Despite a roaring start to the new millennium, the U.S. economy has little to show for the past 10 years. NAI Global Chief Economist Dr. Peter Linneman examines the key factors and trends that led the U.S. and global economy on a volatile roller coaster over the past decade, from a promising start to a punishing conclusion in a new white paper.

“In 2000, our federal budget surplus was over $200 billion and the world was at relative peace. In 2010, the federal budget deficit is in excess of $1.3 trillion and the U.S. is engaging in two major military operations around the globe,” said Dr. Linneman. “During the past 10 years, we have seen the country has weathered two recessions, two wars and we witnessed the horrors of the September 11^th attacks. We experienced oil prices of nearly $150 per barrel, a booming and plunging housing market, a booming stock market and an extreme financial crisis.” Dr. Linneman examines where we have been and what we can learn from this last decade.

Dr. Linneman provides analysis of real GDP growth (and contraction), household wealth, unemployment, industrial production, federal spending and looks into the true causes of the financial crisis. He also provides insight into what will happen with the economy in the coming decade.

A Disastrous Decade, NAI Global’s white paper, is a scorecard for the 10 years from mid-2000 through mid-2010, reviewing how the economy has changed over the first decade of the 21^st century.

This latest white paper follows A Robust Rebound to Mediocrity?, Dr. Linneman’s view of the economic recovery’s impact on the jobs market today and tomorrow. NAI Global’s white papers and research resources are available for free download at www.naiglobal.com under Publications/Articles & White Papers.

Dr. Linneman is also Professor of Real Estate, Finance and Public Policy at the Wharton School of Business, University of Pennsylvania, and Principal, Linneman Associates.

“The key for the real estate sector is job growth, as a recovery without jobs does not fill buildings,” Dr. Linneman noted.  “We anticipate that the next three years will continue to see average job growth of 250,000 jobs per month, for a three-year job increase of at least 9 million jobs by early 2013.”

“That is robust job growth, but it is important to remember that our forecast would leave us with almost the same number of jobs in mid-2013 as existed at the beginning of September 2008,” said Dr. Linneman. “Even with a robust recovery adding 9 million jobs over the next three years, we will still have an anemic unemployment rate of 7%. Hence, we expect a robust rebound to mediocrity.”

A Robust Rebound to Mediocrity?, NAI Global’s white paper, reviews payroll history and trends, providing an economist’s view of the recovery’s impact on the jobs market today and tomorrow.

This latest white paper follows Capital Markets Show First Signs of Recovery, Dr. Linneman’s treatise on the impact of how a rise and recovery in asset prices will lead to investors becoming more active, how capital markets will start to show recovery and the impact on the commercial real estate industry. NAI Global’s white papers and research resources are available for free download at www.naiglobal.com under Publications/Articles & White Papers.

Dr. Linneman is also Professor of Real Estate, Finance and Public Policy at the Wharton School of Business, University of Pennsylvania, and Principal, Linneman Associates.

The BP oil spill that has continued for more than 60 days has caused widespread environmental damage and is already affecting shipping, fishing and tourism, but commercial property experts in the region do not believe the accident will have a significant impact on Gulf Coast real estate markets, according to a special report released today by NAI Global.

Commercial real estate leaders from markets bordering the Gulf of Mexico and renowned economist Dr. Peter Linneman weigh in on how experts are quantifying the impact of the oil spill, and provide regional on-the-ground observations of how property markets are faring today. While some markets may see a temporary up-tick resulting from the cleanup efforts, most do not expect any long-term impact, positive or negative, on supply or demand, the primary factors influencing rental rates and property values.

NAI Global, the world’s premier managed network of commercial real estate firms and one of the largest real estate services providers worldwide, has a presence in markets all along the Gulf Coast, including New Orleans, LA, Pensacola, FL, Mobile, AL, Fort Myers, FL, and Houston, TX.

While there is no questioning the potential environmental impact, Dr. Linneman, NAI Global’s Chief Economist, suggests that political activists are inflating the economic impact of the oil spill, and that the impact on the Gulf Coast’s economy in general and real estate in particular will probably be minimal.

“This spill is the most overhyped problem we’ve seen in the past six months,” said Dr. Linneman. “The overall economic impact to the nation will be trivial.”

The full report is available for free download at www.naiglobal.com under Publications/Articles & White Papers, or by clicking here.

The Euro countries had agreed to solve that problem when the Euro was created, actually before the Euro was created, by saying none will run budget deficits greater than 3% a year and none will exceed accumulated budget deficits of 60% deficit relative to GDP. Well, there is no member of the European Union right now with a budget deficit below 3%. Even Germany is above it. And some of the sovereigns and Ireland, although not in the Union, have deficits up in the range of 12-15% of GDP, much like the U.S. and England.

The U.S. has sovereignty so we can deal with it. When you have that kind of disparity in fiscal activity and you don’t have free movement across borders of population because of language and custom and so forth, it’s very hard for a currency to last. And what they are really dealing with right now is that problem. If Europe was really a country, the central government would work it out in its parliament, the way we do in the U.S. They would subsidize Greece, the same way we subsidized the victims of Katrina, the victims of hurricanes, snowstorms and floods. We routinely subsidize events that are geographically concentrated with no huge debate about why we are shipping our money to those other citizens.

It’s a problem, when you don’t vote and you have no voice in the problem but you are expected to be the solution. I still think the Euro will break. It’s made it at least two years longer than I thought it would, and I think it’s just a matter of time before it breaks. Historically, monetary unions without sovereignty always break.

What is the impact to the world’s economy if the Euro breaks?  I don’t think it would be a big negative to the economy. It would be a big negative to the financial system temporarily figuring out what it meant, but not to the world’s economy.

-Peter Linneman, PhD

Dr. Peter Linneman is Chief Economist at NAI Global and Principal in Linneman Associates.

Jeffrey Finn

Let’s bring it down to the local U.S. issue of California, for example, or many cities and towns across the country. Is there going to be a reallocation of federal money to prop up those budgets and save the day?

Dr. Peter Linneman

There has been enormously. One of the hidden dimensions of the government spending whether it was the “Stimulus Bill” or just general government spending, has been a huge redistribution of spending to state and local governments that, probably not surprisingly, are Democrat-supporting states and that to the victor go the rewards. It’s been huge that it occurred, almost unprecedented that it’s occurred. That will continue. If you ask about California, California has the classic problem that a communist government has, which is, if you do not allow the market to work and you take every effort you can to keep the market from working and expressing itself, sooner or later, I don’t care how good your weather is, you are going to have a lot of troubles.

And California has. California runs the danger of killing the golden goose. The golden goose is that it is a lovely climate that people like living in. The problem is they have made it so expensive to live there, they have made it expensive to do business there, and now they have made it, on top of that, a very expensive government system with low quality service provision. You can be expensive, but you better be high quality. Their low quality delivery of services, high cost of that delivery and… it’s a real challenge in California. Again, I would put California… I don’t see any way out of it. Will California improve as the general economy improves? Yes, but they’re killing the golden goose.

One of the things we know is that when economies turn and jobs start returning, people un-double up; that is, they go out and form new households. There is going to be a tremendous surge in demand particularly for multifamily. So, right now I am very bullish on multifamily as an investment. That doesn’t mean that multifamily soars in the next year, but you have a situation where very little is getting produced and there is still long-term financing available in the form of Freddie and Fannie. There is also a fear of inflation. You get rapidly adjusting cash streams if inflation does happen, and yet you can lock in long-term fixed-rate debt.

I like the dynamics that I can get into a sector where nothing is being produced, there is a pent up demand that’s about to be unleashed and I can get in at 5.5 to 7 cap rates on depressed incomes that are somewhere between 10-30% below where they have been and where they need to go before you get massive increase in production. So, I am really bullish on multifamily. I think you can get in and get very solid risk-adjusted returns in that sector and also get a hedge against inflation.

-Dr. Peter Linneman, PhD

Dr. Peter Linneman is Chief Economist of NAI Global and Principal of Linneman Associates.

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