Pollack’s 5 steps to growth

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November 14th, 2016
The Monday Morning Quarterback
A quick analysis of important economic data released over the past week
Not much to report this week.  It was kind of boring.  Everyone knew that Donald Trump would win and that the Republicans would keep the house and senate.  They knew that many of those who neglected to vote would riot and that Kaepernick would just take a knee.
Seriously, WOW!! What a week.
The repercussions of the election could be amazing.  The problem is that they could be amazingly good or bad.  It depends on how much of what was said on the campaign trail remains in play over the next year.  Trump inherits an economy with the following characteristics: The expansion is old.  The cycle has seen the slowest rate of growth in American history.  Deficits are very high.  Interest rates have only one way to go.  Health care insurance costs are spiraling out of control.   Medicare costs are up 40%.  This, combined with unsustainable increases in other social programs, is busting a budget that, under Obama, was covered up by declines in military spending.
But, at least we are growing.
As I have said before, the way to stimulate an economy is straight forward:
1. Lower taxes
2. Lessen burdensome and capricious regulation
3. Limit legislation that creates quasi-monopolies (crony capitalism)
4. Reduce barriers to international trade
5. Reduce barriers to credit creation
Trump’s economic program lowers and simplifies personal taxes.  It lowers corporate taxes and creates incentives from corporations to repatriate money from overseas.  It reduces regulation.  It limits the ability of former members of the cabinet and congress to lobby.  It will make credit creation easier.  And it will create massive infrastructure spending as well as open up oil, gas and coal production.  The one uncertainty, in my mind, is how he deals with international trade. If he simply wants a level playing field with countries that now have protectionist tariffs, that would create only minor problems.  If it is much more than that, it could be problematic.  That would hurt international trade and make it hard for the program to bare the fruit he is looking for.  Thus, it is his approach to international trade that warrants the closest attention.
Yet, overall, the basic concepts are sound.  Indeed, this is the best chance to get back to a more normal rate of growth we have had in a long time.  The potential for more jobs, more productivity growth, higher incomes, higher corporate profits.  We should all hope that it works.
U.S. Snapshot:
  • Jobless The Blue Chip consensus forecast is projecting real GDP to be 1.5% in 2016 and 2.2% in 2017.
  • Total consumer credit outstanding rose 0.5% in September and now stands 6.0% above a year ago.  Revolving credit (mainly credit card debt) rose 0.4% for the month and now stands 5.9% above a year ago.  This is a good sign for retailers moving into the Christmas season.  Non-revolving credit, mainly auto and student loan debt, rose 0.6% in September and is now 6.0% above a year ago.
  • Consumer confidence rebounded in November and had the best showing since June.  November stood at 91.6 compared to 87.2 in October and 91.3 a year ago.
Arizona Snapshot:
  • According to the Home Builders of Central Arizona, permits for new single family homes in the Phoenix area were up 11.8% from a year ago.  October saw 1,398 permits compared to 1,250 a year ago.  For the first 10 months of the year, permits were up 12.3% to 15,122 compared to 13,465 a year ago.
  • According to the NAHB housing opportunity index, 66.7% of those with the median income can afford the median priced single family home in Greater Phoenix and 77.4% of those in Greater Tucson can afford the median priced home.  These are positive readings as nationally only 61.4% can afford the median priced home.
  • Single family listings were up 2.2% from a year ago in October to 20,670 units.  Sales were up 13.1%.
  • In Greater Tucson, listings for single family homes were down 19.3% from a year ago to 3,267 units while sales were up 8.3% to 1,018 units.
  • According to CBRE, the Greater Phoenix retail market remained healthy during the third quarter of 2016.  New construction remains muted, though.  Approximately 450,000 square feet of space was completed in the third quarter.  About 960,000 square feet remain under construction at present.  Vacancy rates were 9.0% compared to 9.1% a year ago.  Continued employment and population growth should continue to drive further demand for retail.
  • According to CBRE, vacancy rates in the Greater Phoenix office market fell to 17.8% compared to 20.0% a year ago.  Absorption was about 800,000 square feet. in the third quarter, while change in inventory was about 450,000 square feet.  The average rental rate increased to $24.01 from $22.48 a year ago.
  • The generally positive outlook for commercial properties also applied to industrial space.  In the third quarter, vacancy rates fell to 8.5% from 10.3% a year ago.  Absorption so far this year has exceeded change in inventory by over 3.2 million square feet.  Rents have moved up to $0.63 from $0.59 a year ago.
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November 2016