Will the Stimulus Package Increase Demand?

The signing of President Barack Obama’s plan to pull the United States out of the current economic crisis puts into action the most expensive fiscal firepower since President Franklin Roosevelt’s New Deal. While most economists would agree the stimulus package is a provocative step, it is necessary to soften the negative impact of the downturn and accelerate recovery. It is certainly preferred to the inaction that preceded it.In tracking the success of Obama’s historic stimulus package, which represents 5.5 percent of the nation’s 2008 nominal gross domestic product, we expect it to have a sizable impact on the economy, begin to move the GDP needle in the right direction and ultimately increase demand for industrial real estate.The Congressional Budget Office analysis, in a letter dated Feb. 11, 2009, wrote that the package will increase GDP growth in 2009 by 1.4 percent to 3.8 percent and add 2 million to 4 million jobs by 2010. Historically, each new job spurs 100 square feet of net absorption of industrial real estate at the national level. As such, even 2 million new jobs would generate 200 million square feet of net absorption. While the stimulus plan’s job creation results remain to be determined, we are certain that net employment increases would lead to positive net absorption.The final plan is divided into 36 percent for tax cuts and 64 percent for spending on a variety of programs. The tax cuts are expected to be used two ways: de-leveraging of consumer balance sheets through savings and debt service, and increased expenditures by households and businesses, stimulating demand that would lead to an increase in space needs. The spending side of the bill largely increases investment in infrastructure improvements, which will create jobs. It is also expected to boost the flow of goods, as a strengthened infrastructure makes the United States’ trade-critical markets more competitive and attractive to global players.The imminent question is whether the plan in its entirety will justify its final cost. It will, however, have a sizable impact on the overall economy by creating jobs, increasing consumer spending, fueling global trade and ultimately increasing demand for industrial real estate.We are concerned about protectionist attitudes that were expressed during discussions about the stimulus package in Washington D.C. A tilt toward protectionist policies would hamper trade, an engine for world commerce and a global economic solution, an issue I will explore in a future column.