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» VISIT US ONLINE @ DSNEWS.COM NAR: CRE RECOVERY SLOW BUT STEADY are hindering otherwise positive growth in commercial real estate, the National Association of Realtors (NAR) reported. While "positive underlying fundamentals" Slow job creation and tight loan availability helped boost all of the major commercial real estate sectors, growth in some areas has been tempered by various issues, including job growth and shifts in demand. "Job creation in the second quarter was about half of what we saw in the first quarter, which is moderating demand in the office sector," said Lawrence Yun, chief economist for NAR. "Industrial and warehouse space is holding on better because imports and exports have advanced. While exports to Europe generally are down, trade has been robust with India, China, and other Asian nations, along with Brazil, Mexico, and our strongest trading partner, Canada." Demand has also been dampened by small businesses' trouble securing commercial real estate loans. The multifamily sector is the only one that has seen increased demand, which in turn has driven up rents at an accelerated pace. NAR reports that rents are modestly rising Q2 GDP GROWTH PEGGED AT 1.7%, BANK PROFITS DROP By Mark Lieberman, Economist for the Five Star Institute The U.S. economy grew in the second quarter at 1.7 percent, slightly faster than the originally estimated 1.5 percent, the Bureau of Economic Analysis (BEA) reported in late August. At the same time, BEA reported second quarter profits grew at a meager 0.5 percent from the first quarter, an improvement from the 2.7 percent drop in corporate profits registered in the first quarter. Profits in the financial sector, though, fell more than 9 percent. The upward revision in second-quarter gross in all of the sectors as vacancy rates fall; vacancy remains above historic averages with the exception of the multifamily sector. The retail sector is especially suffering, with the projected average vacancy rate for 2012 hovering around 11 percent—nearly 3 percentage points higher than the historic average for the sector. The organization predicts no significant increase in the first. Most of the second- quarter increase was due to a $40.1 billion gain in personal spend- ing, also down from the first quarter when personal spending grew $57.5 billion. Residential fixed investment added $7.6 billion to the economy in the second quarter, a sharp drop from the $16.1 billion it contributed in the first quarter. Government domestic product (GDP) growth was in line with the forecast by economists surveyed by Bloomberg. The improvement in total profits, though changes in the near future, with many corporate decisions on spending and hiring hinging on the results of November's elections, Congress' ability to avoid a "fiscal cliff," and other issues such as health care and financial regulations. "Overall, companies hold plentiful cash reserves, but they are hesitant to hire without clarity over how these outstanding issues will impact the bottom line," Yun said. "Commercial real estate gains could be modest, could be a key driver in labor markets. The drop in profits in the first quarter coincided with weak employment reports. Businesses often use profit per employee as a metric. BEA reported domestic financial corpora- tions made $389.7 billion in the second quarter, a drop of $39.2 billion from the first quarter. Non-financial corporations made $1.1 trillion, an increase of $30.4 billion from the first quarter. The revised estimate of the second-quarter thwarted if lending from small and community banks dry up from excessive regulatory compliance costs, and if international big-bank capital rules are applied to smaller lending institutions," Yun added. KNOW THIS Nationwide, RealtyTrac says more than 600,000 REOs are still sitting on banks' books. percent change in GDP, BEA said, primar- ily reflected a downward revision to imports and upward revisions to personal consumption expenditures, to exports, and to state and local government spending, partly offset by down- ward revisions to private inventory investment and to nonresidential fixed investment. Even with the improvement, the growth subtracting $5.5 billion from overall GDP but less than the $19.0 billion subtraction in the first quarter. Most of the reduction in government spending—$5.1 billion—came at the state and local government levels. Government spend- ing has fallen for eight straight quarters, dating back to the third quarter of 2010 during which time GDP growth has averaged an anemic 1.9 percent. In the preceding four quarters (Q1 2009-Q3 2009, just after the official end of the recession), GDP growth averaged 3.3 percent. The slowdown in total growth was due to a spending continued as a drag on the economy, combination of factors. Real personal con- sumption grew at just 1.7 percent in the second quarter compared with 2.4 percent in the first, and non-residential fixed investment grew at 4.2 percent in the second quarter compared with 7.5 percent in the first. Residential fixed invest- ment grew 8.9 percent in the second quarter after growing at 20.5 percent in the first. Personal consumption represented 70.7 pace is below the 3.0 percent level needed to add enough jobs to make a dent in the nation's unemployment rate. The GDP report covered the same quarter that saw the weakest job growth—225,000 jobs—since the third quarter of 2010 when the economy grew at a relatively robust 2.5 percent. In dollars, GDP increased $58.1 billion in the second quarter, down from the $65.4 billion percent of total GDP in the second quarter compared with 71.1 percent in the first. Inflation, according to the GDP price index, was 1.6 percent, down from 2.0 percent in the first quarter. BEA issues three GDP reports for each quarter: an "advance" report one month after the quarter ends and revisions in each of the following months as more data are received. This report was the second of three for Q2. 29

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