ELLIOTT D. POLLACK
& Company
FOR IMMEDIATE RELEASE
August 26, 2019
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
The tit for tat between the U.S. and China over tariffs continued to new levels on Friday as President Trump “ordered” U.S. companies doing business in China to explore relocating their operations to other countries including back to the U.S. He also stiffened tariffs on Chinese goods imported into the U.S. after China unveiled new tariffs on American goods. This has gone from a trade skirmish to a trade war.
The timing of such an escalation creates a much higher level of economic uncertainty. Such events in a period of weaker growth in China, Europe and even the U.S. could push parts of the world into recession if the threatened increases in tariffs actually occur. The stock market clearly did not like what it was seeing on Friday as market volatility continued.
In addition, the war of words by President Trump aimed at FED Chairman Jerome Powell continues as well. Apparently, Powell’s words on policy committing to keeping the economy growing were not sufficient for Mr. Trump. As the FED’s next meeting approaches, it will be interesting to see how events play out. The FED almost never cuts or raises rates just once. That may be open to question at this time. That creates even more near term uncertainty at the present time. How all of this plays out remains to be seen.
As for last week’s data, it was mixed. On the positive side, the index of leading indicators continued to increase. Mortgage rates continued to drop. Existing home sales increased. And new home sales, while down from last month, were up from year earlier levels.
Locally, in Tucson, new single family housing permits were up. And in Greater Phoenix, industrial vacancy rates were modestly up while office vacancies modestly declined.
U.S. Snapshot:
The index of leading indicators increased 0.5% in July to 112.2 following a 0.1% decline in June (see chart below). The index is now 1.6% above year earlier levels.
The minutes of the July meeting of the Federal Open Market Committee left the door open for additional rate cuts but stopped short of signaling any commitment. The minutes noted that the committee retains the “flexibility and optionality”, no commitment was issued. In addition, the minutes used the term “recalibration” which some read as meaning the previous cut could be a onetime event depending on what happens with the slowing global economy, ongoing trade disputes, and inflation.
30-year fixed rate mortgage rates fell to 3.55% the week of August 22. This is down from 3.75% a month earlier and 3.60% the week of August 15.
Existing home sales strengthened in July. Existing single family home sales increased 2.8% from June and 1.0% from year earlier levels.
New home sales in July were down from June’s level by 12.8% but were up 4.3% from year earlier levels.
Arizona Snapshot:
Greater Tucson had 404 new single family permits in July. This is the highest level of permits since August 2007. The level of single family permits was up 15.4% from a year ago.
According to CBRE, the Greater Phoenix industrial market absorbed over 1.1 million square feet in the second quarter of the year. Vacancy rates increased in the quarter to 6.5% (up from 6.1% in the first quarter and 6.4% a year ago) due to the increase in inventory (2.27 million square feet). Over 65% of the change in inventory was speculative construction. So, while market demand is still very strong, so is new construction. For the first half of the year, absorption has exceeded change in inventory.
According to CBRE, heightened tenant demand due to strong market fundamentals put downward pressure on vacancy rates for office in Greater Phoenix. In the second quarter, vacancy rates dropped to 14.9%. This is down from 16.2% a year ago and 15.0% in the first quarter. Rents increased. They were up 5.0% from a year ago and 0.8% from the first quarter.
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.
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Elliott D. Pollack & company
7505 East Sixth Avenue, Suite 100
Scottsdale, Arizona 85251
480-423-9200
