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Pollack: Sensational

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March 12th, 2018

The Monday Morning Quarterback

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

Sensational. That’s about the only word that can describe both the latest national jobs report and the significant revisions of the Arizona and Greater Phoenix employment data for 2016 and 2017. This has to be as good as it gets. And, given all the tax stimulus that is presently hitting the economy and the infrastructure stimulus that should hit the economy over the next few years, growth is likely to accelerate in 2018 and be good in 2019 as well.

Will we pay the piper at some point? Sure. The economy is cyclical. That’s life. But, right now the cycle is up and the party is likely to continue. Will interest rates go up? Yes. Will inflation increase? Most likely. But, right now, things look very good. On Friday, the stock market obviously liked growth more than it dislikes tariffs. So, enjoy the best economy we’ve had in the last decade. And it should last for the next year or two at least.

U.S. Snapshot:

  • Total nonfarm payroll employment grew by a whopping 313,000 in February. This far exceeded expectations. But, there was much more positive news than just the jobs numbers. There were significant upward revisions for December and January. In total, the revisions showed that 54,000 more jobs were created over that two month period than previously reported. Even more significant was the 806,000 person increase in the labor force (the largest increase since September 2003). It also reflects the fact that there was an increase of 653,000 people no longer counted as being out of the labor force. This is an important piece of the picture. It shows that America is going back to work as people previously out of the labor force are returning. This means the wages will be under less pressure than previously assumed. The participation rate is also increasing especially in the 25-54 year old age group. Wages were up 2.6% at an annual rate in February after the 2.9% annualized increase in January. The employment market is red hot and, given the amount of government stimulus, could overheat at some point. The return of workers previously out of the labor force could help mitigate those fears for now.

  • The unemployment rate in February stayed at 4.1% for the fifth consecutive month.

  • Nonfarm business sector productivity growth was revised to 0.0% in the 4th quarter.  This was due to a 3.2% increase in output and a 3.3% gain in hours worked. For the year ending that quarter, productivity increased a modest 1.1%.

  • The latest Blue Chip consensus forecast of inflation adjusted (real) GDP growth for 2018 remained at 2.8% while the 2019 forecast rose to 2.5%.

  • ISM’s non-manufacturing index fell from 59.9% in January to 59.5% in February.  A year ago, the index stood at 57.4%.  Any reading of 50 or above suggests that the sector is growing.  February was the 102nd consecutive month of growth in the overall economy and the 97th consecutive month of growth in the index.

  • New orders for manufactured goods declined modestly in January after five consecutive months of gain.  The index was down 1.4% for the month but still stands 6.6% over year earlier levels.  The manufacturer’s inventories to sales ratio remained at a healthy 1.35.

  • Growth of consumer credit slowed in January.  This was primarily due to soft results in revolving credit (mostly credit cards) and was in line with a modest slowdown in consumer spending.  Non-revolving credit, mainly auto and student loan debt, continued to grow at rates that seem to be normal for this point in the cycle.  Overall, consumer credit outstanding increased at a 4.3% annual rate for the month and now stands 5.3% over a year ago. Revolving credit increased at a modest 0.8% annual rate in January and stands 6.1% over a year ago.  Non-revolving credit grew at a 5.6% annual rate and now stands 5.0% over a year ago.

Arizona Snapshot:

  • On a local level, probably the biggest story of the year (at least so far) was the employment revisions. They paint a much brighter picture of the local economy than did the preliminary numbers. For the state as a whole, year over year 2016 improved to 2.7% from 2.6%.  2017 increased from 1.7% to 2.4%.  That’s another 21,600 jobs.  Upward revisions are the norm during periods of expansion, but, the 2017 revisions were big numbers and suggest that 2018 will be stronger than generally expected.

  • Even more impressive were the revisions for Greater Phoenix.  The growth in jobs jumped from 3.1% to 3.4% (6,300 jobs) and for 2017 from 2.2% to 2.8% (16,800 jobs).  This indicates a much stronger growth trajectory for the Phoenix area going into 2018.  Indeed, given the still modest rate of population growth (by historic standards), this is a satisfactory number and will likely push the area into one of the fastest growing major markets in the country for 2017.

  • Greater Tucson also did better in 2017 than previous numbers show. But, the general trend is still disappointing.  2016growth  rates remained the same at 1.3%.  2017 numbers were revised from 0.1% to 1.5% (3,600 jobs).  This is certainly a better picture.

  • Total nonfarm employment in the state as of January was 2.2% above year earlier levels.  That amounts to a gain of 60,200 jobs.  In percentage terms, the big gainers were construction (8.8%), manufacturing (4.9%), educational and health services (3.5%) and financial activities (3.4%).  Greater Phoenix employment grew by 2.7% in January.  That’s 53,000 jobs.  Greater Tucson grew at a 1.1% rate over a year ago, a gain of 4,200 jobs.

  • The seasonally  adjusted unemployment  rate statewide  in January stood at   4.8%.  Nationally, the unemployment rate stood at 4.1%.

  • The Greater Phoenix not seasonally adjusted rate stood at 4.5% while Greater Tucson’s unemployment rate was 4.7%.

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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