The Monday Morning Quarterback: A quick analysis of important economic data released over the past week
ELLIOTT D. POLLACK & Company
It was only an interesting week for economic news if you are a very dull person. The one item that has been troublesome, the increase in the inventories to sales ratio for business, was due to the weakness in 1st quarter sales from bad weather and the port slowdown. This remains an issue because if inventories to sales stay too high, there will be cutbacks in production as retailers and manufacturers work to par back inventories. Hopefully, this will not be a painful process and will occur slowly over the next few months in an orderly manner. If not, the slow recovery stays slow.
The consensus forecast has now taken on a “wait until next year” look as the consensus for 2015 fell for the 4th straight month. It’s now next year when real GDP picks up. Other than that, consumer confidence picked up, household net worth continued to grow, retails sales were good and mortgage rates breached 4% from the wrong side.
In Arizona, the effects of the sequestration and poor construction markets were reflected in a mediocre showing for the states real gross domestic product for 2014. Thus, it was another mixed bag last week.
Arizona Snapshot
Arizona real GDP grew by 1.4% in 2014. But, relative to other states, it was in the middle of the pack at 26th. A combination of defense cutbacks related to sequestration and continued weakness in construction let to this lackluster performance. As the sequestration effects work their way through the system and as construction starts to recover, the state should do better.
Operations at Sky Harbor International continued to increase. A combination of enplanements and deplanements were up 5.4% in April. This is a good sign for tourism.
Months’ supply of resale housing in Greater Phoenix stood at 3.0 in May compared to 3.9 a year ago.
U.S. Snapshot
The U.S. Blue Chip consensus forecast fell for the 4th straight month in June mainly due to the downward revision in the latest estimate of 1st quarter growth in real GDP. The weakness in the first part of the year was due to temporary factors and the economy is expected to snap back the rest of the year. Real GDP is expected to grow by 2.2% this year and 2.8% next.
Consumer sentiment is back near its best readings of the recovery posted earlier this year. The gain, from 90.7 in May to 94.6 in June, hints at another strong month for retail sales.
Americans’ combined wealth set a fresh record in the 1st quarter amid rising home values and stock price gains. Growing wealth, along with stronger job growth, should give more consumers the ability to boost spending.
Retail sales were up a strong 1.2% in May over April with gains in nearly all components. While autos were very strong, even without autos retail sales were up at a 12% annual rate. The gain follows weakness that occurred in April.
Inventories relative to sales in the wholesale sector lightened up very modestly to 1.29 in April from 1.30 in March. This compares to 1.19 a year ago. The manufacturing and trade inventories to sales ratio stood at 1.36 in April. This is the same as in March but up from 1.29 a year ago. Hopefully, it is the sales weakness in the first quarter that led to the inventory overhang. As the economy rebounds in the second quarter, hopefully, the ratio will come back into the normal range in a relatively painless manner.
30 year fixed rate mortgages averaged 4.04% for the week ending June 11. While this is up from 3.87% from the week before, it compares favorably to the 4.20% reported a year ago.
