Auto Sales Spike in July; Economic Data Remains Mixed

• The “Cash for Clunkers” program is proving popular with consumers, as new car production is ramping up, and auto sales have gained momentum. While weakness persists, some recent data signal that the economy is beginning to pull out of the recession. Specifically, second quarter gross domestic product and July employment contractions were much less severe than in preceding periods; both measurements beat market expectations.



• Following eight consecutive months of contraction, industrial production surged 1 percent in July, the largest monthly increase in nearly three years. Additional output gains are expected in the coming months, as inventories have been retreating for nearly a year, and businesses will have to order new stock to meet demand. Improvement in the battered manufacturing sector could boost employment and incomes and should ultimately stimulate demand for industrial properties.



• While the base of a recovery is forming, the economy remains soft. Retail sales dipped 0.1 percent in July, despite a 2.4 percent increase in auto sales and parts. Core retail sales, which exclude auto and gas, fell 0.4 percent in July, marking the fifth consecutive monthly decline, and are down a record 4.6 percent year over year. Retail vacancy has surged 230 basis points to 9.5 percent since the onset of the recession.



• Falling consumer sentiment will likely continue to weigh on retail property performance in the coming months. Preliminary data for August show consumer sentiment is at its lowest point since March due to ongoing weakness in the job market.



• With the economy expected to pull out of the recession by the end of this year, commercial real estate investors are beginning to more closely evaluate opportunities in the marketplace. Tenant quality has emerged as a primary consideration in the current climate, as business bankruptcies are at their highest level since 1993. Investors targeting office and retail properties will want to thoroughly examine the solvency of existing tenants when considering acquisitions.