Pollack: Nagging inflation

The Monday Morning Quarterback
A quick analysis of important economic data released over the last week

By Elliot D. Pollack & Co | Rose Law Group Reporter


Economic data nationally focused on GDP forecasts, inflation, and retail sales. The consensus GDP forecast for 2021 and 2022 has been declining gradually over the past few months, with the latest forecast dipping below 6% for 2021 and forecasted 4.3% for 2022. But, keep in mind, average GDP growth over the last decade was 2.3% per year. These will still be very good outcomes for the U.S. economy, but the trend reflects a moderating perception on the magnitude of potential growth over the next two years.

High inflation also remains a concern. Thankfully, August saw a slowing of monthly inflation growth to a 6-month low thanks to a drop in motor vehicle prices, but still amounts to 5.2% year-over year (4.0% annual growth for core inflation). Most of the blame still points to disruptions in the supply chain and semiconductor shortages. These are very fixable issues. The Fed also appears to be mulling policy changes in the face of a continuing recovery and inflation concerns. There is little expectation that they will be raising rates anytime soon, but many expect them to taper their bond buying program starting closer to the end of the year.

Locally, we continued the trend of positive employment news with the August release of data. Arizona is now 97.1% recovered in total jobs and has fully recovered all private sector jobs. Greater Phoenix has now recovered all of the jobs lost from the pandemic recession, joining other regions around the state that recovered even more quickly such as Sierra Vista, Prescott, and Lake Havasu. The unemployment rate also declined with a combination of job gains and a slight decline in the labor force. Also, retail sales also dipped for the month of July but still substantially higher compared to the same month a year ago.

U.S. Snapshot:

  • The Blue Chip Economic Indicators real GDP forecasts dipped just below 6% for the first time since the March 2021 issue after the third consecutive downgrade of their projection. The latest forecast of 5.9% for 2021 and 4.3% for 2022 were reduced by the reduction in residential investment, inventories, vehicle sales and the presence of inflation. Despite supply shortages seen across the economy, demand remains high. Personal consumption is expected to grow by 7.9% this year.
  • Inflation remains high despite slower growth seen in August, according to the August release of the consumer price index. The all-items index increased 0.3% for the month, down from 0.5% growth seen a month ago and up 5.2% year over year. Core inflation was up 0.1% for the month and 4.0% from a year ago.
  • Retail sales had an unexpected increase of 0.7% in August, up from the 1.8% decline in July. The August increase is likely due to the child tax credit payments and back-to-school shopping.
  • Industrial production grew at 0.4% for the month of August. The growth was below expectations as Hurricane Ida forced plant closures and other disruptions.

Arizona Snapshot:

  • Employment (not seasonally adjusted) was up across the state with the majority of gains coming from the Government sector in August. Arizona gained 53,600 with 33,300 coming from Government and 11,800 from Education and Health Services. Employment gains in Greater Phoenix were 32,200 (1.5%) and 9,300 (2.5%) in Greater Tucson.
  • The latest seasonally adjusted employment data showed Greater Phoenix has recovered all of the jobs lost during the COVID-19 recession. Greater Phoenix became the fourth metro in Arizona to recover following the Sierra Vista, Prescott and Lake Havasu metros. As of August, Arizona remains 9,600 jobs from its pre-pandemic peak and Greater Tucson has 7,500 jobs left to recover.
  • With the August release, Arizona has recovered 97.1% of total jobs and one out of the eleven supersectors has recovered fully. Leisure and Hospitality has gained the most jobs since the start of the recovery, but it is still only at 82.9% from February 2020 level.
  • Across the state, the labor force declined by 8,900 people, while the number employed increased by 30,000 so the number unemployed dropped 38,900, bringing the unemployment rate down to 5.4%. The unemployment rate in Greater Phoenix and Greater Tucson declined to 4.8% and 5.3% respectively.
  • Retail sales had a monthly decline in Arizona and Maricopa County in July. Arizona saw a drop of 6.7% while Maricopa County was down 7.2%. Retail sales had been extremely resilient throughout the recovery. Compared to a year ago, Arizona was up 17.4% and Maricopa County increased by 19.6%.
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