Equity markets recently wrapped up their worst first half of a calendar year in more than 50 years as economic turbulence remains. First quarter GDP was negative, and indicators point toward an additional decline in the second quarter, according to the widely monitored Atlanta Fed GDP now tracker. A second consecutive negative quarter of GDP growth would put the economy into a recession based on the widely used definition, however, the current economic situation has one significant difference from past recessions: the employment market.
Job growth has been very strong over the past 24 months as the economy has recovered from COVID-19. There are some early indicators of companies starting to lay off employees, especially in the tech sector, however the overall employment market remains very strong. The current unemployment rate of 3.6% is a historic low, matching the pre-pandemic level. Job openings far outpace the number of people looking for jobs, and even if companies begin slowing down hiring and increasing layoffs, there seems to be a good buffer in the employment market to absorb the shock. I believe GDP will contract again in the second quarter, and the economy will fall into recession. However, the structural elements of the economy remain fairly sound, and I anticipate the recession will be shallow and short.
The multifamily industry remains well grounded on a strong fundamental foundation, however operating metrics are continuing to slow down. Leading indicators including traffic and leasing continue to weaken and occupancy has fallen modestly. Weekly rent increases continue, however annual deceleration in NER growth has been apparent for months and will continue into the foreseeable future. With that said, we are still in a housing shortage, and new construction has not been able to keep up with demand. Projects are taking longer to complete as supply chain bottlenecks persist. Multifamily remains a strong hedge against inflation and should perform relatively well in the coming economic downturn.
Key Takeaways – Data as of 07/03/2022
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