Manulife US REIT - Annual Report 2021

ANNUAL REPORT 2021 49 • GDP is now 1.4% above pre-pandemic levels, while the labour market added a record 6.4 million jobs in 2021. • Inflationand labour shortages remain theprimary challenges to additional economic recovery. • Forecast growth has been slightly downgraded due to Omicron, but is still likely to exceed 3.5% in 2022. The Delta and Omicron variants added further uncertainty to the economic recovery nearly two years after the onset of COVID-19. Nevertheless, indicators continued to trend in the right direction in the second half of 2021, aided by widespread vaccination and faster-than-expected drops in unemployment and record consumer demand and business investment. The U.S. is one of only two major economies to have surpassed its pre-pandemic peak in terms of GDP along with China, doing so in Q2 2021. Q3 GDP further improved on this performance, with a 2.3% rise fuelled by record levels of consumer spending – notably nine consecutive months of more than US$600 billion in retail sales – and business investment. As a result, real GDP now stands US$276.6 billion above its Q4 2019 peak, an increase of 1.4%. Over the course of 2021, total non-farm employment rose by more than 6.4 million jobs, bringing unemployment down from 6.7% one year ago to 3.9% at the end of 2021. Similarly, unemployment claims are at the lowest recorded rate in decades, routinely hovering between 190,000 and 230,000 per week. Gains have been strongest in trade and transportation as well as financial activities, which have recovered all lost jobs. At the same time, the labor market has become exceedingly tight. Shortages of workers across industries, particularly leisure and hospitality, are pushing wages up at unprecedented speed, while the labor force is not expanding fast enough to keep up with demand. Office-using job openings are up more than 30% since the start of 2021, posing challenges for employers in every sector and metro area. Inflation remains a critical issue facing consumers and businesses alike. Although slowing in December on a monthly basis, the CPI has risen at an annual rate of 7% as of year-end, the highest level since the early 1990s. Supply chain disruptions, accelerating compensation and consumer expectations have kept prices on the rise for longer than previously anticipated. Inflation may also present some challenges for owners as most tenants have escalations locked in between 1.5% and 3% annually, below the current rate of inflation, even as the CPI moderates in 2022. Despite these challenges, the U.S. economy has not seen this level of growth in decades. Once the Omicron wave subsides, pent-up tenant demand fuelled by this level of economic expansion is likely to finally be realised. Consumer spending is above US$600 billion for nine months Labor demand is insatiable, with job openings at 10 million 2010 Real GDP ($ trilllions) Y-o-Y change (%) $20 15% 10% 5% 0% -5% -10% -15% $18 $16 $14 $12 2014 2012 2016 2011 2015 2013 2017 2018 2019 2020 2021 Real GDP Year-over-year (Y-o-Y) change Real GDP has now fully recovered Employment is 97.7% of the way to pre-pandemic levels 5% 0% -5% -10% -15% -20% Employment shrtfall (%) -2.3% Feb 2020 Apr 2020 Jun 2020 Aug 2020 Oct 2020 Dec 2020 Feb 2021 Apr 2021 Jun 2021 Aug 2021 Oct 2021 Dec 2021 Job openings (thousands) 2012 2014 2016 2018 2020 2013 2015 2017 2019 2021 12,000 9,000 4,000 10,000 6,000 2,000 $700 $600 $500 $400 $550 $450 $350 $300 $650 Monthly retail sales ($ billions) 2020 2021 U.S. Economy Overview