The Commerce Department recently revised its assessment of first quarter economic growth from a scant .1%, to an even worse annualized decline of 2.9%, meaning the economy shrank by almost 3% during the first three months of the year. This announcement doesn’t appear to have impacted the senior housing industry, as construction and acquisition activity in the sector continue to remain strong. Low interest rates have undoubtedly contributed to this and accordingly, before the Federal Reserve takes action to increase them, industry participants and investors who are seeking capital for growth, acquisitions, or other purposes should continue to look to the Chicago-based financing firm Cambridge Realty Capital for their financing needs.
Reasons for the Decline in GDP
The first quarter’s 2.9% decline in gross domestic product (GDP) was the worst GDP showing since 2009 and was also much more than what economists had projected. They were expecting a reduction of .5% to 2.4% so they were caught off guard when the revised 2.9% figure was announced. There are many reasons why the economy contracted at such a large rate during the first quarter. For example, the Commerce Department had previously estimated that certain provisions in the Affordable Care Act would lead to increased healthcare spending during the period, but instead of increasing, spending in the quarter actually slowed down, shaving .16% off of the quarter’s GDP. In addition to the drop in healthcare spending, in contrast to an initial report of final sales increasing by .6%, the revised figures show that they actually decreased by 1.3% during the first quarter. Consumer spending also slowed down during the period as the harsh winter and above average snowfall encouraged many people stay at home and keep warm instead of braving the elements to go to the mall or auto dealerships and make some post-holiday season purchases. Lastly, trade imbalances also turned out to be a bigger drag on GDP than originally thought. Net exports were originally reported to have subtracted .95% from GDP but the revised figures show that they actually subtracted 1.53% from GDP.
Reasons for Optimism
Although the revised GDP figures caught economists by surprise, they weren’t panicking because recent data shows that the economy has rebounded strongly since then. For example, reports indicate that as the weather improved, consumer spending began to increase and companies also placed more orders for equipment and manufacturing. Most economists are now forecasting that the economy will grow by around 3.5% in the second quarter. The growing economy should supply consumers with additional capital, which they can use to purchase more goods and services, including senior housing services. Time will tell if these latest economic forecasts are correct, but as of late, the data seems to support them and this bodes well for senior housing providers and other sectors of the economy as well.
