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Pollack: GDP report surprising, confusing

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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
January 16th, 2017
 
The Monday Morning Quarterback
A quick analysis of important economic data released over the past week
Probably the most surprising news this week came from the U.S. Blue Chip consensus forecast. The latest consensus forecast, a survey taken on January 5th and 6th, was somewhat surprising to me.  The real GDP consensus forecast for 2017 was 2.3% compared to the 1.6% expected for 2016.  That was not a surprise.  The surprise was that the consensus forecast for 2018 was only 2.4%.  This was lower than I would have expected.
Even the editors of the forecast seemed puzzled.  They stated “Most analysts likely assume passage of tax reform legislation will not occur until late in Q2 of this year or in Q3 and that the effects of a big infrastructure spending package will not kick off until 2018. However, we suspect that many of our panelists are currently reluctant to attempt a significant incorporation of the potential effects of such plans until greater detail is in hand. Some also may worry that persistent weakness in both productivity and labor force growth will check the new administration’s effort to materially lift the economy’s trend rate of growth or that recent increases in consumer and business confidence will ultimately fade as the reality of what can be achieved in congress sets in.”
While we agree that the benefits of the proposed programs will not kick in until late 2017 or 2018, we still believe that the significant stimulus will result in a significant increase in real GDP growth in 2018.  There is no question, though, that it is coming late in the cycle while, historically, most tax cut stimulus programs come early in a recovery.  While this might cause the policies to have more muted effects in 2019 and beyond unless labor markets prove to be flexible and the labor force participation rate rises after its post-2007 decline, the 2018 effects should be significant.
U.S. Snapshot:
  • Retail sales in December were 4.1% above a year ago.  This was a good performance and indicated that the Christmas sales season was a relatively good one.
  • Consumer sentiment, as measured by the University of Michigan, is holding at cyclical highs.  The January survey stood at 98.1, down only 0.1 from the cyclical high reached in December.  A year ago, the index stood at 92.0.
  • Consumer credit had a significant increase in November.  A large increase in revolving credit (mainly credit cards), was one of the largest of the cycle.  It was likely a positive indication for holiday sales.  Revolving credit was up 6.4% from a year earlier in November and rose at a whopping 13.5% annual rate over October.  Non-revolving credit (mainly auto and student loans) rose at a 5.9% annual rate in November when compared to October and was up 6.2% from a year ago.
  • The manufacturing and trade inventories to sales ratio was 1.38 in November.  This compares to 1.37 in October and 1.39 a year ago.  The ratio has been high by historic standards, but has generally been moving in the right direction.
  • 30-year fixed rate mortgage rates averaged 4.12% for the week ending January 12.  This was down slightly from the week of January 5 but was up from year earlier levels.
Arizona Snapshot:
  • According to the Arizona Regional Multiple Listing Service, the level of months supply of single family housing on the market in Greater Phoenix dropped from 3.6in November to 3.1 in December.  In December 2015, there was 3.4 months of supply.  Median price was down at $240,000 in December when compared to the November level of $241,990, but, was up 4.3% from the year earlier level of $230,000.
  • As for Greater Tucson, the number of active listings dropped from 4,067 inNovember to 3,752 in December.  This is a decrease of 23.2% from December, 2015.
  • According to Real Data, apartment vacancy rates in Greater Phoenix stood at 7.3%Q4 of 2016.  This is the same level as Q3 of 2016 and Q4 of 2015.  Average rents were up 6.6% from a year ago.
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