have helped, but the easing rate of growth in starts, which ITR
Economics has been forecasting, began prior to the winter weather.
Higher mortgage rates, stricter credit conditions, and tight inventory in some markets resulted in a weak start to the spring selling
season. In addition, higher home prices have put affordability at a
Also, consumers are facing higher-than-expected healthcare
costs as a result of the Affordable Health Care Act. These higher
costs will certainly impact consumer spending next year. This is not
a judgment of the overall efficacy of Obamacare, but merely the economic impact of increasing costs in one sector impacting another.
All told, these factors will contribute to slowing consumer-spending growth (as well as overall economic growth) through mid-
2015. We see this as merely a slowdown in the pace of growth, and
not a contraction (a.k.a., recession). The improving job market and
rising wages will cushion the blow for most consumers. The economy will begin to accelerate once again in late 2015.
Retail construction—it’s a long way to the top
The growth in online shopping and its effect on brick-and-mortar
retailing is not a new story. This shift, combined with over-building
just prior to the recession, has left the retail construction market
floundering. Over the past 12 months, $16.9 billion was spent on
retail construction, nearly half of the level spent at the peak of the
market. However, construction has recovered somewhat and is
currently 17.6% higher than last year.
Our expectation is that construction will continue to grow
until the slowing economy finally impacts spending in mid-2015.
We expect levels to remain well below the pre-recession peak for
the foreseeable future. We expect high-end retail stores and malls
will perform better as consumers at this income level will not be as
affected by rising costs as will lower-income earners. Big-box store
expansion is expected to continue, but the push toward urban settings (eschewing suburbs) will negatively impact store size.
Along similar lines, regions with a higher concentration of
above-average income earners, such as Orange County, San
Francisco, Northern New Jersey, and Fairfield County, Conn., will
perform better over the coming year.
weak outlook for remainder of year
The economic downturn has created a surplus of empty commercial
space, with retail vacancy rates virtually unchanged from their highs
during the deepest point of the recession, and conversely well above
“We expect retail sales
to continue growing over
the next year, but they will
do so at a slower pace.”