The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
By Elliott D. Pollack and Co.
Economic data continued to be mixed last week. First quarter GDP was weak as was one measure of consumer confidence. Consumer spending was lackluster as was business spending for plant and equipment. And the homeownership rate continued to decline as more people chose to rent rather than to buy.
How much was related to factors that were transitory remains to be seen. Our expectation is that most of the weakness was caused by temporary factors and that the second quarter will be a lot better.
The underlying issue, though, continues to be the weakness in the now six year old recovery. It is still mediocre at best. A combination of poor government policy, the lack of an accelerator on income (such as an increasing labor force participation rate), consumers that are continuing to play it close to the vest about non-auto debt (this is a good thing in the long term but hurts in the short term), and continued weakness in the homeownership rate continue to negatively affect the robustness of economic growth.
No end to this appears to be on the horizon. Thus, while the only issue that really bothers us at the moment is the level of recent inventory accumulation by business (we hope this is transitory), the economy can expect more fits and starts to the pattern of growth.
- The Arizona homeownership rate was 62.6 percent in the first quarter compared to 64.8 percent a year ago. In Greater Phoenix, it was 61.8 percent compared to 63.2 percent a year ago. In Greater Tucson, it was 62.2 percent vs. 66.3 percent a year ago.
- According to the Phoenix Apartment Update by Berkadia, vacancy rates tightened by 20 basis points in the 1st quarter to 5.7 percent. This is down from 6.2 percent a year ago. Colliers International agrees with that number. Colliers further states vacancy rates in the area ended 2014 at a 17-year low.
- CBRE stated that the office vacancy rate in Greater Phoenix was down to 20.6 percent in the 1st quarter of 2015 compared to 22.1 percent a year ago. While this is still high, things are moving in the right direction.
The U.S. economy slowed to a crawl in the first quarter as business slashed investment, exports declined and consumers showed signs of caution. This marks a return to the uneven growth that has been a hallmark of the nearly six year expansion.
- Real GDP expanded at a 0.2 percent seasonally adjusted annual rate in the first quarter compared to a 2.2 percet pace in the fourth quarter and 5 percent in the third quarter. Expectations were for a 1 percet rate of growth. The reasons for the slowdown include another bout of blizzards, disruptions at West Coast ports, the stronger dollar’s effect on exports, and the impact of cheaper oil. Most of these are transitory, so the second quarter should be much better.
- March consumer spending rebounded 0.4 percent (and was up 3 percent from a year ago). The data suggests that people remain somewhat cautious in their spending despite months of cheaper gasoline and rising confidence.
- The personal savings rate (personal savings as a percentage of disposable personal income) was 5.3 percent in March and 5.7 percent in February.
- The two major measures of consumer confidence went in different directions this month. The Conference Board index was down more than 6 points to a lower than expected 95.2. This compares to expectations of 103. The weakness was due to a falling assessment of the jobs market. On the other hand, the University of Michigan survey was up from 93 in March to 95.9 in April. This survey indicated more confidence in the jobs market. Time will tell.
- The early indications from April have mostly been weak, including the first hard consumer data on the month which are vehicle sales. Sales fell 4.1 percent to a 16.5 million unit annual rate. This is a solid rate but the comparisons with March points to a downtick for the motor vehicle component of the retail sales report.
- Economic activity in the manufacturing sector expanded in April for the 28th consecutive month and the overall economy grew for the 71st consecutive month according to the latest Manufacturing ISM Report on business. The index stood at 51.5 in April compared to 51.5 in March.
- The homeownership rate continued to decline in 2015, hitting its lowest level since 1989. The rate declined to 63.7 percent in the first quarter compared to 64.8 percent in the first quarter of 2014. The homeownership rate has fallen steadily since 2005, when it peaked at 69.2 percent. As people get out of the “penalty box”, our name for those who can’t buy a house because they are still in the lockout period from a foreclosure or short sale, the rate should improve.