Maximus Advisors

US retail sales were reported today, declining 0.2% from the month prior and marking the second consecutive month of declines, as April’s reading was revised lower to a contraction of 0.2%. Retail sales excluding autos fell 0.4% from the month prior, the second consecutive month with a decline of this magnitude.  Analysts have been quick to point out that some of the decline stems from a fall in gasoline sales and prices, with sales falling 2.2%.  However, this is assuming that the price decline is responsible for the lower receipts and not a downtick in demand.  Coming on the heels of two consecutive jobs reports that showed decelerating gains, and a falling ISM figure, we believe it is clear that the economic recovery is beginning to wobble.  The European debt crisis and subsequent economic malaise are roiling capital markets, which are both contributing to a loss of confidence in consumers and firms.  The headlines of a weakening jobs picture threaten to once again reverse the feedback loop between the labor market and consumer spending from one that had been becoming increasingly positive to one that is negative. With Europe slipping back into recession, growth in China, India and Brazil slowing and the US on the verge of a potential fiscal catastrophe of massive tax increases with a Washington establishment that many believe has proven it places politics over growth, it is hard to imagine the economic recovery remaining on track in the coming months. 

For commercial and residential real estate, with supply quiet, the timing and pace of demand is the key to improved fundamentals.  If the economic recovery is severely disrupted, the quiet supply pipeline will provide a downside buffer but demand would fall off and extend the downturn trough.