Pollack: It’s subpar, but it’s economic growth

Screen Shot 2014-08-18 at 12.15.59 PMThe Monday Morning Quarterback/A quick analysis of important economic data released over the past week

Economic news continues to be good.  With the effects of sequestration now about fully integrated into the data, the economy should grow slightly more rapidly.  Yet, the underlying reasons for the mediocre performance are still present and continued subpar growth is likely to continue.  However, there are no signs on the horizon that the recovery will end at any time soon.  That, in and of itself, is good news.

Arizona Snapshot  

According to CBRE, the Greater Phoenix office market ended Q2 2014 with a vacancy rate of 22.0%.  This is only slightly lower than Q1 and 190 basis points down from a year ago.  At this rate of decline, significant new spec construction is still at least 3 years away.  Absorption for the first half of the year was about 635,000 sq. ft. and total inventory was down slightly.

The overall retail vacancy rate in Greater Phoenix declined to 9.8% in Q2 2014.  This is down from 10.0% in Q1 2014 and 10.9% a year earlier.  Absorption was over 750,000 sq. ft. while inventory declined by 146,000 sq. ft. in the first half of the year.

The housing opportunity index in Greater Phoenix was 66.4% in the second quarter.  This compares to 76.2% a year ago. A combination of higher interest rates and higher housing prices caused affordability to decline somewhat.

The state’s seasonally adjusted unemployment rate increased 1/10 of 1% from 6.9% in June to 7.0% in July.  For comparison, the U.S. seasonally adjusted unemployment rate also increased 1/10 of 1% to 6.2% in July. In July of last year, the Arizona rate was 8.1% and the national rate was 7.3%.  The Greater Phoenix unemployment rate in July was 6.3% and Greater Tucson was 6.6%.

Over the past 12 months, Arizona added 59,400 nonfarm jobs for a 2.4% growth rate. This is the largest year over year gain of 2014.  The private sector added 56,400 jobs (2.7%). This marks the 36th month of year over year private sector growth at or above 2.0%. Greater Phoenix added 47,400 jobs (2.7%) on a year over year basis.  On a year to date basis, jobs are up 2.2%.  This indicates an acceleration of job growth in Greater Phoenix.  Greater Tucson added 8,800 jobs year over year for a 2.5% gain.  Tucson is now up 1.2% on a year to date basis.

U.S. Snapshot

The Blue Chip consensus forecast of U.S. economic growth in 2014 rebounded over the past month on a stronger than expected performance in the second quarter.  The consensus forecast is now for year over year growth of 2.1% in 2014 and 3.0% in 2015.  If this comes to fruition, it would make 2015 the strongest year in terms of real GDP growth since 2005.   That’s good news after five years of a subpar recovery.

Industrial production increased at a robust 0.4% in July. Industrial production in July was 5.0% above year earlier levels. Expectations were for a 0.3% boost in July. Within manufacturing, the production of durable goods increased 1.7% in July and was 8.2% higher than its year earlier level.

In July, the overall capacity utilization rate firmed to 79.2% from 79.1% in June.  It now stands 2.2% above year earlier levels and is now near levels where increases in plant spending may be called for.

The University of Michigan consumer sentiment index for August was at 79.2.  While this is a decline of 3.2% from last month and a 3.5% decline from a year ago, it masks a rise in current conditions.

Retail sales disappointed for the second month in a row.  Retail sales were flat in July following a 0.2% gain the month before.  Motor vehicles slipped 0.2% following a decrease of 0.3% in June.  Excluding motor vehicles, sales edged up 0.1% in July.

The manufacturing and trade inventories/sales ratio remained flat in June at 1.29.  This is about the same at the 1.28 ratio of a year ago.

Nationwide housing affordability dipped in the second quarter of 2014 as several markets saw a firming of home prices.  In all, 62.6% of new and existing homes sold between the beginning pf April and the end of June were affordable to families earning the U.S. median income of $63,900.  This is down from 65.5% in the first quarter and 69.3% a year ago.

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