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Pollack: Let’s talk oil and gas
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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
October 17th, 2016
 
The Monday Morning Quarterback
A quick analysis of important economic data released over the past week
What news there was this week was not dramatic, apart from one possible exception and it will take time to figure out if it is of significance or not.  That is oil prices.
It must be pointed out that oil prices are still very low by historic standards.  Oil prices exceeded $105 a barrel as recently as mid-2014.  The bottom was reached in early 2016 when oil was in the mid-$30’s.  With the small production cap agreed to by OPEC, oil prices have jumped from $44 per barrel in mid-September to about $51 at present.
This type of increase probably won’t have much of an impact on consumers.  Gas prices will increase somewhat, but, most of the “oil tax cut” given to consumers by the price decline will, for the most part, stay in place.
It is also unlikely that oil prices will increase very far unless more production is taken off line.  At prices above $65 per barrel, new or closed capacity could well show up.  In addition, production cuts by OPEC have a history of not working all that well.
Time will tell, but, at this point it does not look like this is the shock that will sink the recovery.

In other news, initial unemployment insurance weekly claims are now the lowest in 43 years.  Consumer confidence, while down, appears to be in a range that is normal.  Retail sales were up, but, modestly so.  And manufacturing and trade inventories to sales remain steady.  In Greater Phoenix, the apartment market remains strong.

U.S. Snapshot:
  • Unemployment claims in the U.S. have stayed near historic lows. This means layoffs are not as prevalent and that recently unemployed workers have found success securing new employment quickly.  This week’s figure represents a 43-year low for the weekly level of initial claims (see chart below) and the 8th straight decline for the 4-week average which is also at a 43-year low.
  • The University of Michigan consumer sentiment index is down this month.  It stands at 87.9, down from 91.2 in September.  It is the lowest level of expectations since September 2015.  Weakness is centered in expectations where the component is down more than 6 points. This is the lowest level since April.
  • September retail and food service sales (seasonally adjusted) increased 0.6% for the month and now stand 2.7% above a year ago.  Thus, retail sales continue to slowly increase.
  • The manufacturing and trade inventories/sales ratio remains at a high level compared to history but remains at about the same level as both last month (1.39) and last year at 1.38 (see chart below).  Most of the higher ratio is due to autos which continue to sell well.
Arizona Snapshot:
  • The state’s weekly unemployment claims are following the national trend.  Claims are down 5.3% from a year ago and continue to decline on a weekly basis.  This indicates continued improvement in labor markets in the state.
  • According to Real Data, the vacancy rate in apartments in the Greater Phoenix area was 7.3% in the 3rd quarter of 2016.  This compares to 7.6% in the 2nd quarter and 7.0% last year.  The tightness in the apartment market can be seen by the increase in average rents.  Average rents are up 7.7% from a year ago ($903 vs. $838) and up 1.7% from the 2nd quarter.  According to Real Data, the total number of units in the market is up 3.2% from a year ago.
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