Pollack: Good economic news continues




& Company


August 13th, 2018

The Monday Morning Quarterback

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

This week’s news continues to be good.  But, some of those pesky imbalances that will ultimately create problems are now starting to appear.  That doesn’t mean the cycle is about to end.  We don’t think that’s likely right now.  Nor does it mean that the next down cycle will be a major decline.   That’s also not likely with what we presently know.  So, for now, relax and move forward.

What do we see as the very early signs of potential imbalances? Real wages are growing slowly because the consumer price index increased at just below 3% last month.  The mitigating circumstance is that it was the volatile energy component that caused the total index to be well above the 2.4% increase in the base rate of inflation. The base rate is the consumer price index less the food and energy component.  It is a better short-term measure of what’s going on with consumer prices.  That being said, when you combine a low unemployment rate with slow growth in real wages, increased wage demands can be expected.  If this pushes the CPI much higher, the FED is likely to push up rates faster.

Other things to watch include the debt levels at non-financial corporations, especially those with lots of short terms debt, as well as the effect of higher interest rates on the federal deficit.  Three Presidents have had the opportunity to lock in very low long-term rates for our debt.  They chose not to.  Bad move.  The psychological effect of the threat of a trade war and the risks of labor shortages are also out there.

But, the “usual suspects” of forward looking indicators, for the most part, are still positive. These include the index of leading indicators, consumer confidence, the spread between short and long-term government debt and a turning point in the level of unemployment.

The economy still looks very good. At the moment, the cycle still has more runway. It’s not perfect, but, for this late in the cycle, it’s really good. And the significant imbalances that would suggest a major correction simply don’t appear to exist at the moment.

U.S. Snapshot:

  • Producer prices in terms of total final demand remain under control. There was no change in the index between June and July. The index is up 3.2% from a year ago.  On the other hand, the indices for finished goods and intermediate demand are rising at a significantly more rapid rate than a year ago.  For example, for the year ending July, the index for finished goods was up 4.1% compared to 2.2% from a year ago as of July 2017.  And intermediate goods in July were up 6.8% compared to year earlier levels while as of July 2017, the number for the similar time period was 3.5%.
  • The CPI for all urban consumers was up 0.2% from June to July and the index is up 2.9% from a year ago.  The index less food and energy was up 0.2% for the month but stands only 2.3% above a year ago.  Given the volatility in energy prices, this is a better measure of cost increases.
  • Consumer credit came in under expectations in June. In fact, the credit expansion in June was almost entirely driven by non-revolving credit. For the month, consumer credit rose by 0.3%.  Compared to a year ago, it is up 4.7%. Revolving credit was flat for the month and stands 4.8% above a year ago.  Non-revolving credit (auto loans and student debt) were up at a 0.4% rate for the month and stand 4.7% above a year ago.
  • According to the National Association of Realtors, the median price of an existing home reached $269,000 in the 2nd quarter. This is an increase of 5.3% from a year ago.

Arizona Snapshot:

  • The National Association of Realtors indicates that the median price of an existing home in Greater Phoenix was $272,000. This is 10.0% above a year ago. This indicates that the market is very tight.

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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