The economy started off 2018 on a strong note, with employment gains surprising on the upside. Job growth has slowed in the past two years but remains solid. A tighter labor market may finally be translating into greater pay increases for workers—wages saw their largest increase since 2009 in January. Hiring was broad-based and robust in the construction, manufacturing, food services and health care sectors, with employment continuing to trend upward.
Gross Domestic Product grew at an annualized rate of 2.6% in Q4—slower than both the 3.2% registered in Q3 and the 3.0% consensus estimate. The weaker-than-expected growth reflected some drag from net exports and inventories, which somewhat offset the quarter's strong consumer spending. Government spending rose 3%, amid post-hurricane rebuilding efforts. For the year, GDP grew by 2.3% in 2017, up from 1.5% in 2016.
Since the Fed resumed its (so far, incremental) increases in December, long-term rates have remained stable, keeping cap rate increases limited. CRE fundamentals remain strong, so improved economic growth should lead to an extended cycle.