Pollack: If passed, Trump tax plan would make difference in the GDP, job creation


& Company


May 1st, 2017

The Monday Morning Quarterback

A quick analysis of important economic data released over the last week

Last week the data was mixed, but, it was still a very good week for the country’s economic prospects.  The reported data that was most disappointing was 1st quarter real GDP.  It was downright weak.  And consumer confidence, while still at high levels, retreated from recent levels.  On the other hand, manufacturers’ new orders were up and housing continued to do well.  And the real estate outlook in Greater Phoenix continued to improve.

The biggest news, however, had to do with the unveiling of the Trump tax plan.  Without going into detail, suffice it to say that the plan, if passed, would make a significant difference in the rate of growth in GDP and job creation in the U.S.

Individuals and businesses react to incentives.  The incentives created by the corporate tax cuts would bring back over a trillion dollars that is now overseas but will not come back to the U.S. under the existing tax code.  In addition, the incentives for businesses to operate facilities in the U.S. as opposed to overseas are overwhelming.  As for individuals, there would be simplification and tax cuts. Yes, the rich will benefit.  But, so will everyone.  The reality, hated by those who don’t understand how wealth is created, is that it is the middle income and higher income individuals along with businesses that create jobs by saving and investing.  The plan is a time tested formula that is almost certain to succeed in helping the economy escape the malaise of the last eight years.  How much of the program gets passed remains to be seen.

U.S. Snapshot:

  • Real GDP in the 1st quarter of 2017 advanced at an annual rate of 0.7%.  This can only be called mediocre. The deceleration in real GDP in the 1st quarter reflected a slowdown in personal consumption expenditures and private inventory investment as well as state and local government spending.  The general expectation is for a better 2nd quarter.
  • The Conference Board’s April consumer confidence index dropped 4.6 points, falling to 120.3, though it remains near its highest level since 2000.  The index in March was 124.9.  In April 2016, it was 94.7.
  • The University of Michigan’s consumer sentiment index backed off from strength earlier in April, ending the month at a lower than expected 97.0 vs. a mid-month reading of 98.0.  In March, the index was at 96.9.  A year ago, the index stood at 89.0.
  • New orders for manufactured durable goods in March increased by 0.7% overFebruary and now stand 4.5% above year earlier levels.
  • Sales of new single family houses in March were at a seasonally adjusted annual rate of 621,000.  This compares to a seasonally adjusted annual rate of 587,000 inFebruary and 537,000 a year ago.  The median sales price of $315,100 was 1.2%above a year earlier.
  • The S&P/Case-Shiller home price index (20 city composite) in February stood 0.4% above January’s level and was up 5.9% from a year ago.

Arizona Snapshot:

  • Statewide lodging performance continued to improve in the 1st quarter of 2017.  Occupancy increased to 72.5% compared to 71.8% a year ago.  This was the result of a 2.1% increase in demand and a 1.2% increase in supply.
  • Metro Phoenix lodging performance was mixed.  Occupancy was 79.3% in the 1st quarter compared to 80.0% a year ago.  This was the result of a 1.1% gain in demand and a 2.0% increase in supply.
  • The Greater Phoenix S&P/Case-Shiller home price index for February was 0.4% above January and 5.3% above year earlier levels.
  • According to the U.S. Census bureau, rental vacancy rates in the state in the 1st quarter fell to 5.9%, down from 6.7% a year ago.  In Greater Phoenix, rental vacancy rates were 4.7% up from 4.0% a year ago. In Greater Tucson, the rate fell to 7.9% from 9.7% a year ago.
  • According to CBRE, vacancy rates in the Greater Phoenix office market fell to 17.3% in the 1st quarter.  This compares to 17.4% in the 4th quarter of 2016 and 18.8% a year ago.  Rental rates rose to $24.85 per square foot compared to $23.29 a year ago.
  • CBRE also reported that vacancy rates in the industrial sector were 8.2% in the 1st quarter.  This compares to 8.0% in last year’s 4th quarter and 10.1% a year ago.  Rental rates rose to $0.64 from $0.60 a year ago.
  • CBRE reported that little progress has been made in terms of vacancy in the retail market in Greater Phoenix.  Vacancies were 8.8% in the 1st quarter compared to 8.9% the previous quarter and 8.8% a year ago.  Rental rates have increased, however, to $17.16 per sq. ft. the 1st quarter compared to $16.53 a year ago.  Rental rates were flat when compared with the 4th quarter.
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