The next several months will be tricky in terms of how to properly interpret the vast array of economic data that is available to both data geeks and the rest of the public (If you are reading this before noon, then yes, you are a redneck data geek.).
Politics and uncertainty are moderating the data to some degree. So, when the new data are reviewed, do we “benchmark” against the past rates of growth or do we compare to expectations of a slower upcoming season?
Think of it like the Arizona Cardinals and expectations for wins. Do we set our expectations based on their 4-0 start or the 0-3 past month? The answer is “a little from column A, and a little from column B.” Achieving moderate expectations will be much easier for us here in Arizona than for those across the country.
Initial claims for unemployment insurance are down 8.6% (4-week moving average) when compared to a year ago, but jumped 13.5% when just looking at the past week. The trend is the thing to look at in this case, but more weeks like the past are unwelcome.
The Leading Indicator Index also appeared to slightly improve, with 0.6% growth in September. U.S. Industrial Production and Capacity Utilization realized moderate increases in September of 0.4% and 0.3%, respectively.
The more interesting positive data mostly relates to the housing market. Across the country, single-family building permits are up 27.3% compared to last year and 6.7% compared to the past month. Both existing home sales and prices are up 11% compared to the prior year but are flat compared to the previous month.
A similar story is forming for the local market. Housing data are dominating the discussion. Single-family permits in the Greater Phoenix area are up 75.9% for the year as a whole (RL Brown), and housing prices have increased by more than 30% from the previous trough. This sounds impressive but it must be qualified.
First, the number of permits fell so far during the recession the subsequent rates of growth must be of this scale just to return to normal conditions by the middle of the decade. In other words, part of the story has to do with a simple math function.
Second, the price appreciation in housing is not solely based on population growth. Investor activity is still at play in the local market.
To summarize, there is some positive economic news across the nation, but not to the degree that a reader will remember this economic update past tomorrow. Housing data are dominating the discussion in Arizona and Greater Phoenix. But the impressive data point are not fully matching up with the underlying fundamentals related to long-term growth. Has a bubble formed? No. Could a bubble form if the current trends continue? Yes.