Higher-Than-Expected 6.1% GDP Contraction Doesn’t Change Timing for Apartment Recovery

By Anuradha Kher, Online News EditorNew York–The U.S. economy shrank at an annual pace of 6.1 percent in the first quarter, almost as much as it did in the fourth quarter of 2008, according to a government report. This is a much bigger drop when compared to the most commonly predicted initial number of 4.7 percent reduction in the Gross Domestic Product (GDP).“This doesn’t have much of a direct impact on the recovery in the apartment market,” Bob Bach, senior vice president and chief economist at Grubb & Ellis, tells MHN. “Job creation is the most important factor for recovery in the apartment market, and that is a lagging indicator.”For the first time since the second quarter of 2008, the individual spending rate increased by 2.2 percent annually, which could bode well for the apartment industry. “With an increase in spending, businesses will cut back on layoffs and this will have a positive impact on apartments. On the other hand, the GDP doesn’t really say anything about employment,” says Bach. Businesses also slashed their inventories by more than $100 billion during the quarter, the biggest drop on record. That contributed another 2.8 percentage points to the drop in GDP. A reduction in apartment inventory, combined with a demand that will slowly start increasing, are all factors in favor of the apartment industry, says Bach. “We could begin seeing a positive absorption of apartments by the end of this year-beginning of 2010,” says Bach.The GDP however will continue to decline through the year but at a diminishing rate. By as early as the third quarter, we could see positive GDP growth, says Bach. “This is another storm cloud, but it has a silver lining,” he concludes.