Pollack: A very good week for economic data


& Company


February 5th, 2018

The Monday Morning Quarterback

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

It was a very good week for economic data.  It was so good, in fact, that it was a bad week for the stock market. How does that happen? Well, the strength in employment, which exceeded expectations, was accompanied by a modest acceleration in wage growth. It wasn’t all that much, but, it was the strongest growth in wages since 2009. This is not surprising given the current strength in the economy. But, given all the stimulus that is in the pipeline, any data that indicates upward pressure in costs and, ultimately, inflation is worrisome. Such a circumstance will result in a more rapid rise in interest rates than was discounted into the stock market.

The reality is that no one really knows precisely what makes the stock market move on a daily basis.  But, anything that is different than expectations will be a factor.

The economy is clearly running on all cylinders at this point.  The real question all along was what the effect of a healthy economy would be on labor markets.  How many of those who dropped out of the labor force would return to the labor force in an economy where jobs are plentiful and wages are rising?  Would that be enough to allow wages to rise in an orderly fashion?  Would that allow inflation to rise slowly and, therefore, allow the rise in rates to be orderly and not signal problems?

The fact is that the jury is still out.  But, given the liberal valuation of the stock market at present, any sign of an acceleration in costs will be looked at unfavorably.  That being said, I have no idea how the market will have reacted further by the time you read this.

U.S. Snapshot:

  • Total nonfarm payroll employment increased by 200,000 in January.  Expectations were for a gain of 175,000.  The unemployment rate was unchanged at 4.1%.  Employment growth was strongest in Construction, Educational and health services, Leisure & Hospitality and Professional and Business Services.  Manufacturing was also strong.

  • Wage increases, as measured by average hourly earnings, rose 0.3% for the month and 2.9% for the year (see chart below).  This is the fastest pace of gains since 2009.  The December wage increase was also revised higher from 2.5% to 2.7%.

  • Personal income was up 0.4% in December and now stands 4.1% over a year earlier.  Disposable personal income was up 0.3% for the month and is 3.9% over a year ago.  Personal consumption expenditures were up 0.4% for the month and were up 4.6% over a year ago.  As a result of spending increasing more than DPI, the savings rate declined from 2.5% in November to 2.4% in December.  A year ago, the savings rate was 3.2%.

  • Consumer confidence as measured by the Conference Board rose from 123.1 in December to 125.4 in January.  A year ago, the index stood at 111.6 (see chart below).

  • The University of Michigan consumer sentiment index was stable in January at 95.7 compared to 95.9 in December and 98.5 a year ago.  This is a high level of confidence.

  • Output per worker hour, better known as productivity, declined slightly in the 4th quarter of 2017 and now stands a modest 1.1% over a year ago.  It is not unusual for productivity growth to slow later in a business cycle.  Hopefully, given the new corporate tax cuts and the difficulty in finding labor, business will be investing in plant and equipment that will make existing employees more efficient.  In the absence of that, unit labor costs are likely to rise.  This would suggest higher rates of inflation.

  • The ISM manufacturing index was about flat in January compared to December.  The index stood at 59.1 compared to 59.3 in December.  Any reading of 50 or above suggest

    that the manufacturing sector is expanding.

  • New orders for manufactured goods increased in December by 1.7% over November.  New orders now stand a strong 8.4% over a year ago.

  • Very strong vehicle sales in the last part of 2017 may have stolen sales out of this year.  Units auto sales fell sharply to 17.1 million (annual rate) in January.  This compares to 17.8 in November and 17.3 million units a year ago.

  • Construction spending was up 0.7% over November and was up 2.6% over a year ago.  Private Residential construction was up 0.5% over November and was up 6.2% over a year ago.

  • The S&P Corelogic Case-Shiller home price index rose 0.2% in November (composite 20 city index) when compared to October and was up 6.4% over a year ago.

Arizona Snapshot:

  • The S&P Corelogic Case-Shiller index for Phoenix was down 0.1% in November when compared to October.  The index was still up 5.6% over a year ago.

  • Enplanements at Sky Harbor International in Phoenix were up 2.5% in December over November and was up 1.6% in 2017 compared to 2016.  Deplanements were up 1.7% for the month and 0.9% for the year over year.

  • Statewide lodging occupancy for 4th quarter of 2017 was 63.6% compared to 61.4% a year ago.  This was the result of a 4.9% increase in demand and a 1.2% increase in supply.  In metro Phoenix, occupancy was up to 66.4% in the 4th quarter compared to 64.0% a year ago.

  • According to CBRE, office vacancy rates in the 4th quarter of 2017 were 16.4% compared to 17.4% a year earlier.  CBRE also said that retail vacancy rates in the 4th quarter were 8.1% compared to 8.9% a year earlier.  Industrial vacancy rates over the same period dropped from 8.0% to 6.8%.

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.  

For more information, contact –

Elliott D. Pollack & company
7505 East Sixth Avenue, Suite 100
Scottsdale, Arizona 85251

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February 2018