The U.S. economy continued to expand during the third quarter, although at a markedly slower pace compared to the growth experienced in previous months. The COVID-19 pandemic is still a major force impacting employment, manufacturing production, retail sales, and consumer sentiment across the country, and another surge in cases is expected during the fall and winter months. According to the National Bureau of Economic Research, even after the pandemic recedes, its fiscal effects will continue, with higher debt burdens as a result of expansionary fiscal policies and the path of economic activity will take time to return to its pre-pandemic track. In addition, the uncertainty surrounding the U.S. election and a proposed second stimulus suggest that recovery could struggle to maintain momentum going into 2021.

September economic indicators were mostly positive, which should continue to slow the rate of contraction in the fourth quarter. After losing a record 20+ million jobs in April to set the U.S. unemployment rate to 14.7%, the highest level since the Great Depression of the 1930s according to the Bureau of Labor Statistics, the economy added another 661,000 jobs in September bringing the employment rate down to 7.9%. The number of unemployed persons has declined for five consecutive months, but remains well above pre-pandemic levels. Notable job gains occurred in leisure and hospitality (+318,000), retail trade (+142,000), education and health services (+108,000), professional and business services (+89,000) and manufacturing (+66,000). Other sectors directly impacting the industrial market showed positive momentum as well, as job gains were also seen in construction (+26,000) and wholesale trade (+19,000).

Consumer sentiment also rose month over month in September, yet at a slower pace than expected. According to the University of Michigan Consumer Sentiment Index, slowing employment growth, the resurgence in COVID-19 infections, and the absence of additional federal relief payments prompted consumers to become more concerned about the current economic conditions. Consumer sentiment measured 80.4 in September, up considerably from 74.1 in August. This marks the first time the index has risen above 80 since March.

As economies reopened in many parts of the country, Americans continued to curb their spending through August as personal income declined by 2.7%. Consumer spending increased by a mere 1%, with the leading contributors to the increase being spending for food services and accommodations, as well as healthcare. Overall retail sales were up 1.9% in September, much higher than original estimates suggested. Sales rose in every major category, except for electronic and appliance stores, which fell by 1.6%. The upcoming holiday shopping season will be a key for what kind of momentum the U.S. sees, as the calendar turns into 2021. Deloitte’s annual holiday retail forecast predicts that holiday sales are likely to increase 1% to 1.5% overall in 2020, good news for retailers in what has been a rather bleak year. Overall, Deloitte projects that holiday spending will result in sales between $1.147 trillion and $1.152 trillion during the November-January timeframe. Deloitte is also forecasting that e-commerce sales will grow by 25-35% over 2019, generating between $182 – $196 billion this holiday season. These retail figures should encourage demand for warehouse distribution space in the coming months, given the continued growth of e-commerce. According to the U.S. Department of Commerce, e-commerce accounted for a total of 16.1% of retail sales, up from 11.8% in the previous quarter, a record for online shopping.

Manufacturing production shines a bright light on the industrial sector, as the Institute for Supply Chain Management’s Production Manufacturing Index (PMI) registered 55.4 in September, down 0.6 percentage points from the August reading of 56.1. While down slightly, this figure indicates expansion in the overall economy for the fifth consecutive month after April’s contraction, which ended a period of 131 consecutive months of growth. A reading above 50 signifies growth, while a reading below 50 represents manufacturing production contraction.

Overall, these economic readings point to a gradual recovery in market fundamentals that impact industrial real estate. Continued growth in e-commerce should fuel the sector in the months to come and translate demand for industrial space into new leasing activity and continued robust construction, especially in core markets close to large population centers. Holiday shopping should see a surge in retail sales, as well as demand for industrial space as both traditional and big-box retailers increase their footprints to accommodate growth. This is also accounting for safety stock to avoid future supply chain disruptions.