At the beginning of 2012 the economy came out of hibernation with declines in unemployment and increases in stock indices. Opinions on the turmoil in Europe induced high market volatility, with fear dominating the financial landscape from the start. During the second quarter of 2012 job growth slowed and investment focus, while maneuvering around mixed short term news, delayed large growth activity. Unemployment in the United States stands at 8.2%, a level down from the highs nearing 10% during 2011. However, unemployment rates will need to trend down four percentage points to return to pre-crisis levels, and the small movements today still must offset the loss in workers that were previously searching for employment. Arizona found middle ground with the US and had the same rate of 8.2% as of May 2012. Again, levels in 2005 were approximately 4.5% so this unemployment rate must decline to reach former levels.

The Federal Open Market Committee’s meeting in June touched on the overall health of our economy, stating that the unemployment rate will decline only slowly toward targeted levels. The Committee expects to maintain a highly accommodative monetary stance, keeping interest rates at near zero levels through 2014, while also continuing operation twists throughout the duration of 2012. The operation is a simulative measure aimed at replacing shorter term assets on the balance sheet with longer term assets. Such measures should induce heightened lending activity; however expanding the monetary base at such levels will have uncertain long term consequences.

For several quarters the housing market has been a case of no growth for the US economic revival. Recent changes have suggested the market may be making positive advances. According the Case Schiller Index the US has recognized three consecutive months of home price increases. Data from Case Schillers indicates that nationally, home prices increased by 1.3 %. In Phoenix average home values were $109, 010 up from $100,540, and the highest year-on-year basis change of 8.6 % out of any of the twenty Metropolitan Statistical areas.

Although mortgage lending is still quite anemic, business bank loans and consumer credit have persistently increased in recent months. Overall, inflation-adjusted bank lending has increased at a healthy 3.2 percent pace in the last year, according to Wells Capital Management. While such temporary and recent news is positive, there is a vast amount of mortgage debt that must be restructured, renegotiated, and cycled through the lending process to appease market forces. Only time will tell.

While job growth slowed nationally this quarter, other indicators suggest that the economic recovery is underway. According to the Federal Reserve, the U.S. household financial obligations ratio, which illustrates the portion of real disposable personal incomes required to meet regular and unavoidable household obligations, recorded figures in 2007 above 18.5%. Those levels are currently around 16%, the lowest “financial burden” figure in 30 years. Further indicators show strength as well. Manufacturing, as measured by the Purchasing Managers Index (PMI), in May 2012 was 53.5 which is a reading of growth, albeit slowing. This reading indicates that economic activity expanded for the 34th consecutive month in the manufacturing industry.

Although first quarter real GDP growth was only 1.9 %, forecasts expect real growth to accelerate to about 3% during the remainder of the year. These levels do remain several levels below historical norms. Two measures of extreme importance for continued economic recovery are the U.S.’s level of exports and consumer confidence. Exports have increased on a year-on-year basis from approximately $525 billion to just under $545 billion according to figures from the US Department of Commerce. Unfortunately, these levels will have little or no consequence on America’s number one problem, our deficit, which increased from approximately 9 trillion in 2007 to nearly 16 trillion this year. As such confidence among U.S. consumers dropped in June for a fourth consecutive month as rising concern over jobs, incomes, and a murky fiscal situation darkened the outlook. The Conference Board Consumer Confidence Index, which declined in May, fell even further in June. The Index now stands at 62.0, down from 64.4 in May.

The economic recovery is strengthening and components such as bank lending and housing prices, which have previously been ineffective, are taking shape. In the coming months, there are significant factors that will shape American policy as well as initiatives abroad that will have momentous impact on the financial storm spreading throughout European countries. It is worth noting that since last fall, European Central Banking officials have twice lowered interest rates and have immensely expanded their balance sheet. Accommodative measures such as these are necessary to end such contagion. In the United States, legislation focusing on taxing structures and health care policy plague the politics of our country. Until conclusive deals are negotiated, the average investor will seek low-risk opportunities.

According to NAI Global Chief Economist Dr. Peter Linneman:

While many economic indicators are important in measuring the arc of the U.S. economic recovery, the single most important indicator of real estate investors is the proportion of jobs lost during the recession that has been recovered to date. This is because at the beginning of the recession, almost all property sectors were in balance. As the recession set in, we lost 8.8 million jobs; only as these jobs are recovered will real estate space demand approach 2008 levels.