Last week, the United States Commerce Department announced that the nation’s gross domestic product(GDP), the broadest measure of economic output, increased at an annual rate of 3.5 percent during the third quarter. Although this is just an initial estimate and will undergo revision twice in the coming months as the Department collects more information, it is still a healthy figure, and it is also better than the three-percent rate that most economists had projected. A growing economy should lead to more jobs, increased asset values, and additional revenues for consumers to make purchases, including purchases of senior housing services. Accordingly, the senior housing industry is just one of many that was happy to see that the economy performed well during the quarter. Continued economic growth will help bolster the industry even more, and could lead to additional occupancy gains and increases in net operating income for senior housing providers.
Details from the Third Quarter
Although the economy saw a number of bright spots during the third quarter, its growth was largely driven by a decrease in imports and increased military spending. The decrease in imports was primarily due to a fall in oil imports, consumer goods, and food products. Overall, imports fell at their fastest pace in nearly four years, and this helped add 1.32 percentage points to GDP. At the same time, the federal government increased defense spending by its fastest pace in over five years, and this helped boost GDP as well. A strong performance in these areas helped offset a slowdown in business investment, which fell from double-digits in the second quarter to 7.2 percent in the third quarter, and a decrease in consumer spending which dropped from 2.5 percent in the second quarter to 1.8 percent in the third quarter.
Furthermore, even though economists would prefer to see gains in consumer spending because it accounts for roughly two-thirds of the economy, there is a silver lining in its slowdown: decreases in consumer spending help keep inflation in check since businesses cannot raise prices if there is not strong demand for their goods. This is important because the inflation rate is one of the primary metrics that the Federal Reserve considers when deliberating monetary policy. The lower the rate is, the less pressure the Fed is under to raise interest rates to combat inflation, since the risk of it spiraling out of control is not as significant.
The growth in GDP was good news to economist, and also increases the likelihood that the pivotal upcoming holiday shopping season will be a good one. Decreases in gas prices and potential job gains should help boost holiday spending by consumers. Increased consumer spending would provide an additional boost to the economy, and would serve as good news for the senior housing industry as well. As the fourth quarter continues, and economic growth and low interest rates continue to stimulate the senior housing industry, providers and investors who are seeking capital to take advantage of this situation by acquiring senior housing assets should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different options that it offers for acquisitions and other purposes as well.
