The May unemployment rate hit an 18-year low of 3.8% that should indicate full employment

Wages rose a solid 2.7% from a year earlier and should drive growth in gross domestic product (GDP)

S&P 500 companies reported Q1 earnings growth of 24.5%, the strongest gain in more than eight years

Jobless claims adjusted for population growth are at their lowest levels since 1948

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With a boost from tax reform, we expect the Goldilocks economy to power through any uncertainty associated with midterm elections in the fall. The May unemployment rate hit an 18-year low of 3.8% that should indicate full employment, yet job gains accelerated to 223,000 from 164,000 the previous month. Wages rose a solid 2.7% from a year earlier and should drive growth in gross domestic product (GDP) later this year.

S&P 500 companies reported Q1 earnings growth of 24.5%, the strongest gain in more than eight years. Bank profits soared 27.5% in the first quarter from a year ago, the Federal Deposit Insurance Corp. reported, attributing approximately half of the increase to lower tax rates. Jobless claims adjusted for population growth are at their lowest levels since 1948 when measurements started, and household formation remains healthy, driving robust consumer and business sentiment.

Unnerving signs of political volatility, capital market bubbles and excess include an Italian political crisis that sparked a global equity selloff and raised concerns over the future of the European Union (EU). U.S. tariffs on steel and aluminum spurred a swift World Trade Organization challenge by the EU and promises of retaliatory measures from Canada and Mexico.

In commercial real estate, a lagging construction pipeline has kept supply largely in balance with user demand, pushing occupancy and rental rates upward, according to Transwestern data. Property cash flows have slowed but are still growing. Lender and investor caution provide some buffers against overheating, and borrowing rates remain attractive on a historical basis.


1 The U.S. Congress raised the threshold of systemically important financial institutions (SIFI), which are subject to Volker Rule capital requirements, to $100B from the previous $50B, providing relief to qualifying community banks. It will rise further to $250B in 18 months.
2 U.S. manufacturing activity accelerated in May, the Institute for Supply Management found. The gain exceeded economists’ expectations and suggests an economic rebound in the second quarter.
3 The California Assembly is considering increasing the state’s corporate tax rate from 8.84% to 18.84% and adopting a single-payer health plan, “MediCal.”
4 Moody’s cut Tesla’s overall ratings to B3 from B2 and trimmed the carmaker’s senior notes to Caa1 from B3, citing a production shortfall, negative cash flow and $1.2B in debt maturing through 2019.
5 The New York Federal Reserve published the initial SOFR (Secured Overnight Financing Rate), designed to replace LIBOR as a lending benchmark.
6 Global worries accelerated investors’ flight to the safety of U.S. Treasury bonds and drove down the 10-year yield to 2.78%, further flattening a yield curve in which shorter-term bond rates have been climbing.

7 Argentina has appealed to the International Monetary Fund (IMF) to avert a financial crisis just one year after the nation issued 100-year bonds.
8 Global debt is a record $237T, growing by $21T in 2017, according to the Institute of International Finance Global Debt Monitor.
9 The Urban Land Institute forecasts slower rent growth in all commercial property sectors through 2020. It expects vacancy rates to climb for retail and apartments beginning in 2018, office and industrial vacancy to edge upward beginning in 2019.
10 Covenant-lite loans, which offer less protection for lenders and investors than traditionally structured credits, account for a record 75% of $970B in outstanding U.S. leveraged loans, according to S&P Leveraged Commentary & Data.
11 Hundreds of cryptocurrencies show signs of fraud, The Wall Street Journal reported.
12 The trucking industry must hire nearly 90,000 drivers annually, or almost 900,000 in total through 2027, to ease the current shortage, American Trucking Associations estimates.
13 is testing a delivery service for businesses, planning to compete directly with UPS and FedEx.
14 Lumber costs are up 67% from a year ago, driven by wildfires, limited rail capacity and a trade dispute with Canada.
15 Oaktree Capital Management launched Oaktree Real Estate Income Trust Inc., a $3B non-traded REIT.
16 Blackstone prepares for a rising-interest-rate (and therefore, rising-cap-rate) environment by focusing on sectors with higher earnings growth: logistics and biosciences. Its total real estate assets under management (AUM) rose 17% YOY to $119.6B in the first quarter; its total AUM was up 22% to a record $449.6B.
17 Profitless companies flood the IPO market, including Dropbox, Spotify, MongoDB, Roku, Blue Apron, Snap, Okta and Cloudera.
18 To maintain sales per square foot, UBS estimates that 9,000 stores must close for each 100-basis-point increase in e-commerce penetration into U.S. retail sales beyond the current 16%. If e-commerce captures 25% of sales by 2025, closures could exceed 30,000 stores.
19 Southeastern Grocers, parent of Bi-Lo and Winn-Dixie, plans to close 94 stores and entered a bankruptcy restructuring agreement with its creditors, keeping 582 stores open. Sears Holdings Corp. plans another 63 closings of unprofitable stores.
20 One-third of Americans ages 25-29 still lived with parents or grandparents in 2016 vs. 18% in 1990, Pew Research Center found.
Tom McNearney

the BRIEFING is an aggregation by Tom McNearney, Transwestern Chief Investment Officer, of other articles and reports. Tom leads Transwestern’s capital market efforts for development and investment nationwide. Tom also serves on the firm’s investment committee and board of directors, and he directs the execution and expansion of the firm’s principal investment activities across the country.


JUNE 2018

Copyright © 2018 TRANSWESTERN. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.
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