The Monday Morning Quarterback / A quick analysis of important economic data released over the last week
Elliot D. Pollack & Co.
According to the National Bureau of Economic Research (NBER) the current economic expansion is five years old this month. Under more normal business cycle conditions the economy would be pushing the pedal on growth around this time. Also, the economic data would typically be following more consistent patterns. Unfortunately, this cycle is different and we are still left with interpreting confusing data to determine if we should be optimistic, melancholy, or more deeply depressed.
Real GDP is one of the best examples of a proper adjustment painting a different story than blindly looking at the raw numbers. We all know that the first quarter of this year was in decline and that most economists are projecting a significant pick-up in Q2 (some activity in Q1 was pushed to Q2). If this happens we may then have a weak Q3 followed by a strong Q4. If this was a person we would call them mentally unstable. But, a proper analysis of the information identifies an underlying growth rate of between 2.0% and 2.5% is developing for this year. Economists will continue to be unstable into the foreseeable future though.
The same is true when looking at employment data. Some have argued that population growth demands new job creation across the country far in excess of what has been created of late. However, those old rules need to be adjusted for things such as Baby Boomer retirement and a dozen other things going on with employment growth. Many normally reliable data points are going through this same thing.
So what does one do? When looking at all this information, first see if the raw data makes sense. If it does not, check if something needs to be adjusted then see if that data makes sense. If there still is no consistent story, see if somebody messed up collecting the information (this happens more than one would think). If none of the above apply and the economic story remains inconsistent, then continue to be pessimistic, or at least cautious. Fortunately, there is a consistent story here.
Arizona Snapshot
Arizona total claims for unemployment insurance continue to decline and are 37.7% below a year ago.
According to the Arizona Regional Multiple Listing Service (ARMLS), Greater Phoenix single family listings were up 52.9% over a year ago in May. Sales were down 22.6% while median housing prices were up 11.2% over a year ago.
Tucson single family listings on the Tucson Association of Realtors Multiple Listing Service were up 45.9% over a year ago. Although the median housing price was up 7.1% over a year ago in May, sales were down 15.7%.
U.S. Snapshot
The Blue Chip economic forecast for this year suggests that real GDP growth will end up at 2.2% in 2014, downwardly revised from 2.4% a month ago. As for 2015, the Blue Chip consensus forecast for real GDP growth inched up one-tenth of a percentage point this month to 3.1% (see chart below).
Preliminary data from the University of Michigan consumer sentiment index showed a dip in June, at a lower-than-expected 81.2. The little weakness in the report was in the future expectations component which was down 1.5 points. The current conditions component was up 1.0 point.
The manufacturing and trade inventories/sales ratio stood at a lean 1.29 in April. This is the same level as March but down from 1.30 a year ago. This indicates that inventories are in line with sales and that manufacturers are not likely to cut back on production. Components were led by wholesalers who have been building up inventories coming out of the heavy winter.
In May, retail sales increased by a disappointing 0.3% over the month, expectations were for a 0.6% gain. However, April was revised significantly upward to 0.5% from a previous 0.1% gain. Upward revisions and strong motor vehicle sales still point to a healthy second quarter GDP.
