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Pollack: Boom!
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The Source for Information and Analysis on the Arizona Economy and Real Estate
EDP LogoELLIOTT D. POLLACK

& Company

FOR IMMEDIATE RELEASE
August 29th, 2016
 
The Monday Morning Quarterback
A quick analysis of important economic data released over the past week
As we have been saying about the Arizona economy, this is the boom.  Enjoy it.
The same appears to be true for the national economy as well. According to the U.S. consensus forecast, real GDP will increase 1.5% this year and next year it will be up   2.2%.  This compares to 2.4% in 2014 and 2.6% in 2015.  It also compares to 3.5% as an average of the last 5 recovery cycles.  Thus, this recovery and expansion will, in its best year, not even get to the average for an upcycle.
Don’t let anyone kid you.  Among the major reasons for this situation is that government policies in this cycle have created a slow growth economy.  That being said, at least we are still expanding.  Unemployment should continue to improve.  Consumer sentiment is acceptable.  Housing continues its slow recovery.  The economy has survived some shocks.  And consumers have not accumulated much debt (with the exception of auto and student loan debt).
So, let the anemic times roll!!  Because it could be worse.
U.S. Snapshot:
  • Historically low levels of layoffs continue to underscore the strength of the U.S. labor market.  Initial unemployment claims slipped to what historically has to be considered a very low level (see chart below).  This is good news and suggests that the unemployment rate will continue to improve.
  • U.S. corporate profits and cash flow remains at a high plateau first reached in 2010 (see chart below).  While profits are now 4.9% below a year ago, the bigger problem has been the extended period of no growth in cash flow.  That being said, the absolute level of cash flow remains high.
  • The University of Michigan consumer sentiment index remains steady and respectable.  The August level is 89.8, down from 90.0 in July and 91.9 a year ago.  As you can see from the accompanying chart, it remains at a level that is normal for this point in a cycle.
  • Manufacturers’ new orders for durable goods in July increased 4.4% over June.  They stand 3.3% below a year ago.  The increase follows two consecutive monthly declines.
  • Existing home sales lost momentum in July and decreased year over year for the first time since November 2015.  Many are pointing to low levels of inventory around the country as the main reason for the slowdown.  Only the west region saw closings increase in July.
Arizona Snapshot:
  • Lodging performance in the state improved in July.  Occupancy reached 60.3% compared to 58.9% a year ago, an increase of 2.4%.   Demand increased 3.3%and supply increased 0.9%.
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