Pollack: Knock off the paranoia


& Company

March 7th, 2016
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
The paranoia that was so prevalent just 3-4 weeks ago has given way to more realistic expectations.  The stock market has staged a significant comeback.  Employment numbers were strong.  Construction remains upbeat.  While manufacturing indicators are down, they are only slightly so.  Nonmanufacturing indicators are looking positive.  And auto sales remain strong.
Yes, there are problems.  For example, productivity growth, a proxy for increases in the standard of living, has slowed.  Yet, the overall picture suggests that the slow growth we have experienced in this cycle will continue.  While this is nothing to brag about, it sure beats what many people were saying just a few weeks ago.  Chicken Little has left the building.
U.S. Snapshot:
  • Total nonfarm payroll employment increased by 242,000 in February (see chart below).  Employment gains occurred in health care and social assistance, retail trade, food services and drinking places, and private educational services.  Job losses continued in mining.  Construction employment continued to trend up in February.  The unemployment rate remained unchanged at 4.9%.
  • Nonfarm business sector labor productivity declined at a 2.2% annual rate during the 4th quarter and now stands a modest 0.5% above a year ago.  Unit labor costs in the nonfarm business sector increased 3.3% in the 4th quarter and are now 2.1% above a year ago.  Despite the very slight decline in hourly compensation, if this trend continues, inflationary pressures on wages could manifest themselves.
  • The ISM manufacturing index increased in February to 49.5, up from 48.2 in January.  While any reading under 50 suggests that the manufacturing sector is declining, this is an improvement.  Also, the ISM non-manufacturing index was at 53.4 compared to 53.5 in January.  This suggests that the larger non-manufacturing sector is expanding.
  • New orders for manufactured goods in January, following two consecutive months of declines, increased 1.6%.  While total orders are down 1.9% from a year ago, durable goods orders are up 1.6% from a year ago.  Also, inventories continue to decline and the inventory/sales ratio in manufacturing also declined.  This is a positive.
  • Motor vehicle sales held steady in February at a 17.4 million unit pace.
  • Construction spending in January was up 1.5% from December and now stands a healthy 10.4% above a year ago.  Private residential construction was up 7.7% for the year.
Arizona Snapshot:
  • According to CBRE, the metro Phoenix office market continues to recover.  Vacancy rates as of the 4th quarter were down to 19.3% from 21.1% a year earlier.  Rental rates were up 6.5% from a year ago.  And for the year as a whole, in 2015 absorption about equaled change in inventory.
  • CBRE also saw positives in the retail market.  Here, rental rates were up about 6.4% in the 4th quarter of 2015 compared to a year earlier.  Vacancy rated declined from 9.6% to 9.1% over the year.  And absorption, while slow by historic standards, was 1,150,192 square feet for 2015 while change in inventory was a very modest 164,859 square feet.
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