By Nicholas Kasprzak | December 8, 2022
Throughout the latter half of 2022, the entire country has been trying to gage which direction the economy is going. Are we in a recession or are we not? The standard rule of thumb says a recession occurs any time there are two consecutive quarters of negative Gross Domestic Product. The U.S. experienced negative GDP in Q1 and Q2 of 2022, barely squeaking out positive GDP in Q3. The rule of thumb would suggest that we are technically in a recession, but politicians, economists, and the National Bureau of Economic Research are giving different answers. Recession or not, the commercial real estate sector appears to be bracing for an economic downturn.
Over the past couple of months, we have seen some CRE firms take action to brace for an economic downturn. CBRE has recently announced an estimated $400 million in reduced costs that will include layoffs. JLL recently announced they will also be focusing on reducing costs after experiencing a year-over-year decline of 18% in their commercial real estate investment portfolio. Cushman & Wakefield cited similar changes, adding that they will be extremely careful with the use of their capital.
Firms across the board certainly seem to be bracing for a downturn, however, as I’m writing this blog, we are seeing a sea of green in the markets. The most recent Consumer Price Index data (inflation data) was released on November 11th, 2022. The Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for consumer goods and services. Rising CPI can be a good indicator of a recession being around the corner. CPI rose 7.7% over the last 12 months, and while it seems to be cooling compared to the past few months, I’m not sure why it is being interpreted by investors as bullish.
At the current moment the Dow is up 3.37% on the day, S&P 500 is up 4.91% on the day, and the Nasdaq is up 6.39% on the day. Nevertheless, a recession appears to be on the horizon. We might see bullish days like today, but I believe the CRE firms have called this correctly. The answer of ‘are we in a recession’ is currently unclear, and the data from politicians and economists can be confusing and contradictory, but being conservative over the next months certainly seems to be a smart play.