The Monday Morning Quarterback / A quick analysis of important economic data released over the past week
Elliott D. Pollack & Co.
It was a slow week for economic data. But, the data that were released, for the most part, told the same story we have been talking about for the last couple of years. The economy continues to expand. No major imbalances appear to be on the horizon. The rate of growth by historic standards is anemic. Construction, especially housing, is holding things back. Consumers are spending but, except for autos and student loans, they are not taking on much new debt. This is very healthy in the long run, but, reduces current spending from what it might otherwise have been. The government continues to create the wrong incentives at the wrong time. And 2015 should be the best year of this cycle so far.
The housing opportunity index (HOI), a measure of housing affordability discussed above, increased to 68.3% in the Greater Phoenix area in the third quarter. This is up from 66.4% in the second quarter. A historical chart on the Greater Phoenix HOI is shown below. This makes Phoenix one of the more affordable markets in the western U.S. The affordability index in Tucson was 75.9%. In Flagstaff, it is 53.1%. As mentioned above, this is the number of homes sold in the third quarter that are affordable to families earning the local median income.
Single-family home sales in Greater Phoenix were 3.4% lower in September than August and 6.8% lower than a year ago. New home sales were down 9.1% from a year ago.
In Greater Phoenix, the average single family home sold in September had a price per square foot of $127.54. This compares to $118.94 a year ago. This is a 7.2% gain.
The consensus forecast of inflation adjusted GDP growth on a year over year basis changes little. The estimate for 2014 is for 2.2% growth (due to weather induced slowdown in the first half followed by a catch up in the second half). For 2015, the estimate is for growth of 3.0%.
The University of Michigan consumer sentiment index for November was 89.4. This compares favorably to the 86.9 reported in October and 75.1 reported a year ago. This is a positive going into the holiday shopping season. Falling gas prices were a major factor boosting confidence.
U.S. retail sales in October were up despite downward headwinds from lower gas prices. Retail sales rebounded 0.3% after declining 0.3% in September. The gain exceeded expectations.
The inventories/sales ratio for manufacturing and trade remained constant at 1.30 in September. A year ago, the ratio was 1.28. This is a good sign.
Firming home prices in markets across the country contributed to a slight drop in nationwide housing affordability in the third quarter of 2014. Overall, 61.8% of new and existing homes sold between the beginning of July and the end of September were affordable to families earning the U.S. median income of $63,900. While this is down slightly from 62.6% in the second quarter, by historic standards, it is quite reasonable.