Industrial Insights

Highlights

·        Businesses investing

·        Consumer sentiment down but spending up

·        Trade policy remains uncertain

·        Labor market in focus

·        Industrial demand resilient

Welcome back readers to a sector-specific edition of BGO 's The Chief Economist. I'm Ryan Severino, CFA and this week we are taking a closer look at the US Industrial real estate market which is a frequent topic of discussion in CRE circles. Let's get to it!

While last week saw a rush of data and economic news, much of it centered around the industrial market. Therefore, we thought it would be an opportune time to introduce a new quarterly breakdown/analysis of each major property type, starting with industrial. While not a full quarterly outlook, we hope these reports will provide an intra-quarter glance at a property sector in the context of current economic developments. With that in mind, what were the key data and events of late and what do they mean for the industrial sector?

Spending, Expanding

Recent data releases show an economy where consumers and businesses continue to spend. Headline durable goods orders for July declined, due to the highly variable aircraft industry. But core capital goods expanded, more than expected, driven by a gain in corporate equipment expenditure. Relatedly, also in July, the goods trade deficit widened by more than anticipated, due primarily to industrial supplies and capital goods. It remains unclear whether this trend is related to the AI boom or front-running of tariffs, but thus far the corporate sector has not slowed down. Not to be outdone, consumer activity remained resilient despite feeling a bit glum – a recurring theme of the last half decade. Although consumer confidence and sentiment dipped in August, through July, personal income and expenditure continued to increase. Wages and salaries posted their strongest gains of the year, higher than resurgent inflation, generating real spending power for consumers. This occurred across spending categories, most of which posted a monthly gain. While durable goods fared well (in keeping with a theme), other categories, such as food and beverages, also posted a strong gain during the month. While inflation, measured by the personal consumption expenditures (PCE) price index continued to reaccelerate in July, it has thus far remained moderate. The core PCE index, the Fed’s preferred measure of inflation, continued to tick higher, in line with other core inflation indexes like the consumer price index (CPI) and producer price index (PPI).

A Key Ruling

At the end of last week, a federal appeals court ruled that many of the new US tariffs were unlawful, upholding an earlier decision. The appeals court found that the key rationale for many of the new tariffs — an international emergency powers law that permits the president to take broad trade action in response to economic emergencies — “does not authorize the tariffs imposed by the Executive Orders.” However, the court delayed implementation of its order until October to grant the administration time to seek review from the Supreme Court, which allows the duties to remain in place for now. And of course, the government ultimately has other options for tariff implementation, one way or another, as our machine-learning model highlighted earlier this year.

What To Watch This Week

Another busy week lies ahead despite its shorter length. As the first week of a new month, the focus will be on the labor market. Total job openings for July should remain elevated, near 7 million. Employment for August should post another moderate reading, near 100,000. The unemployment rate should change little while wage growth should remain positive. Additionally, the ISM manufacturing and non-manufacturing indexes for August should both show slight improvement. Taken together, they show an economy expanding, but at a moderate pace. Construction spending for July should remain weak. 

Industrial Implications

Overall, the data largely remains positive for industrial demand. Broad consumer spending continues to generate demand for the storage of goods, despite any headwinds from uncertainty and trade policy. While the recent ruling on tariffs does not provide clarity on the exact path forward for policy, consumers seem set to endure, even if their pace of spending is slowing over time. Spending on food and beverages also remained positive, continuing to provide demand for cold storage space. Finally, even the manufacturing sector is getting a bit of a boost from corporate spending. The resurgence in domestic manufacturing, coupled with the AI boom, is providing newfound demand for manufacturing facilities of all types, including light manufacturing. In short, the industrial sector continues to see broad demand, even in the face of uncertainty and shifting trade policy.

(Random) Thought of the Week

If years were letters, the average human lifespan would not be longer than this sentence.

That's all from me for this week, Happy September to all of our readers and hope you're well rested for what will surely be a torrid run to the end of the year. Until next time!

Ryan S.

BentallGreenOak (“BGO” or “BentallGreenOak”) includes BentallGreenOak (Canada) Limited Partnership, BentallGreenOak (U.S.) Limited Partnership (“BGO U.S.”), their worldwide subsidiaries, and the real estate and commercial mortgage investment groups of certain of their affiliates, all of which comprise a team of real estate professionals spanning multiple legal entities.

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