Who’s Giving CRE a Boost Lately?

This group is an important buttress for the residential and commercial real estate markets.

Consumers managed to make more and spend more in July than in June, which is a good sign for the wider economy, but also (if the trend continues) an important buttress for the residential and commercial real estate markets. Consumers who have more and spend more are buying the goods that, as they move through the distribution system, are the lifeblood of the retail and industrial markets. They’re also more likely, eventually, to want to buy their own housing, which naturally benefits homebuilders and associated industries, or at least rent better-quality apartments. In any case, a healthy residential market also indirectly helps office properties, since healthy office markets tend to be in places where people want to live (these days, examples are Denver and Seattle and Brooklyn, among others).

Personal income increased $67.1 billion, or 0.4 percent, in July compared with the previous according to the Bureau of Economic Analysis on Friday. Personal consumption expenditures (PCE) — government-speak for people spending their money — increased $37.4 billion, or 0.3 percent. Real PCE — PCE adjusted to remove price changes — increased 0.2 percent in July for the month, compared with an increase of less than 0.1 percent in June. At the same time, people are saving about as much. Personal saving — disposable personal income less personal outlays — was $651.1 billion in July, compared with $627.3 billion in June. The personal saving rate was 4.9 percent in July, compared with 4.7 percent in June.

People are buying a lot of cars. Purchases of motor vehicles and parts accounted for about half of the increase in spending in July, according to the BEA. Purchases of nondurable goods increased only 0.1 percent in July, the same increase as in June. Naturally, these figures represent monthly tabulations, and might not hold for the longer term (though so far income and expenditures have trended positive this year). When it comes to sustaining the growth of spending, a continuing positive attitude among consumers is important. The latest on that score is inconclusive: The University of Michigan’s final result for its Consumer Sentiment Index for August, which was released on Friday, saw the index drop from 93.1 in July to 91.9. But it’s up from 82.5 a year ago.

Did the stock market turmoil of the week have an impact on sentiment? Maybe, but the survey’s chief economist, Richard Curtin, noted that consumers quickly dismissed the 1987 crash since it didn’t involve their jobs or incomes, and “today’s consumers hold similar favorable views about their job and income prospects… there is every reason to expect continued growth.” Overall, he said, the data suggest that real personal consumption expenditures will expand by a still healthy 2.9 percent in 2015, with the pace of growth rising a bit to 3 percent in 2016. Good news for the economy, and for real estate, if things work out that way.