The Monday Morning Quarterback /A quick analysis of important economic data released over the past week
By Elliott D. Pollack & Co.
Good economic news continues to be the order of the day, which is normal for this point in the business cycle. As we have said in the past, with the exception of construction, the economy is running on at least 6 of its 8 cylinders. Consumers’ pocket books have been aided by the decline in oil prices although consumers have yet to spend much of the benefit. Employment is surprisingly strong. And even though the Fed is starting to consider rate hikes, the increases will be coming from such low levels and are so far below normal given the rate of inflation, they are not likely to derail the expansion. This part of the business cycle won’t last forever. But, it is certainly worth enjoying and is more likely than not to last a while.
Arizona Snapshot:
- Total air traffic at Sky Harbor International Airport was up 4.4% in 2014 compared to a 0.3% decline in 2013. This bodes well for tourism.
- Total retail sales in the state grew by 5.4% in November 2014. The strongest categories were motor vehicle dealers (up 11%) and miscellaneous retail (up 10.6%).
- According to the National Association of Realtors, Greater Phoenix median housing prices were 3.9% over the year in 2014, but, prices remained flat in the 4th quarter. In Greater Tucson, prices were up 2.4% for the year, but, were down 1.1% in the 4th quarter.
U.S. Snapshot:
- The Blue Chip consensus forecast of year over year inflation adjusted GDP growth is expected to be 3.2% in 2015 and 2.9% in 2016. That would make 2015 the strongest year in this cycle (well above the 2.5% in 2010) and 2016 the second strongest. They would be the only years so far in this cycle to match or come close to matching the 20 year average for real GDP growth during an expansion.
- Initial claims for unemployment insurance are actually lower than the previous cycle’s bottom in 2006 and are close to levels not seen since 2000 (see chart below). This is a good sign and suggests that the unemployment rate is likely to continue to decline. Indeed, last month, the rise in the unemployment rate was due to people reentering the labor force at a rapid rate. This is actually a good sign.
- Consumer sentiment, as measured by the University of Michigan’s consumer sentiment index, remains very strong. Yet, it did move down after spiking in January (93.6 in February compared to 98.1 in January). The January reading was the strongest in 11 years. The February reading is still very solid, matching December’s reading as the second strongest of the last 8 years.
- Lower gas prices continue to tug down on retail sales. And consumers are not yet putting higher discretionary income into spending on non-gasoline categories of retail sales even as confidence improved. Retail sales in January fell 0.8% after declining an unrevised 0.9% in December. Retail sales are up 3.3% over a year ago.
- A mismatch between inventories and sales is appearing in what could be a negative for production and employment. Business inventories rose only 0.1% in December but business sales fell 0.9% for a 3rd straight decline. The inventory to sales ratio now stands at 1.33, its highest level since July 2009. This will warrant watching.
- The majority of national metro areas experienced steady but slightly stronger price growth in the 4th quarter of 2014 behind a decline in housing supply and an uptick in demand fueled by lower interest rates and a strong job market according to the National Association of Realtors. The median existing single family home price increased in 86% of measured markets. Median prices for the U.S. as a whole were up 6.0% from a year ago.
