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Pollack: Nothing to be concerned about, unless it becomes a trend

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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
September 19th, 2016
 
The Monday Morning Quarterback
A quick analysis of important economic data released over the past week
Lots of good information this week.  Unfortunately, some of it, both on the national and local front, was less than stellar.  This is nothing to be concerned about, though, unless it becomes a trend.  That’s possible but not likely at the moment.
Nationally, the weakness was in retail sales, sales of manufacturer’s and industrial production.  On the Arizona side, the employment numbers, while up, were up less than should have been expected.  At least the unemployment rate was down.
None of the above is particularly out of the realm of ordinary for this point in the business cycle.  The only thing worth a mention is that the unemployment rate in the state and its major metro areas, while down substantially from the peak, is still high by historic standards for this point in the cycle.  Thus, for this point in the cycle, a more than normal number of the increase in jobs are being filled by those already here.  As a result, migration (especially people moving here for jobs) is not as strong as normal.  This affects everything from the number of cars sold to the number of homes built.
The number of people who own homes with negative equity continues to decline.  As the chart on those with negative equity plus near negative equity shows, the recovery for that indicator has been impressive.  As housing prices continue to grind upward, more people will be free to sell their homes and move.  If the jobs machine in Arizona continues to produce, the improvement in the home equity numbers could be a positive in terms of population growth.
U.S. Snapshot:
  • Retail sales for August were down 0.3% from the previous month and were up 1.9%from a year ago.  This was below expectations.
  • Total sales of manufacturers were down 0.2% in July and stood 0.8% below a year ago.  Given the slow growth in much of the world and the relative strength of the dollar, this is not terribly surprising.   However, it is below expectations.
  • Industrial production declined 0.4% in August compared to July.  It rose 0.6% in July relative to June.  Industrial production now stands 1.1% below a year ago.
  • Household net worth (the sum of all assets, such as homes, stocks, bonds, vehicles and cash, minus all debts like mortgages, credit cards, student loans and auto loans) reached new highs for the third quarter in a row (see chart below).  This was generally driven by the gains in the stock market and home prices.
  • The University of Michigan Consumer Sentiment Index was unchanged in September compared to August.  It was modestly below the consensus expectation.  The index stood at 89.8 in both months.  A year ago, the index was 87.2.
  • The manufacturing and trade inventories to Sales ratio in July was unchanged from June at 1.39.  It was up from 1.37 a year ago.  The index seems high for this point in the cycle but has been trending in the right direction as of late (see chart below).
  • Consumer prices appear to be under control.  The index for all urban consumers (CPI-U) increased 0.2% in August (a 2.4% annual rate) on a seasonally adjusted basis and now stands 1.1% over a year ago.  The base rate of inflation, the index for all items less food and energy, increased 0.25% (a 3.0% annual rate) in August.  Over the last year, that index was up 2.3%.  It will be interesting to see how the FED views these numbers.
  • The CoreLogic equity report showed that the number of homes with negative equity continues to decline nationally.  The measure of those underwater now is down to 7.1% compared to 8.9% a year ago 24.9% of all homes with mortgages in 2010.  Home prices have helped lift more owners out of negative equity territory.  The share of owners who are considered to be underequitied (less than 20% equity) is also declining but not as rapidly.  The national number was 17.0% in the second quarter compared to 18.3% a year ago.
Arizona Snapshot:
  • In August, the state gained 29,600 jobs (1.1%).  This was less than the post-recessionary (2010-2015) average gain of 50,600 jobs.  The shortfall was in private sector jobs.  This is probably an aberration.  The state has gained 54,200 jobs over the past year with the largest gains coming in educational and health services, professional and business services, trade transportation and utilities and construction. Overall, year-to-date employment is up 2.9% in the state when compared to a year ago.
  • The Greater Phoenix area saw a gain in employment in August over July of 1.0% or 19,900 jobs.  The gain year to date was 3.3%.
  • The Greater Tucson area saw employment gains of 1.0% or 3,500 jobs over July.  Year to date, the area has seen a healthy 3.1% gain.
  • The state’s seasonally adjusted unemployment rate declined to 5.8% in August from 6.0% in July.  This compares to a seasonally adjusted unemployment rate of 4.9% in August and July for the U.S. as a whole.
  • The unemployment rate in Greater Phoenix (not seasonally adjusted) was 5.0% in August.  In Tucson, it was 5.4%.
  • According to CoreLogic, negative equity in Arizona declined to 11.6% of homes with mortgages in the second quarter compared to 15.4% a year earlier.  The number of homes with less than 20% equity declined also, but, not by as much.  The number in the second quarter was 21.8% compared to 22.5% a year ago.  While the numbers in the state are higher than the nation as a whole (something that should be expected given the severity of the housing crash), they are improving rapidly.
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Rose Law Group Reporter, which provides Dealmaker’s content and service, is contracted by Rose Law Group. Rose Law Group is a full service real estate and business Law Firm practicing in the areas of land use/entitlements, real estate transactions, real estate due diligence/project management, special districts, tax law, water law, business litigation, corporate formation, intellectual property, asset protection, data breach/privacy law, ADA compliance, estate planning, family law, cyber-law, online reputation and defamation, lobbying, energy and renewable energy, tax credits/financing, employment law, Native American law, equine law, DUIs, and medical marijuana, among others. The views expressed above are not necessarily those of Rose Law Group pc or its associates and are in no way legal advice. This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.