On July 1st of this year, America set a record for the longest period of economic expansion in history. According to David Wessel, director of the Hutchins Center at the Brookings Institution, the economy has been expanding for 121 months, beating the previous record of 120, which was set in the 1990s.
But the big question is, how much longer will this growth economy last?
Wessel, who was interviewed on NPR’s Morning Edition, made the observation that people don’t feel as excited about this period of growth as they did in the 90s. “One thing that’s different is that the pace of economic growth, the rate at which the GDP grows, has been slow – slower than it was in the 1990s—partly because the workforce is growing more slowly, but partly because the growth of productivity, the amount of stuff we make for every hour of work, has been disappointing.”
“Also,” according to Wessel, “the job market got really bad at the beginning of the decade. The unemployment rate has come down quite a bit. It’s had 50-year lows, but there’s still more prime-age workers—that’s people between 25 and 54—who are not even looking for work than were true before the Great Recession.”
However, while the stock market has been on a tear, the people, essentially in the middle of the economy, have continued to be frustrated. “The first six months of this year have been the fastest growth in the stock market than any year since way back in the late ’90s. The stock market has more than tripled during this expansion. Incomes of the typical American household—the one in the very middle—have gone up 30% before you adjust for inflation. After adjusting for inflation, they’re up, but about 15%—in part because wages just haven’t gone up very much.” Said Wessel. “And then the gap between winners and losers in our economy continues to widen. I mean, here’s one way to look at it. The Federal Reserve says the top 1% now hold 31% of all the wealth.”
In addition to money in the pockets of Americans, the percentage of people who own their own homes is also down. “The share of Americans who own their own homes, which soared during the housing boom of the 2000s, is now lower than it was back in 1995. It’s turned up a little bit lately, but the decline is particularly pronounced among young people—among people under age 40. In fact, when you look across the expansion, the scars of the Great Recession are most evident in people who are really the younger generations.”
So what might happen? According to Wessel, “There are some warning signs out there. We had a bad job market report. Manufacturing is soft. But one thing that’s interesting is some people worry that long periods of steady growth, low rates, and rising stock prices breed complacency, and that could end badly.”
Wessel’s comments are backed up by a report from CUNA Mutual Group that said, “Although the majority of those polled said they feel relatively stable overall, they graded their chances of achieving the American dream as a “C,” down from a “B-minus” in the fall, the insurance provider found. Close to half were increasingly concerned about an upcoming recession.
A separate report by Allianz Life found that 48% said they fear a major recession, up from 46% in the first quarter of 2019 and 44% one year ago.
In Las Vegas, which was one of the first areas of the country to be hit with the recession and one of the last areas to recover, the numbers from the 2nd quarter of 2019 Marcus & Millichap Market Report still look pretty good.
Over the past 12 months, Las Vegas employers created 27,500 new positions, boosting total employment by 2.8 percent. Last year, 24,900 jobs were added.
The professional and business services and construction sectors led hiring in the metro, creating nearly 6,000 and 6,900 positions, respectively. The robust pace of expansion has lowered the unemployment rate to 4.5 percent.
On the retail side
Construction reached its highest point since 2009 as development more than quintuples on a year-over-year basis. Last year, 365,000 square feet was delivered, and this year, 1,325,000 square feet will be completed. Vacancy will fall 70 basis points to 6.8 percent this year as net absorption remains exceptional. And, tighter conditions boost the average asking rent to $19.20 per square foot.
The pace of development slides as 467,000 square feet is completed this year, down from the 546,400 square feet brought to market in 2018. Vacancy will fall 30 basis points to 14.8 percent as firms absorb more space amid abundant economic growth. The average asking rent will climb 1.5 percent this year, reaching $20.85 per square foot.
Interest in Las Vegas office properties remains elevated, fueled by yield-oriented buyers from California. Cap rates average in the mid-7 percent range, offering investors more than 200 basis points of extra income over similar assets in their home markets.
Amid ongoing employment growth near 3 percent, housing demand has surged, pushing net absorption to more than 4,000 units in 2018. Even as construction has picked up, vacancy has continuously declined, falling below 5 percent for the first time since the Great Recession in early 2018. Development has broadly targeted the I-215 stretch to the south of the urban core, where multiple transportation arteries allow for easy access to the employment hubs along the Strip and in downtown Las Vegas. Single-family home prices are somewhat expensive for the average tenant, encouraging significant participation in the rental market. Vacancy in the most desirable southern submarkets has pushed well below the metro average, driving rent growth to the high single digits.
As such, construction deliveries of multifamily units are falling this year, sliding more than 50 percent to 1,200 units from last year when 2,800 units were brought to market. Vacancy dips to 4.3 percent as net absorption remains robust due to consistent job growth of 2.6 percent this year. The average effective rent will reach $1,110 per month.
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