ELLIOTT D. POLLACK
& Company
The Source for Information and Analysis on the Arizona Economy and Real Estate
December 19th, 2016FOR IMMEDIATE RELEASE
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
The long awaited and anticipated increase in interest rates by the Fed finally took place last week. The Fed nudged up the federal funds target rate by a quarter of a percentage point to between 0.50% and 0.75%. Continued strength in employment markets and an unemployment rate that is beginning to reach full employment, at least by historic standards, appear to be the major factors involved. This is actually a statement about how the Fed, which unanimously approved only the second rate increase in a decade, feels about the economy. The rate increase will cause banks to raise their prime rate to 3.75%. And while the Fed Funds rate is a short term interest rate, long term rates which are more a function of the market place, such as 30-year mortgages, have been increasing for the last few weeks.
Overall, we are likely to see rates rising from here given where we are in the business cycle. In addition, the Trump administration economic policies are likely to result in stronger growth over the next couple of years. This suggests more rate increase in 2017. In terms of the direction of interest rates, we are now finally approaching what is normal for a business cycle.
U.S. Snapshot:
- Retail sales in November were up 3.8% from year earlier levels but were up only 0.1% over October. How good of a year retail will have will be determined by what happens in December.
- The manufacturing and trade inventories-to-sales ratio continued to move in the right direction in October. The ratio, which has been high by historic measures, declined to 1.37 in October from 1.38 in September and 1.39 a year ago. Overall, this is a positive note. Sales were up for the month while inventories were down.
- Industrial production declined 0.4% to 103.9 in November after increasing 0.1% in October. Overall, industrial production is down 0.6% from a year ago. In November, manufacturing output declined 0.1% and mining increased 1.1%.
- Capacity utilization continued to decline and is now considerably below its normal level for this point in a cycle. It now stands at 75.0 compared to 75.4 last month and 75.7 a year ago.
- Consumer prices continue to be in check for the moment. CPI-U was up 1.7% from a year ago in November and 0.2% over October. All items less food and energy, the core rate of inflation, was up 2.1% over a year ago and 0.2% over October.
- Builder confidence in the market for newly built single family homes jumped 7 points to a level of 70 in December. This is the highest reading since July 2005. A year ago, the reading was 60.
Arizona Snapshot:
- Arizona employment grew by 1.1% in November when compared to a year ago. Year-to-date, employment in the state was up 67,300 jobs or 2.6%. This rate of growth was less than expected by most analysts. Nonetheless, the rate of growth is expected to increase over the next year. The largest year-to-date gains in percentage terms are in construction, information, financial activities, and educational and health services. In absolute terms, the largest gains were in educational and health services, professional and business services, trade, transportation and utilities and financial activities. Importantly, the labor force in the state grew at 2.8% over the past year.
- In Greater Phoenix, employment grew 1.1% compared to a year ago and was up 2.9% for the first 11 months of the year. The labor force grew by 2.9% over the last year. Greater Phoenix is now 10th out of 33 major employment markets in the U.S. for the first 11 months of the year.
- In Greater Tucson, employment growth was up 1.5% over a year ago and up 2.7% for the first 11 months of the year.
- The unemployment rate in the state (on a seasonally adjusted basis) fell from 5.2% in October to 5.0% in November. For the U.S. as a whole, the unemployment rate fell from 4.9% to 4.6% over the same period.
- On a non-seasonally adjusted basis, the unemployment rate in the state in November was 4.7%. In Greater Phoenix, it stood at 4.1% and in Greater Tucson it was 4.3%. The difference this time of year is generally due to seasonal employment opportunities due to the Christmas retail season.
About EDPCo
Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.
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Elliott D. Pollack & company
7505 East Sixth Avenue, Suite 100
Scottsdale, Arizona 85251
480-423-9200
