ELLIOTT D. POLLACK& Company
FOR IMMEDIATE RELEASE
January 21, 2020The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
On the face of it, last week’s economic news was good. Housing starts numbers were excellent. Retail sales, while slightly lower than expectations, were still strong. Consumer sentiment remained high. And even though core inflation as measured by the consumer price index was the highest since 2011 on a year over year basis, this was more a reflection of just how low inflation has been rather than an indication of inflation being a problem. Indeed, the Fed looks at the implicit price deflator for personal consumption expenditures less food and energy which is still well under control.
Indeed, even though industrial production was down very modestly, the bulk of the decline was due to the effect of warm weather on utility output. So far, so good. There were also some issues that will need to be followed. First, the number of job openings in the country fell considerably in November.
While the number is still so high it would have been a record prior to this cycle, the rapidity of the decline from the peak was surprising and suggestive of a slowdown in job growth. The second troublesome issue to us was that real wages over the last year rose by only a modest amount. Given the low level of unemployment and strong labor market we are currently experiencing, this was surprising.
Increases in labor costs as a whole (there are always exceptions in particular industries) have been unusually controlled in this cycle. And no one can say exactly why. This has allowed the Fed to keep monetary policy relatively expansive for this point in the cycle. Only time will tell if this will continue. But, it’s another thing worth watching closely.
The University of Michigan consumer sentiment index remained virtually unchanged in early January. The January number was 99.1 compared to 99.3 in December and 91.2 a year ago. This stability extended to all components of the index. Interestingly, impeachment was barely mentioned. Just 1% of consumers mentioned this as an issue.
The number of job openings in the U.S. dropped to 6.8 million in November. This is down from 7.36 million in October and 7.63 million a year ago. The extent of the decline is surprising. Even so, the current level would have been a record high in past cycles. It does seem to reflect a slowdown in businesses labor needs. And while the employment numbers continue to be strong given the age of the cycle, job openings will bare close scrutiny over the next few months.
The consumer price index for all urban consumers (CPI-U) rose 0.2% in December and now stands 2.3% above year earlier levels. The index less food and energy was up 2.2% compared to a year ago. This base number is the highest level of inflation by this measurement since 2011. But, this is reflective of just how low inflation has been over the last eight plus years. One contributing factor was a big increase last month in prescription drug prices. Keep in mind that the Fed sets policy based on a different measure of inflation. That’s the implicit price deflator for personal consumption expenditures less food and energy which has been running around 1.7%. The next release on that measure will be worth a look.
The CPI results imply that real wages have increase only about 0.7% over the past year. This is a modest number given the level of unemployment and the continued strength in employment growth.
Retail sales were slightly below expectations but only mildly so. Sales were up 0.3% in December over November and were up 5.8% over year earlier levels. Behind the overall performance, there were winners (e-commerce was up 20%) and losers (department stores were modestly down).
Industrial production was down modestly in December. The index was 109.4 compared to 109.8 in November and 110.6 a year ago. Most of the slowdown was due to warmer than usual weather.
Housing starts were at a higher than expected 1,608,000 at an annual rate in December. That’s the highest level since 2006. This was up a whopping 16.9% from November’s level and 40.8% from year earlier levels. Single family starts were 1,055,000. That’s up 11.2% from November and 29.6% from a year ago. Even though these numbers were affected positively by warm weather, they bode well for the coming spring selling season. Low mortgage rates are certainly helping.
The housing market in Greater Phoenix continues to do well. According to the Home Builders of Central Arizona, new permits for single family homes were up 14.6% from year earlier levels in December. Year-over-year, 2019 was up 9.1% after a 13.0% gain in 2018. The year finished with a flourish. For the year as a whole, 24,476 units were permitted compared to 22,437 in 2018. The outlook for 2020 remains positive as well.
Single family permits in the Greater Tucson were also up. Permits in the Old Pueblo were up 5.0% in December from year earlier levels. For 2019 as a whole, single family permits were up 5.8% to 3,697 units.
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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