by 11.7 weeks, to 20.1 weeks (a nearly 140% rise), with the percentunemployed more than 27 weeks rising from a low of 17.5% in December 2007 to2010 Global Market Report ■ www.naiglobal.com5