Three Recent Surveys Mark Turn in Public Sentiment for Economy and Real Estate Federal Reserve
As reported by Bloomberg, the Federal Reserve’s January 2024 Beige Book survey indicates that resilient consumer spending has supported the US economy in recent weeks, compensating for weaknesses in manufacturing and other sectors. While most regions reported little change in economic activity, ﬁrms expressed optimism about future growth, often attributing it to the possibility of falling interest rates. The report highlighted easing inﬂationary pressures, with increased consumer price sensitivity aﬀecting retailers’ proﬁt margins.1
However, the Beige Book also revealed signs of a cooling labor market, with many regions reporting little to no net change in overall employment levels, and ﬁrms anticipating further declines in wage growth over the coming year.
Some district-speciﬁc highlights from the Beige Book include increased optimism in the Philadelphia construction sector, challenges related to aﬀordable childcare in Dallas, and the use of generative AI to supplement productivity in Atlanta. Additionally, there were reports of lower-income households relying more on credit cards and “buy now, pay later” options in Cleveland. New York reported an increase in bonuses for 2023, while Chicago noted that farms ended 2023 in strong ﬁnancial positions.
Despite the cooling labor market, the US economy is estimated to grow at an annualized rate of 2.4% in the fourth quarter, according to the Atlanta Fed’s latest estimate. Resilient consumer spending remains a driving force behind the economy, with December retail sales exceeding expectations. The Fed’s preferred inﬂation gauge has fallen over the past year, and excluding food and energy categories, the core metric rose 1.9% in November, slightly below the Fed’s 2% target.
As reported by the Wall Street Journal, consumer sentiment in the United States has experienced a signiﬁcant increase, with a 13% leap in the ﬁrst half of January compared to December, according to the University of Michigan. This follows a sharp rise in December, resulting in a combined 29% surge from November – the largest two-month increase since 1991. The positive shift in sentiment is widespread, spanning across consumers of diﬀerent demographics.2
The recovery in sentiment is seen as a potential source of positive momentum for the economy, according to Joanne Hsu, the director of the Michigan survey. Factors contributing to this improvement include cooling inﬂation, signals from the Federal Reserve that interest-rate increases are likely behind, and a robust labor market putting money into consumers’ bank accounts.
Despite the recent gains, the sentiment measure is still approximately 20% lower than pre-pandemic levels in 2020. However, Americans are becoming more optimistic as concerns about recession in 2024 fade, driven by improving economic conditions. Other indicators, such as the share of consumers expecting to be ﬁnancially better oﬀ and a consumer conﬁdence measure, also reﬂect a positive trend.
Real Estate Investors
This seems to be contributing to positive sentiment among real estate professionals. As reported by ConnectCRE, the CRE Finance Council (CREFC) reported a substantial increase in its Fourth-Quarter 2023 Board of Governors (BOG) Sentiment Index survey, reaching 109.9 – a 33% surge from the previous quarter’s 82.7. This marks the largest quarterly increase since the survey’s inception, indicating a signiﬁcant positive shift in industry sentiment within the commercial real estate (CRE) ﬁnance sector.3
While the survey portrayed a broadly positive outlook, responses included worries about potential rate cuts amid a slowing economy, challenges in the multifamily sector, and uncertainties in ﬁnancing and liquidity. Respondents also expressed concerns about the possibility of increased inﬂation, slower GDP growth, and speciﬁc issues within sectors, such as oversupply in the multifamily market and stagnation in the oﬃce sector.
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2 https://www.wsj.com/economy/consumers/americans-are-ﬁnally-feeling-better-about-the-economy- e964804f?st=g4yfmq8uui1l006&reﬂink=article_email_share