Intelligent Investment
Economic Watch: Q2 GDP Growth Exceeds Expectations
July 25, 2024 3 Minute Read
Executive Summary
- U.S. GDP increased by 2.8% on an annualized basis in Q2 2024, well above market expectations of 2.1%.
- Stronger growth was accompanied by easing inflation, with the Core Personal Consumption Expenditures (PCE) Price Index (excluding food and energy prices) closing Q2 at 2.9% annualized vs. 3.7% in Q1.
- CBRE expects the U.S. economy to achieve a soft landing this year. However, restrictive monetary policy may heighten the risk to growth.
- We expect inflation will continue to ease in H2, helping the 10-year Treasury yield to end the year at 4.0%. We expect to see lower interest rates in H2, which should lead to more real estate investment activity.
The Bottom Line
Consumer spending, nonresidential investment and government expenditures picked up pace in Q2 and contributed to stronger-than-expected GDP growth. Inventories, which are notoriously volatile, were a major contributor to Q2 growth and may have slightly overstated the pace of economic activity. In Q2, consumers spent more on services and less on goods. On the inflation front, the Core PCE Price Index—the Fed’s preferred measure of inflation—fell to 2.9% annualized in Q2 from 3.7% in Q1.
Commercial Real Estate Outlook
While Q2 GDP growth exceeded expectations, inflation remained above the Fed’s 2% target and jobless claims increased quarter-over-quarter. This underscores the complexity of the Fed’s task to maintain price stability and full employment. We continue to expect a soft landing for the economy, with slower inflation and a more balanced labor market this year. We also expect that lower inflation will prompt the Fed to make two 25-basis-points interest rate cuts in 2024 and that the 10-year Treasury yield will end the year at 4.0%.
CBRE expects that these conditions will enable industrial and office leasing activity to increase modestly this year. Although high interest rates will remain a headwind for capital markets activity, we expect improvement in the second half of 2024 and in 2025.
Figure 1: CBRE House View
