Pollack: ‘Things could be a lot worse’


PollackThe Monday Morning Quarterback /A quick analysis of important economic data released over the last week

Elliott D. Pollack & Co.

The economy continues to roll along. Not at any Earth-shattering speed, mind you. But, it clearly continues to move at subpar speed in the right direction. Employment is up, unemployment is improving, and income is up more than inflation. For the first time in a long time consumers are borrowing and it’s not just for cars, homes and (ugh) student loans; they are borrowing more on credit cards. Given the strength in the dollar, trade is doing well. Manufacturing continues to expand. And even construction is up.

However, we are still experiencing the continued restructuring of consumer balance sheets, millennials continuing to extend adolescence, poor federal government tax and regulatory policy, poor demographics, declining but still high commercial vacancy rates and tight mortgage markets. These factors mandate that the recovery we have gotten all too familiar with is likely to continue to be the recovery we get.

That’s actually good news. Things could be a lot worse.

By the way, my editorial comment about student loans is because these loans are no more than a massive flow of federal dollars to universities. But, the universities don’t have to pay one cent back.   The real losers are many, but not all, students. They will be paying off student loans over the next decade or so instead of buying consumer goods or homes. Not a good tradeoff for any Russian Literature majors out there.

Arizona Snapshot:  

According to the Cromford Report, active listings in Greater Phoenix continue to decline. And while median sales prices were down from June in July, they were up 8.0% from a year ago.

According to Berkadia, vacancy rates in apartments in Greater Phoenix fell to 5.4% in the second quarter of 2015. This is down from 6.2% a year ago and 5.7% in the first quarter. In Tucson, vacancy rates in the second quarter were 7.7%. This compares to 8.2% a year ago and 8.0% in the first quarter.

U.S. Snapshot:

Initial claims for unemployment insurance are very low. At 270,000 for the week of August 1st, the number is down 9.1% from a year ago. The readings are at multi-year lows.

U.S. employers added jobs at a steady clip though the labor market is showing little sign of overheating. Nonfarm payrolls rose a seasonally adjusted 215,000 in July. Revisions added another 6,000 jobs to the May figure and 8,000 in June to the previous estimates. Little upward wage pressure has been seen. This will be a significant consideration when the Fed looks at raising rates later this year.

The unemployment rate, which is estimated from a separate survey, held steady at 5.3% in July.

The employment report showed that the number of full-time jobs as a share of total employment rose to 81.7%. This is the highest level since November 2008 (see chart below).

Personal income increased 0.4% in June and now stands 4.1% above a year ago. Disposable personal income rose by 0.5% last month and now stands 3.4% over a year ago.   This indicates that real purchasing power (purchasing power adjusted for inflation) continues to increase. The savings rate was 4.8% in June. That’s up from 4.6% in May.

Consumer credit is showing life. Consumer credit rose at a 7.3% annual rate in June and now stands 6.5% above a year ago. For one of the few times this cycle, revolving credit grew as much as non-revolving credit. Time will tell if this is an aberration.

According to the Institute for Supply Management, the manufacturing sector expanded in July for the 31st consecutive month and the overall economy grew for the 74th consecutive month. The non-manufacturing sector grew for the 66th consecutive month.

In a welcome sign of consumer strength, motor vehicle sales were stronger than expected. They were up 3.8% from June to 17.6 million units in July.


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August 2015