As Mid-term Elections Approach, U.S. Economy Builds Steam

International Tensions Pose Chief Risk to Economic Stability

Based on Transwestern's latest edition of THE BRIEFING, the U.S. economy has continued to thrive throughout the second quarter of 2018, a theme that will continue to play heavily during midterm elections.

"Thanks to a boost from year-end tax reform, we've witnessed stable, controlled growth throughout the first half of 2018," said Tom McNearney, Transwestern Chief Investment Officer. "With unemployment at an 18-year low and wages rising, we expect to see a slight rise in GDP later this year."

May unemployment fell to 3.8 percent nationally, while wages rose 2.7 percent from a year earlier. In addition, S&P 500 companies reported first-quarter earnings growth of 24.5 percent, the strongest gain in more than eight years, while bank profits soared 27.5 percent compared to the same period a year ago. Household formation remains healthy, driving robust consumer and business sentiment.

This rosy picture, however, is tainted by signs of political volatility, most notably an Italian political crisis that sparked a global equity selloff and raised concerns over the future of the European Union. Also, potential retaliation to U.S. tariffs on steel and aluminum from other nations may dampen trade relations.

"All eyes are on the global stage, because actions can quickly change the course the U.S. economy is enjoying," McNearney said.

He continued, "For now, from a commercial real estate perspective, a lagging construction pipeline has kept supply largely in balance with user demand, pushing occupancy and rental rates upward. Property cash flows have slowed but are still growing, and lender and investor caution provide some buffers against overheating."