Pollack: Expansion likely to continue

EDP LogoELLIOTT D. POLLACK

& Company

FOR IMMEDIATE RELEASE
May 31st 2016
 
The Monday Morning Quarterback
A quick analysis of important economic data released over the past week
It’s been an interesting week.  The talk from the Fed suggests that a rate increase is a foregone conclusion.  It’s really more symbolic.  The increase from a target of 0.5% to 0.75% is not earth shattering.  It’s more an indication that the economy is strong enough to withstand this and some future increases.  That’s actually healthy.  It gives the Fed more flexibility to deal with a slowdown in the already slow economy when it inevitably does occur.
No expansion lasts forever and this one will be no exception.  And while this expansion has been the worst on record by many measures, it is now the fourth longest of the dozen or so post-war expansions. Expansions don’t die of old age. They die because of serious imbalances that occur in an economy. Too much debt, an external shock when things are slow and/or tight Fed policy are some reasons. As of now, none of these seem to be in play. Thus, the expansion is likely to continue.
As of now, it appears that when the next recession does occur, it will be mild. Another 2008-like recession does not appear to be in the cards. The irrational exuberance that generally precedes such an event does not seem to be there at the moment. The serious imbalances that existed in 2007-2010 are not there either. So, we will probably continue to move forward slowly. Again, this will allow the Fed to create some breathing room to act when the next recession does occur.  This is good news.
U.S. Snapshot:
  • Corporate net cash flows are up 0.6% from the 4th quarter but down 3.6% from a year ago as of the 1st quarter of 2016.
  • New orders for manufactured durable goods in April increased 3.4% from March levels and are now 1.9% above year ago levels.  Yet, non-defense goods excluding aircraft were down 0.8% for the month and 5.0% from a year ago.
  • The University of Michigan consumer sentiment index increased to 94.7, up from 89.0 in April and 90.7 a year ago.  May’s results were the best since June last year and among the strongest in this cycle.
  • Sales of new single-family homes were up strongly in April.  New home sales were up 16.6% from March and 23.8% from a year ago.  The median sales price was $321,100, up from $292,700 a year ago.  That’s a 9.7% increase.
  • The National Association of Realtors pending home sales index rose to 116.3 in April.  This is up 5.1% from March and 4.6% from a year ago.
Arizona Snapshot:
  • According to the Federal Housing Finance agency, national home prices reached record levels in March.  The home price index rose to 233.1.  This is up 6.1% from a year ago and compares to the 2007 peak of 226.6.  The FHFA index measures homes insured by government agencies.  This generally excludes higher priced homes.
  • The index for Arizona also increased.  It was up 7.4% to 264.1.  Yet, in Arizona, homes with government insured mortgages are still way down from the 2006 peak of 320.9.
  • In Greater Phoenix, the 1st quarter index was up 9.4% from a year earlier.  But, the index, at 288.0, was still well below the previous peak of 342.2. In Greater Tucson, the index was up 5.7% from a year ago to 234.0.  The previous peak in Tucson was 309.3.  Thus, according to this index, mainly lesser expensive homes, Greater Phoenix is still 15.8% below its’s previous peak while Tucson is still 24.3% below the 2006 record.
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