The rate at which economic growth picks up steam in 2011 and beyond depends largely on the federal government's success at managing $12.5 trillion worth of bailout and stimulus programs while keeping a lid on inflation, Pollert says. He calls this "a very challenging balancing act, even in the best of times."
However, Pollert cites a number of other factors that are likely to put the brakes on recovery for some time. Among these is consumer spending, whether for durable goods or housing. Both have been hit hard by declines in home prices and individual net worth. Putting a further chill on any consumer exuberance is the specter of a 10% unemployment rate in the first or second quarter of 2010.
Industrial production, Pollert says, has been "hammered" by declines in private business inventories and decreases in business investment over the past few quarters. While this correction augurs well for a recovery in industrial production, it's likely to be dampened by a continued lack of business spending and what Pollert calls "anemic exports" well into next year.
In the financial sector, Pollert notes, "banks are still reluctant to lend, and the credit markets are not functioning normally." This reluctance is due in part to the prospect of further write-offs on credit card debt--as much as $125 billion by the end of next year--and losses on commercial real estate loans, which for small and mid-sized banks could reach $100 billion in the same time frame.
Pollert says the Fed's recent expansion of TALF to include AAA-rated CMBS may be undermined by the Standard & Poor's plan to change its methodology for rating CMBS. Standard & Poor's has projected that 90% of 2007-vintage super-senior AAA CMBS would be downgraded under the new methodology, with 60% of 2006 and 25% of 2005 super-senior CMBS incurring the same re-rating.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
