Location Strategy Chartbook 03.08.25

Bloomberg: Financial markets are signaling that the risk of a recession is growing as tariff-related uncertainty and indicators of economic weakness spread fear across Wall Street. A model from JPMorgan Chase & Co. shows that the market-implied probability of an economic downturn has climbed to 31% on Tuesday, from 17% at the end of November. Key indicators like five-year Treasuries and base metals are showing an even higher — toss-up — chance of a contraction. While it’s far from the base case, a similar model from Goldman Sachs Group Inc. also suggests recession risk is edging up, at 23% from 14% in January.

Economic sentiment is darkening as money managers and corporate executives struggle to cope with the volatility created by President Donald Trump’s threatened tariffs. “With softer economic activity data in the US and already weaker business and consumer confidence in recent weeks, the tariffs that came into effect on March 4th on Canada, Mexico and China are raising the risk of an even bigger hit to business and consumer confidence going forward,” said JPMorgan strategist Nikolaos Panigirtzoglou. “In turn this raises the specter of a US recession and markets have naturally priced in higher probability.”

Barron’s: February's ho-hum jobs report portrays an overall stable employment picture, but some data points raise concerns about how quickly the U.S. labor market could cool.

The U.S. economy added 151,000 nonfarm payrolls last month, and the unemployment rate ticked up to 4.1% from 4.0% in January, according to data from the Bureau of Labor Statistics on Friday. While latest payroll gains didn’t deliver a big rebound from January’s lackluster gain of 125,000 jobs, the steady employment conditions provided some reassurance that the health of the labor market remains intact for now.

Federal employment continued to grow throughout the 20th century, topping out with 3.4 million employees in 1990, then contracting to 2.8 million in 1999. During the 2000s, it remained relatively flat.

At the end of 2024, there were 3.0 million federal jobs, or 1.9% of all employee jobs. Besides temporary employment for the 2020 Census, employment in federal jobs has been less than 2% since January 2014.

The share of jobs held by federal workers peaked in November 1944 at 7.45%.

FT: Federal Reserve chair Jay Powell said that officials “do not need to be in a hurry” to cut interest rates as he played down concerns over US growth.

In a speech on Friday, Powell said the economy remained “in good shape” despite the “elevated” uncertainty.

The Fed chair also cautioned against attaching too much weight to a number of disappointing indicators of economic confidence, saying that they have “not been a good predictor of consumption growth in recent years”.

The remarks from Powell come as investors grow increasingly concerned that President Donald Trump’s aggressive trade policy is hurting the economy.

Powell’s comments also came on a turbulent day for US stocks after a disappointing jobs report showed the economy created 151,000 roles in February, fewer than expected.

“We are focused on separating the signal from the noise as the outlook evolves,” Powell said, adding that the Fed was “well positioned to wait for greater clarity”.

Powell said that Trump’s tariff policies had led to a rise in some measures of inflation expectations.

Though there was some broad-based “progress” on inflation, including in categories such as housing where price pressures have proven stickier, tariffs had become “a driving factor” in boosting “market- and survey-based measures” of inflation expectations.

WSJ: The monthly goods deficit has been on a tear—to the downside. Preliminary census numbers for January show that, after hitting a record $123 billion in December, it rocketed to $153 billion as businesses raced to import goods ahead of tariffs. The U.S. runs a steady trade surplus in services, which in 2024 left the overall goods and services deficit at about $918 billion.

Talk of tariffs by the Trump administration could impact companies large and small – and there are signs that businesses may be facing headwinds on the cost front. After all, the costs of goods sold is a key element to small businesses’ balance sheets. And while inflation has come down from its 2022 peak, the producer price index (PPI) has been outpacing the consumer price index (CPI) since November 2024, suggesting challenges for businesses producing goods and services

And with the recent implementation of tariffs on China, which is responsible for nearly 13% of all imports, it’s possible this could further increase. According to BofA Global Research, the current trade, fiscal, and immigration policy agenda would only be mildly inflationary and apply to specific industries or sectors. For now, small businesses don’t appear to be overly concerned about rising costs.

Are small business revenues rising faster than costs? The financial picture appears to be brightening for small businesses. According to Bank of America small business account data, in the six-month period from August to January, deposit growth among small business clients surpassed total payments growth for the first time in three years . That’s a sign, in our view, that revenues are going up for these enterprises. Furthermore, over the past year, the ratio of small businesses’ payment inflows to outflows – which we view as a proxy for profits – has climbed steadily and increased 1.5% year- over-year (YoY) in January

Bloomberg: The wealthiest 10% of American households—those making more than $250,000 a year, roughly—are now responsible for half of all US consumer spending and at least a third of the country’s gross domestic product.

In the 1990s, spending by top-decile earners usually constituted a third or so of annual consumer spending overall. Now, their spending constitutes the largest share of the consumer economy in data going back to 1989.

Since 2020, Americans have spent lavishly on discretionary goods and services, even as the cost of necessities has soared. Consumer debt has ballooned right along with prices, and Americans are now defaulting on their credit cards at rates unseen since the Great Recession. Wages growth has been strong, but inflation has thwarted its ability to help most Americans get ahead.

If the extreme spending habits of a small group of people are what’s keeping a large portion of the economy churning, then that group of people also has an outsize ability to bring everyone else down with them. “I’m not comfortable with it,” says Mark Zandi, the chief economist for Moody’s Analytics and the author of the company’s recent analysis of what he calls “the wealth effect.” In a well-functioning economy, he explains, the spending would be “more widely distributed and the economy less at risk of something going financially wrong for that top group of individuals.”

M2G Ventures, led by Jessica Miller Essl and Susan Gruppi, bought the industrial showroom and retail park on a 38-acre tract near the Design District about a mile from Interstate 35. According to CoStar data, M2G Ventures purchased the Inwood Design Center, a 14-building, 740,000-square-foot industrial hub in Dallas from Houston-based Hines.

The purchase of Inwood Design Center gives M2G Ventures "an opportunity to continue our thematic approach to acquiring infill industrial assets on an institutional scale," said Essl, co-founder of the real estate investment firm, in a statement.

M2G Ventures plans to invest in a "complete repositioning" of the properties with an emphasis on branding, art and signage. The amount of the investment was not immediately shared. Plans for the upgrades include new exteriors and storefronts, new signage and graphics and new lighting and public art.

As of closing, Inwood Design Center was 93% leased, with tenants such as Neiman Marcus, Crate & Barrel, Community Coffee and White Glove Storage and Delivery.

The Phoenix multifamily market had an encouraging start to the year.

The average asking rent rose 0.5% in January 2025, the largest month-over-month increase since May 2022. Last month’s result brings monthly rent growth back in alignment with pre-pandemic norms, with January averaging a 0.5% increase from 2015 to 2019.

It also turns the page on an underwhelming year in 2024 when nine of the 12 months saw flat or negative growth, driving a 1.8% annual rent decrease.

Both 2023 and 2024 posted positive rent increases in their opening months, followed by steep losses in the second half of the year, and ultimately negative year-over-year growth.

The completion of more than 25,000 net new apartment units in 2024 is expected to keep competition for renters elevated this year. Many newly built properties are offering generous discounts to attract potential residents. Six to eight weeks of free rent is standard at new properties in lease-up, forcing nearby complexes to shell out concessions or temper rent increases to remain competitive.