Heading Towards Default, an Update on the Commercial Real Estate Outlook...
The positive impact of the American Jobs Act on employment trends is overstated by its proponents. Given the qualified outlook for payroll expansion, commercial real estate market participants should take a guarded view of adjustments to related absorption projections.
Faced with the slowest labor market recovery in modern US history and the potential for a relapse into recession, the President unveiled his proposal for an American Jobs Act (AJA) before a joint session of Congress on September 8. The centerpiece of the proposal calls for halving employers’ tax obligations on their first $5 million in payroll. No payroll taxes would be levied for new employees and for wage increases.
The findings of the Congressional Budget Office (CBO) over the last several years match a consensus amongst many of the nation’s leading labor economists: the employer tax cut will stimulate increases in hiring amongst firms that can boast improving demand for their goods and services; it will not result in new hiring by firms that face weak or declining demand. The policy’s ultimate effectiveness is limited by these demand-side considerations in business hiring decisions. Improvements in demand resulting from the hiring incentive are secondary effects, more rangebound than extensions of unemployment benefits.
Overall, the positive impact of the plan on employment trends is overstated by its proponents. Commercial real estate market participants should proceed deliberately in adjusting related absorption projections. In the near term, before incremental improvements in hiring become observable, the proposal could have a negative effect on employment trends. Given the potential for Congressional gridlock, some firms will postpone plans for payroll expansion until the time frame and exact provisions of new measures become clear.
Read the full analysis in Dr Chandan's Chief Economist column on GlobeSt.
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Learn more about the terms of the President's proposal at the White House website.