The Monday Morning Quarterback /A quick analysis of important economic data released over the past week
Elliott D. Pollack & Company
Arizona Snapshot
Arizona employment grew by 2.7% (67,600 jobs) over the year ending July. The private sector accounted for all of the gains. The sectors with the largest gains included professional and business services (18,600 jobs) and educational and health services (16,600 jobs). Greater Phoenix added 59,200 jobs over year ending in July. Greater Tucson lagged.
Arizona has recovered 79% of the jobs lost in the recession. Greater Phoenix has added 89% of the jobs lost. Greater Tucson has recovered only 32% of the jobs lost in the last recession.
Arizona now ranks 13th out of 50 states in 2015 year-to-date job growth vs. the same 2014 period. Greater Phoenix now is 13th out of 32 major employment markets in the U.S. over that same period.
According to the Behavior Research Center, Arizona consumers appear to be shedding some of their recent pessimism about the economy. The index for Arizona rose to 84.3 in July compared to 79.1 in both April and January of this year. Attitudes have improved about the economy more in Maricopa County than in Pima County. In the Phoenix area, the index rose to 93.9 from 86.3 in April. However, in the Tucson area, the index fell to 65.1 compared to 69.9 in April. Both employment and housing data confirm that Maricopa Country is doing better than Pima County in this recovery.
R.L. Brown reported a 55% jump in housing permits in July compared to a year ago. This indicates that the housing market in the Greater Phoenix area continues to recover even in a season when permits usually have a seasonal decline. Maricopa and Pinal Counties produced 1,592 new housing permits in July. That’s up from 1,024 permits a year ago. Year-to-date, 9,413 permits have been issued. That’s a 38.7% increase over the 6,788 permits issued during the first 7 months of last year. This is good news not only for homebuilders, but, for the economy as a whole. A boost from construction would significantly help job growth in the area. According to R.L.’s analysis, so far this recovery has been grouped primarily in the middle and upper end of the marketplace with few homebuilders servicing the lower middle and lower end of the new home market.
The Southern Arizona housing market has been far more problematic. The increase of 8% in July permits over last year is really only 14 additional permits. On a year-to-date basis, the market is still down 2.3% from last year. Year-to-date, Greater Tucson has permitted 1,283 new homes compared to 1,313 a year ago. The market has been less volatile over the last 5 months, though. That is considered a positive sign.
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The most important economic news this week came from China. And the stock market didn’t like it one bit. Despite intense selling, the major market averages bounced back substantially from the lows of the day within less than an hour of the opening bell. The volatile week in the stock market can be primarily attributed to the turmoil within China’s economy. Unfortunately, it is difficult to tell the extent that this uncertainty will impact the U.S. economy and the stock market.
On the heels of last week’s currency devaluation, this week China announced that its measure of industrial production (factory activity) fell to a 6½ year low. This indicates that the second largest economy in the world is having problems. It could also indicate that the world economy will be growing more slowly for the rest of 2015 and 2016 than previously forecast. But, this shouldn’t have a dramatic impact here.
In the U.S., it could slow growth modestly by 0.25% to 0.5% in terms of real GDP growth. But, considering that the economy is already in a subnormal mode, it will be more noticeable than it normally would be. Other data, reported before the China report, indicate that things are still moving in the right direction (for the most part) but that the recovery is now middle aged.
U.S. Snapshot
The latest consensus forecast indicates that 2016 will be within a stone’s throw of 2013 in terms of real GDP growth. 2015 is now forecast to grow a modest 2.3% in terms of real GDP. 2016 is expected to grow by 2.7%. But, the survey was taken before the new issues with China were announced. Real GDP in 2014 was 2.4%.
Swings in housing permits have been distorting recent leading indicators readings. July was no exception. July’s leading indicators were down 0.2% vs. a gain of 0.6% in the two prior months. It is far too early to be concerned about this.
Consumer prices now stand a modest 0.2% above a year ago and were up in July by only 0.1%. There seems to be little inflation pressure in the system at the present time.
Building permits slid sharply in July but reflect in part a plunge in the Northeast where a change in New York City real estate law pulled permits into June at the expense of July. Permits fell in July by 16% with the Northeast being down 60%. This indicator should normalize over the next couple of months.
