Three Unusual Metrics to Watch Heading Into 2023

The combination of how three economic trends play out in 2023 will have a significant bearing on the commercial real estate market — and they may not be what you think.

The first, according to Marcus & Millichap’s John Chang, is the University of Michigan Consumer Sentiment Index, which measures how people feel about their financial situation. In Q2 2022, sentiment fell sharply as gas prices surged and inflation surpassed 8% and hit a record low in June. At the same time, apartment demand fell from a positive 106,000 units in Q1 to a negative 71,000 units in the second quarter. But “the good news is that sentiment appears to be making a recovery, offering the prospect of renewed household formations in 2023,” Chang says.

The second metric Chang will be watching: what happens with cash savings and the use of revolving credit.

The real bite of the Fed rate increases won’t be apparent until the savings overhang burns off,” Chang says. Since August, total deposits have fallen by nearly $400 billion and will likely move back into alignment with historical norms sometime int he second half of next year. In addition, the use of revolving credit has increased significantly since June but is only up 9.7 percent year-over-year on an inflation-adjusted basis.

Credit debt is not looking problematic yet but it’s definitely worth monitoring as a risk indicator in 2023.

The gap between open positions and the number of unemployed people is the third thing to watch next year, Chang says, noting that 10.3 million positions are currently open while  the number of unemployed people looking for work has stood around 6 million for the last year. And that spread “is definitely well above what we’ve seen historically,” he says. “Even though the Federal Reserve is saying they believe the unemployment rate will need to go to 4.4% to get inflation under control, I’m a bit skeptical we’ll get there. There’s just too many vacant jobs.”

If the job openings number starts to fall fast, it’s a sign the economy is weakening, Chang says. But for now, he thinks the job market will remain strong despite softening financial services and tech outlooks.