• Inflation Squeezes Back-to-School Spending, Outlook Lowered for Global Real Estate Returns, Jobless

    Inflation Squeezes Back-to-School Spending

    More than half of parents plan to cut their back-to-school spending budgets in the face of inflation that's at a 40-year high, a survey by brokerage JLL found.

    The National Retail Federation trade group projected this month that this year’s total U.S. back-to-school spending would match 2021’s record high of $37 billion. How things actually play out at retail stores will depend on the exent of inflation's effect on any given household. Annual inflation hit 9.1% in June, with consumers still devoting outsized chunks of their budgets to food, gasoline and other necessities.

    “We discovered some key differences in the way higher-income and lower-income parents shop, as well as differences across generational cohorts,” Chicago-based JLL said in a July 21 report on its mid-June online survey of 1,001 parents of school-age children.

    The brokerage said parents with an annual income below $50,000 are more likely to spend considerably less than they did a year ago, limit shopping to one retailer, buy fewer goods and shop at dollar stores. Those earning more than $150,000 are more likely to spend well above the predicted average shopper outlay of $339, shop early, shop at four or more retailers, visit an enclosed mall and shop for electronics and home office furniture.

    Consumers including baby boomers and Generation X, two groups whose members were born between 1946 and 1980 who have school-age children, are more likely to look for sales and coupons. Generation Z shoppers, born between 1997 and 2012, are more likely to buy used products, the JLL survey found.

    Among all respondents, the top three expected benefactors of back-to-school spending in 2022 remain as they have for the past several years in JLL’s tracking. Nearly two-thirds of parents, 63.5%, plan to shop at Walmart, with 53.3% going to Target and 50% shopping on Amazon. The next nearest competitor is Old Navy at 7.5%.

    Outlook Trimmed for Global Real Estate Returns

    Pandemic-related supply chain disruptions, inflation and rising interest rates have spurred a prominent research firm to downgrade prior forecasts for global real estate returns for the next two years.

    U.K.-based Oxford Economics now expects annual returns for all types of commercial properties to average 5.6% by the end of 2024, down from its January forecast of 7.1% for the same time, according to a report released July 22. “Office and retail returns have seen the largest downgrades, as hybrid working and a squeeze on real disposable incomes drag each sector respectively,” the report found.

    While capital appreciation rates are expected to decline or turn negative in some instances, some property investments will remain relatively attractive. Researchers said those include real estate investment trusts and similar funds weighted toward countries with the strongest prospects for gross domestic product growth, expected to deliver returns topping 5% over the next five years.

    That would top projected returns of 2.5% for bonds and 3.3% for the wider equities market in the same span, according to the Oxford Economics forecast. Despite slowing global growth, real estate still looks attractive compared with other asset types, it found.

    “In the near term, as investors grapple with market volatility and the rising cost of capital, transaction activity will likely be muted, as the gulf between bid-ask spreads remains wide,” the report said. It noted a “modest to moderate” global repricing of real estate will be necessary over the near term.

    Jobless Claims Rise

    Initial claims for unemployment insurance totaled 251,000 for the week ended July 16, up 7,000 from the prior week, the Labor Department reported. That marks a new high for 2022, though claims remain historically low in an environment where the unemployment rate has remained at 3.6% for the past four months.

    The total number for continued claims in all programs, reported on a more delayed basis, was approximately 1.4 million for the week ended July 2, down 47,842 from the previous week and considerably lower than the approximately 12.6 million claims in the comparable week of 2021.

    The latest uptick in claims comes as unemployment rates for individual states also remain historically low, with June rates holding steady with May’s numbers in most states. All 50 states and the District of Columbia had June jobless rates that were down from June 2021.

    Labor Department figures reported July 22 showed June unemployment rates ranging from 1.8% in Minnesota to 4.7% in Nevada, with the District of Columbia posting the highest number at 5.5%.

    Source: www.CoStar.com