Pollack: Turtle/Tortoise-like economic recovery for state, nation: slow vs. slower

PollackELLIOTT D. POLLACK & Company 

The Monday Morning Quarterback
A quick analysis of important economic data released over the past week
As expected, first quarter real GDP performance was mediocre.  The 0.5% increase was way below 4th quarter results and reflects declines in nonresidential fixed investment, private inventory investment and exports. As we have discussed before, the inventories to sales ratio in manufacturing was too high and suggested that there would be a cutback.  To reduce inventories, manufacturers cut back production.  This is what is going on at present.
Expectations are that for the year as a whole, real GDP will end up around 2.0%.  This would be another in a long line of anemic years under the Obama administration.  More specifically, it is a result of locking the barn door after the horse is gone, or as it is better known, Dodd-Frank.  While I won’t go into great detail here, suffice it to say the mortgage markets have gone from one extreme (2005) to another (post-2007) and likely cannot become normalized under present law.  The result has been, among other things, to make it difficult to take money out of a house.  This can be seen in the mortgage equity withdrawal data.  The recovery will continue to be slow as a result.
Despite this, the recovery should continue and the Arizona economy should continue to improve from present levels.  But, it will still be slow relative to the pre-2007 world.
U.S. Snapshot:
  • Real Gross Domestic Product – the value of the goods and services produced by the nation’s economy minus the value of the goods and services used in production and adjusted for price changes, increased at an annual rate of 0.5% in the 1st quarter.  The deceleration in real GDP in the 1st quarter reflected positive contributions from personal consumption expenditures, residential fixed investment and state and local government spending and offsetting declines in nonresidential fixed investment, private inventory investment, exports and federal government spending.  Consensus estimates are that for the year as a whole, real GDP should still be up about 2.0%.
  • New orders for manufactured durable goods in March increased 0.8% from February but were still down 2.5% from a year ago.
  • Personal income rose 0.4% in March when compared to February and now stands 4.2% ahead of a year ago.  Disposable personal income was also up 4.0% for the year and personal consumption expenditures were up 3.5%.  As a result, the personal savings rate increased to 5.4% in March from 5.1% in February and 4.9% a year ago.   These are positive numbers.
  • The Conference Board consumer confidence index fell in April to 94.2 from 96.1 in March.  On a 3-month moving average basis, these are the weakest numbers since December 2014.  The University of Michigan consumer sentiment index was also down in April (89.0) when compared to March (91.0).
  • The S&P/Case-Shiller U.S. National (20 city composite) Home Price Index was up 5.4% in February when compared to year earlier levels.  This was down from 5.7% in January.
Arizona Snapshot:
  • The Behavior Research Arizona Consumer Confidence index declined to 80.0 in April from 81.6 in January.  The Maricopa County index fell to 85.1 from 90.8 in January.  Yet, Maricopa County continues to record the highest confidence reading in the state.  Overall, the index has been in the 85-91 range over the past 5 quarters.
  • The homeownership rate in Greater Phoenix rose to 61.6 in the 1st quarter.  That’s up from 60.9 in the 4th quarter and about the same as the 61.8 recorded in the 1st quarter of 2015.  The Greater Tucson rate in the 1st quarter was 51.0, down from 58.5 in the 4th quarter and 62.2 recorded a year ago.
  • According to CBRE, absorption of office space in Greater Phoenix was 1,251,108square feet in the 1st quarter of 2016.   Change in inventory was 463,412 square feet.  Vacancy rates declined to 18.8% as of the 1st quarter, down from 19.3% in the 4th quarter and 20.6% a year ago.
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