The Economic Outlook

The Economic Outlook for Real Estate Investors and Decision Makers

Dr. Mark G. DotzourChief Economist

Real Estate Center at Texas A&MCollege Station, Texasdotzour@tamu.edu

Topics for Today

• The outlook for job growth and the economy• The investment environment

Source: The Conference Board

Consumer Confidence Index

Aug-00

Feb-01

Aug-01

Feb-02

Aug-02

Feb-03

Aug-03

Feb-04

Aug-04

Feb-05

Aug-05

Feb-06

Aug-06

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

30405060708090

100110120130140150

Consumers Paying Down Debtfor First Time in 50 Years

Personal Saving Rate

Internet Sales Exploding

Corporate Profits (With Inventory Valuation Adjustment & Capital Consumption Adjustment)

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

Jan-08

Jan-10

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Billi

ons

Source: Department of Commerce

National Federation of Independent Business

Small Business Outlook“Planning To Hire People In The Next Six Months”

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

-10

-5

0

5

10

15

20

25

Net

% o

f R

espo

nden

ts

Industries Under Regulatory Distress

Health CareHealth InsuranceAutosElectric UtilitiesCoal CompaniesBanks and Mortgage LendersAircraft MakersHomebuildersAppraisersOffshore DrillersNatural Gas ExplorationResidential and Commercial Realtors

Corporate Hiring Plans: Next 6 Months

Source: Business Roundtable

Q3-11 Q2-11 Q1-11 Q4-10

More Jobs 36% 51% 52% 45%

Less Jobs 24% 11% 11% 18%

Business Hiring

Government Sector:Unfathomable Budget Deficits

Trade Weighted Exchange Index: Major Currencies

Money Supply and Velocity:Huge Monetary Base Could Fuel Inflation

Money Supply and Velocity:Velocity at Historic Low Levels

Money Supply and Velocity:Actual Money Supply Barely Increasing

Inflation Rate:CPI Remains Low Despite Food/Fuel

Ten-year Treasury Rate

Margin DebtDebit Balances at Broker/Dealers

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

100000

150000

200000

250000

300000

350000

400000

Mill

ions

Source: Standard and Poor’s

Mar 2000 Dow 11,234Mar 2001 Dow 9,106Mar 2002 Dow 7,415

Jul 2007 Dow 14,021Jul 2008 Dow 10,827Jul 2009 Dow 8,087

International Capital Flows1983 to 1986 U.S. Commercial RE1987 to 1989 Japanese Stocks1992 to 1997 Asian Tigers1997 to 2000 U.S. Stocks2004 to 2007 U.S. Commercial RE2007 to 2010 BRIC Countries and Commodities2010 to 2011 U.S. Treasuries, Gold, Swiss Franc U.S. Trophy CRENext stop U.S. stocks ?Next stop U.S. real estate?

Key Issues for 2012• When will the housing market clear?• When will the commercial real estate market clear?• Who is right? The gold buyer at $1800 per ounce or the 10-

year treasury bond buyer at 1.75%. • It appears that major business and investment decisions will

be postponed until after the 2012 election.• If the stock market swoons, look for more QE.• Interest rates stay low though all of 2012.• Could be some enthusiasm in the spring and summer of

2012 if polling data is encouraging for business owners.• Major inflection point in the first quarter of 2013.