The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
By Elliot D. Pollack & Co.
President Biden officially signed the latest COVID-19 relief bill last Thursday totaling $1.9 trillion and many households have already reported their stimulus checks have been deposited into bank accounts which should continue over the next few weeks and accounts for about 22% of the relief bill. Those that have remained unemployed will also receive an extension of the additional $300 weekly unemployment benefits, accounting for another 13% of the bill. The remaining 65% will be distributed among numerous beneficiaries and initiatives, including state and local government aid, education, vaccinations and testing, transportation, small business support, tax credits, and others.
The Arizona Joint Legislative Budget Committee has published preliminary estimates of how much of the total aid could be coming to Arizona’s governments. In total, state and local governments, including state departments, universities, community colleges, and the Arizona Commerce Authority, could receive an estimated $16.1 billion. The largest amounts ($7.4 billion) are set aside for state and local fiscal recovery funds to respond to COVID-19 and associated negative economic impacts (though these funds may not be used to reduce taxes). The next largest category is reserved for various needs in education ($3.2 billion) from K-12 through the college and university system. Significant monies could also come to the state for healthcare ($1.7 billion), business aid ($1.2 billion), human services ($979 million), housing ($787 million), and transportation ($690 million). This does not include the various benefits to Arizona’s households in the form of direct payments, tax credits, tax exemptions, and other tax relief.
Overall, it’s an astounding amount of money being put into the U.S. economy, on top of previously astounding amounts of money that has been placed into the economy from earlier relief bills over the past year. There are legitimate complaints about relief funds being too generalized and not narrowly focused enough. Despite that, the sheer amount of stimulus will affect economic activity, to be sure. Paired with an accelerating vaccination program, the economy is poised to boom over the next few quarters. After that, the amount of stimulus is likely enough to keep the economy humming for another couple of years.
The economy was also on solid footing before the pandemic arrived last year and the recession was a result of government shutdowns. That means many were able to keep their employment and improve their financial situation with the help of stimulus as well as refraining from certain activities, a significant category being travel. That is now in the process of being resolved through the vaccination process.
Increased inflation and interest rates, including mortgage rates, will be the issues to watch out for over the coming year. However, the Fed has indicated that they are committed to keeping interest rates low through at least 2023 to help accomplish their goal of maximum employment and stable 2% inflation.
In terms of data released this week, the Blue Chip panel of forecasters have raised their expectations for this year and next based on many of the issues we’ve been discussing, namely vaccination progress and additional federal stimulus. Also, inflation remained in check for the month of February and consumer confidence increased.
Here in Arizona, job loss figures were revised even lower for 2020 and job losses continued in January on a month over month and year over year basis, primarily related to the retail sector. Retail sales, however, are booming and January’s retail sales in the state posted a 10.5% rate of growth over last January. The same cannot be said of restaurant and bar sales or hotel stays. However, we expect these categories to rebound substantially this year. Also, supply and demand imbalances persist in the resale home market in Tucson which reported a 27.6% decline in available inventory last month.
- The Blue Chip Forecasts panel raised their forecast for 2021 and 2022. The panelists have pointed to the increase in vaccinations and the additional fiscal stimulus as the primary reasons for raising their forecast. March’s forecasted GDP growth for 2021 is a 5.7% and 4.1% in 2022. As of March 10, 32.9 million people have been fully vaccinated. Long-run inflation is projected around 2.0% with interest rates increasing commensurately.
- The fears of inflation subsided, at least for the month of February. All items increased 0.4% and all items less food and energy increased at 0.1% for the month. Both remained below the Fed’s 2% target rate. The expectation remains the same. Inflation is expected to accelerate as the $1.9 trillion stimulus package starts to be distributed, COVID-19 cases drop, and vaccinations increase to fully allow the economy to reopen.
- The Michigan Consumer Sentiment saw positive gains in the first half of March. The index came in at 83. It was the highest reading since March 2020 (89.1). Once again, the increase in the number of people vaccinated and the passage of additional fiscal stimulus led to the increase in confidence.
- January’s wholesale inventories increased 1.3% despite the acceleration in sales of 4.9%. The inventory-to-sales ratio reached its lowest point since August 2018.
- Arizona Office of Economic Opportunity released January’s data and revisions for the previous years. Unfortunately, this year’s revisions were not favorable to 2020 results. Arizona had an upward revision of 5,400 jobs for 2019 but a downward revision of 20,500 jobs for 2020. Greater Phoenix saw the same pattern with a gain of 2,900 jobs in 2019 and a loss of 15,400 jobs in 2020. Greater Tucson had a revised net gain of 1,500 jobs in 2019 but reported 5,300 fewer jobs in 2020 than initially reported.
- In January, Arizona lost 41,700 or 1.4% of jobs. The primary losses were in retail trade with 12,800 jobs. Greater Phoenix and Greater Tucson lost 33,100 and 4,500 jobs, respectively.
- Retail sales in Arizona (10.5%) and Maricopa County (10.9%) saw a double-digit increase from a year ago in January. Restaurant and bar saw a decline of 11.0% for the state as a whole and 13.0% for Maricopa County. The hotel/motel continues to see large declines with 40.7% in Arizona and 53.4% in Maricopa County.
- Total inventory continues to decline in Greater Tucson according to the Tucson Association of Realtors. Inventories decreased 27.6% in February, while sales had small increase of 0.7% within the same time period.