Fears that the economy might be slowing, or even headed for a recession, have been fueled by several newly released statistics and indicators over the past week.
One shocker was the Federal Reserve Bank of Atlanta's GDP forecast for the first quarter which predicts economic growth will be negative 2.8%. This set off alarm bells about a possible recession, particularly in the wake of other concerning data including dropping consumer sentiment and a decline in consumption.
“That's a whole bunch of bad economic news,” John Chang, national director of research and advisory services at Marcus & Millichap, admitted.
But each of those readings has an underlying story that takes some heat off the data points, he said. For example, there is a clear political bias when it comes to consumer sentiment data, which shows that Democrats who think the government is doing a good job fell 30 percentage points while Republicans who think the government is doing a good job increased by 24 percentage points, and the opinion of independents remained the same.
“When you consider that the politics in our country are split pretty evenly, the net impact will probably be close to neutral,” said Chang “Half the people are less happy and half the people are more happy.”
The bottom line? Consumer sentiment data should be taken with a grain of salt, he said.
Meanwhile, there are several uncertainties impacting the consumption reading, including the GDP forecast, prospective government downsizing, the issue of deportation and the potential impact of tariffs, said Chang. People appear to be spending less and saving more in the context of these uncertainties, but Chang noted that an increase in the national savings rate in January is also tied to severe weather that impacted a large portion of the country over the past couple of months.
Finally, a deeper dive into the negative GDP growth predictions indicates that actions taken to beat potential tariffs could be playing an important role. U.S. companies that rely on imports have been bringing in as much inventory as they can before tariffs go into effect. This pushes net exports into negative territory, which impacts the GDP forecast. But companies are then likely to import less once tariffs are implemented, which should correct the net export imbalance that weighs down the GDP.
“As a result, economic growth should move back into positive territory in the second quarter, potentially rebounding somewhere in the 4% range,” said Chang. “And when you take a longer view looking forward five to seven years, the choppiness of this political and economic transition probably won't have much bearing on commercial real estate returns.”