The Monday Morning Quarterback /A quick analysis of important economic data released over the last week
By Elliott D. Pollack & Co.
The most interesting twist to the economy this week came from a projection, not from real data. A projection from Goldman Sachs stated that a “doomsday” worst-case scenario would put oil prices next year at $20 per barrel. They also stated that the most probable price is $45 in 2016.
The reason given was oversupply and weakness in China. Such a scenario would hurt oil-exporting countries including Mexico and Canada, not just “bad guys”. It would cause the dollar to get stronger. This would make foreign goods cheaper here and American goods more expensive overseas. It would help contain inflation and interest rates in the U.S. But that would be short term until a bounce back to a more sustainable price level. It would also hurt the oil industry, including fracking and investment in capacity by main-stream producers. It would also cause a loss of jobs in that industry and the movement of more manufacturing jobs overseas. It would lower gas prices and be another bonus for consumers.
There is more, but, for our purposes, this is enough for now. Keep in mind that if the most likely price level is what plays out, most of the good and bad from the oil price decline is already on the table.
The economy continues to look good. As we have said before, while we are past the point where virtually all the news is good, at least most of the news is good. We believe that the current expansion has a long way to go.
Arizona Snapshot:
Total traffic at Sky Harbor airport was up 6.3% vs. a year ago in July. Enplanements were up 6.6% and deplanements were up 6.0% over a year ago.
Total listings in Greater Phoenix were 22,554 in August. That’s down 13.7% from a year ago. Months supply of homes on the market were 3.2, down from 4.1 a year ago but up from 2.9 in July.
Total homes sold in Greater Phoenix were 7,023 in August, up 9.2% from a year ago. Single-family homes sold were up 8.6%.
Total listings in Greater Tucson fell as well to 4,798 from 5,149 a year ago (-3.9%). Single-family listings were down 5.5%.
The median price of a single-family home sold in Tucson was $191,098, up 3.3% from July 2014.
U.S. Snapshot:
Initial weekly unemployment insurance claims are now at their lowest level since 1990. This suggests that labor markets are healthy and that the unemployment rate is likely to continue to decline. On the other hand, while the economy is adding jobs and unemployment claims are low, the labor force participation rate remains very low and there is no sign of upward pressure on wage rates at the moment.
The consensus continues to predict moderately above trend real GDP growth in the second half of 2015 and in 2016. Year over year, real GDP is expected to be up 2.5% this year and 2.7% next.
Boosted by another gain in revolving credit (mainly credit card use), consumer credit rose $19.1 billion (6.7% at an annual rate) in July. Revolving credit rose $4.3 billion (a 3.9% annual rate). Non-revolving credit, mainly auto loans and student debt, rose at a 7.0% annual rate. Lately, the consumer, for the first time in this cycle, seems to be willing to add to credit card debt, which is still over $100 billion below the 2008 peak. This could be a plus for the holiday season.
On the other hand, the University of Michigan consumer sentiment index declined from 91.9 in August to 85.7 in September. This is almost the same level as a year ago when the index stood at 84.6. The weakness centered on the expectations component.
For the week of September 7th, U.S. regular gas prices were down 2.7% from the previous week and 28.4% from a year ago and now stand at $2.53.
