Marc Abear: Chances are the economy is entering some rough sledding

To The Daily Sun,

The economy is slowing. The banking system faces serious problems with commercial real estate. The Federal Reserve has a high interest rate policy in place. It has stemmed the rising inflation. That’s the rear view mirror. What’s coming?

There is a loosening in the labor market. Job openings are down. The pace of employment gains is slowing. The unemployment rate is rising. The pace of employment gains has slowed.

There is a slump in manufacturing. There’s a drop in housing investment. The U.S. consumer appears to be tapped out. Stimulus checks are long gone. We are struggling with high interest rates and being careful with our spending.

The chances are the economy is entering some rough sledding. The smart money is on another round of the regional bank closures. There’s slow motion train wreck underway in commercial real estate.

Commercial property prices are plunging. Vacancy rates keep rising. Large numbers of workers are working, at least part time, from home. The lower prices plus high interest rates are making it difficult for property developers to stay keep current on their loans. Commercial property loan defaults are already rising.

There’s about $1 trillion in commercial property loans due in the next year. Expect a wave of defaults among the regional banks, which hold them on their balance sheets. They are not in a position to absorb property loan defaults as they are already dealing with mark-to-market losses on their loan and bond portfolios.

As the economy slows, banking strains appear to be building. Banking pressure will resolve next year. Will inflation moderation resuscitate consumer spending enough to mitigate the financial strain?

Marc Abear

Meredith