Pollack: Be happy with the economy we have today
The Monday Morning Quarterback /A quick analysis of important economic data released over the past week
Elliott D. Pollack & Co.
This is as good as it’s going to get in this cycle. The news is good, though anemic by historic standards. Given the demographics, tax policy and weak housing and construction markets, the recovery should be considered OK. Look for more of the same over the next few months.
Arizona Snapshot
The home ownership rate in Arizona and Greater Phoenix continues to decline. In the second quarter, the rates were 64.2% and 61.4% for the state and Greater Phoenix respectively.
The rental vacancy rate in Greater Phoenix was 8.0% in the second quarter according to the Census Bureau. This is down from 8.6% a year ago.
Lodging occupancy rates continued to show improvement in the second quarter. For the state, occupancy rates were 62.1%, up from 59.2% a year ago. For Greater Phoenix, occupancy rates were 61.7%, up from 58.6% a year ago. The improvements were due to a surge in demand of over 5%.
U.S. Snapshot
Second quarter GDP rebounded more than expected from the adverse weather that impacted the first quarter. While there were a number of strong components, the rebound was led by inventory growth. But, consumer spending, which makes up more than 2/3 of the economy, increased at twice the rate of the first quarter. Business investment in equipment surged. And housing construction rose. For the rest of the year, real GDP growth of 2.5%-3.0% should be expected.
Hiring by U.S. employers remained robust in July, if a bit slower than previous months, with a broad-based rise in payrolls. Nonfarm employment rose by a seasonally adjusted 209,000 last month. While this was slightly below expectations, it was still positive news.
The unemployment rate, obtained via a separate survey of households than the employment survey, ticked up to a seasonally adjusted 6.2% in July from 6.1% in June. The rise in part reflects an increase in the number of people looking for jobs, some of whom are now being counted as unemployed.
Initial unemployment insurance weekly claims were mixed but as can be seen by the chart below, the 4 week moving average is now down to levels not seen since early 2006. This is quite healthy. The labor force participation rate, partly due to demographics, partly due to incentives created by the welfare system and partly due to the economic environment, remains at levels not seen since the late 1970’s.
Corporate profits fell in the first quarter but are still high by historic standards.
Consumer confidence continued to rise in July and now stands at 90.9. It is at its best level of the recovery. As can be seen by this chart, confidence is finally back to levels usually reached about 3 years in to a recovery. This cycle is approaching its 5th year. It is still good news.
Personal income, disposable personal income and personal consumption expenditures were all up 0.4% in June over May. The savings rate remains flat at 5.3%.
Economic activity in the manufacturing sector expanded in July of the 14th consecutive month, and the overall economy grew for the 62nd consecutive month according to the ISM manufacturing index. The index is now at 57.1. Any reading of 50 or above indicates expansion.
The S&P/Case-Shiller home price index shows that home price appreciation is slowing rapidly. On a year over year basis, home price appreciation is at 9.3%. But, this is down substantially from 10.8% and 12.4% in the two prior months. Indeed, on a month to month basis, 14 of the 20 cities in the index were in the negative column last month.
