The first half of 2025 presents a natural moment to reflect and although the state of the economy is relatively clear, what happens in the following months remains murky. Current data has yet to capture the pass-throughs of recent tariffs into consumer prices, which we expect to materialize in the near term. Underscoring macro-economic health and the most noteworthy bifurcating theme of 2025 is the labor market. Second quarter growth was the lowest quarter since 2010, excluding the peak months of the pandemic, diverting significantly from unemployment-remaining low at 4.2%. Following a contracting first quarter, the second quarter GDP rebounded to an adjusted for inflation 3.0% annualized growth rate. More building blocks fell into place likely scoring the end of the deal making pause. Underpinned by rapidly accelerating leasing velocity and stabilizing capital markets.
Confidence levels plagued asset valuations leading to volatile price swings in the first quarter. Personal consumption constitutes nearly 70% of GDP emphasizing its significance in the forming of monetary policies and influencing the U.S. Federal Reserve's hesitancy to cut rates.
Market participants are cautiously re-engaging shown by the 2.5% second quarter sales year-over-year increase reported by the U.S. Census Bureau. Reversing the trend in the first quarter, pricing was mostly stable and a note worth acknowledging here, U.S. manufacturers reporting to have absorbed the increased costs rather than passing them to consumers. This divergence underscores a prevailing tension: macroeconomic fundamentals suggest enduring durability and apprehension amongst market participants. Capital markets progressed modestly while capital increasingly flooded defensive asset classes amplifying the valuation floor; an environment FRE is structurally designed to capitalize on.
Incongruent dynamics aptly portray real estate in 2025, evidenced by beginning the year with over 15 million square feet of space re-entering the market, and consequently, consumer confidence indices followed suit. Historically, this glut of supply would take years to absorb, but converging with the structural shifts stemming from diminishing new construction starts, overall availability is near historic lows and remains more than 25% lower than the prior 10-year average. Furthermore, the average time on market for available space has declined from the historical average of 9.8 months to just 7.3 months, and dozens of national retailers have put Wall Street on notice expecting thousands of future store openings. Such bifurcation is one of many indicators shaping capital strategies by developers and retailers alike, adding to FRE's view that now is the time to lean in.
As long as new retail development remains scarce and key structural and macroeconomic indicators remain broadly constructive, we anticipate the acceleration of the recovery phase through the end of the year.