Based on some of the criteria outlined by the NBER, such as production, the recession ended in June. If greater weight is assigned to outcomes in the labor market, the recession may not end until later in 2010. Ultimately, the decision resides with a small group of individuals who make up the NBER’s Business Cycle Dating Committee.
The determination that the recession began in January 2008 was made by seven people, each held in the highest esteem within the economics profession, but each relatively unknown to the world of commercial real estate. Absent a clear set of metrics, the question of the recession’s end can be contested.
Fed Chairman Bernanke threw his own hat into the game more than a month ago, telling an audience at the Brookings Institution on Sept. 15 that “from a technical perspective, the recession is very likely over at this point.” Speaking to the point, one astute commentator noted that “if Bernanke had delivered that speech in the parking lot at Wal-Mart instead of at the Brookings Institution, the tomatoes would have been flying.”
The art and science of calling the recession’s end, if properly stage-crafted, can help to fulfill itself. In the best case, a credible statement about improving conditions will buoy consumer sentiment and consumers’ contributions to economic activity. Inasmuch as the statement actually coincides with an uptick in key growth measures, it also presages a slow but inexorable return to stability in the labor market.
AN EASING OF THE financial and credit markets’ negative spillovers into the real economy is welcome news for commercial real estate. Downward pressures on property fundamentals will abate as real economic activity normalizes. Perhaps as important, policy attention, spread thin by the myriad challenges of the last year, can focus on our sector’s unique issues and the consideration of appropriate responses.
Evidence of commercial real estate as a cynosure of policy attention is increasingly visible. In the FOMC minutes, for example, it is singled out for its lagging behind the broader economic trends: “[I]n contrast to developments in the residential sector, commercial real estate activity continued to fall markedly in most districts, reflecting deteriorating fundamentals, including declining occupancy and rental rates, and very tight credit conditions.”
Just week weeks ago, I had the opportunity to attend gatherings of the Regional Federal Reserve Banks and of the Federal Financial Institutions Examination Council, where commercial real estate market conditions and challenges were a focal point for discussion. Moving from recognition of the issue to solutions, interagency guidance on commercial mortgage resolution is expected presently. The guidance is expected to reflect F.D.I.C. Chairwoman Sheila Bair’s comments last week that “prudent loan workouts are often in the best interest of financial institutions and borrowers, particularly during difficult economic circumstances and constrained credit availability.”
editorial@observer.com
Sam Chandan, Ph.D., is president and chief economist of Real Estate Econometrics and an adjunct professor of real estate at Wharton.
