Pollack: A mixed bag




February 3, 2020

The Monday Morning Quarterback

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

It was a busy week for economic data.  The results were mixed but not unexpected.  Real GDP in the 4th quarter was up modestly despite trillion dollar deficits and a temporary downturn in imports. This was due to importers who increased orders in the 3rd quarter in an attempt to beat the new tariffs that, as it turned out, didn’t occur in the 4th quarter. 

As import orders return to more normal levels in the 1st quarter of 2020, the results could be a very modest growth number that quarter.  Personal income growth was modestly below expectations.  Yet, both major measures of consumer confidence were up slightly and remained at high levels despite headwinds from the Coronavirus. 

If this strain of flu virus continues to spread, it could drag down February confidence levels.  On the other hand, the impeachment story appears to be coming to an end although the circus in Washington apparently had little effect on confidence.  The Fed’s monthly news conference suggests more of the same in the near term and rates should remain steady.  No surprises there either. In other economic news, durable goods order excluding aircraft remain modest. 

New home sales were down for the month but way up from a year ago.  The issue remains affordability and lack of supply at the lower half of the price spectrum.  And, home prices surprisingly picked up a little steam in November.  This is probably temporary.  In Arizona, lodging demand was strong especially in Greater Phoenix.  Sky Harbor had a busy year.  And home prices were up……a lot relative to the rest of the country.  This is not good news as it suggest that the supply/demand imbalance in Greater Phoenix is worse here than in the rest of the country.  The solution to affordable housing remains top of mind here regionally.

U.S. Snapshot:

4th quarter real GDP increased at an annual rate of 2.1%. This modest rate of growth was in line with the 2nd and 3rd quarter of 2019. The increase reflected positive contributions from personal consumption expenditures (consumer spending) government spending (can you say trillion dollar deficits), housing, and net exports.   These were partially offset by negative contributions by private inventory investment and nonresidential fixed investment.      

The part of the increase in real GDP that came from net exports was aided by a slowdown in imports caused by a 3rd quarter rush to avoid the increase in tariffs on Chinese goods that ending up not taking place. Remember, net exports are exports minus imports. Thus, the 1st quarter of 2020 will probably be lower than it otherwise would have been due to imports returning to more normal levels.The deflator for GDP in the 4th quarter increased at 1.5% annual rate. The deflator is now 1.6% higher than a year ago.As expected, personal income growth moderated in December.  Growth slowed from 0.4% to 0.2%. 

Disposable income growth also slowed.  The slowing is expected to be temporary as the tight labor market should boost wage growth over the next few months.Both major measures of consumer confidence increased in January.  The Conference Board Consumer Confidence index increased to 131.6 in January compared to 128.2 in December and 121.7 a year ago.  The University of Michigan Sentiment Index rose marginally to 99.8 in January.  This index is up from 99.3 in December and 91.2 a year ago. 

Both remain at a high level.Durable goods orders were down 3.7% from a year ago in December. But, non-defense goods excluding aircraft were up 1.0% from a year ago. This measure, a proxy for business spending, was down 0.9% from November to December. Thus, business spending was not very good but not very bad either. Overall, as long as the consumer continues to spend, the economy should continue to grow modestly. New home sales in December were a seasonally adjusted 694,000 at an annual rate. 

This compared to 697,000 in November and 564,000 a year ago.  The 0.4% decline for the month, which surprised analysts, appears to be a continuation of the lack of inventory issue at the lower end of the price spectrum.The S&P/CoreLogic Case-Shiller national home price index rose 0.1% in November from October and was up 2.6% for the year ending November.  The index had been showing continued slowing in year over year prices.  In October, the index was up 2.2% year over year. 

Arizona Snapshot:

Statewide lodging performance continued to improve in the 4th quarter.  Occupancy improved to 66.3% compared to 65.2% a year ago.  Demand was up 3.3% year over year while supply was up 1.6%.  For Greater Phoenix, occupancy was up to 69.1% in the 4th quarter vs. 68.0% a year ago as demand increased 4.3% and supply was up 2.7%. 

In Greater Tucson, occupancy increased to 65.1% in the 4th quarter compared to 62.8% a year ago as demand increase 2.4% while supply actually declined by 1.2%.Operations at Sky Harbor International Airport grew by 3.0% in 2019 vs. 2018 as enplanements increased by 3.2% while deplanements increased by 2.8%.The Greater Phoenix S&P/Case-Shiller Home Price Index increased by 5.9% in November compared to year earlier levels.  The index was up 0.4% in November when compared to October.  This is the largest increase in home prices of any city in the 20 city composite. 

This is not good news.  It hurts affordability and indicates that the supply/demand imbalance in single family housing continues to be a problem.  That’s especially true for homes below the median price.

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 2020