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
Here are a couple of snippets of news to consider as we continue to dig ourselves out of the impact of the pandemic amid labor and material shortages, supply chain bottlenecks, inflation, and airline flight cancellations
The American Trucking Association (ATA) estimates that the ongoing shortage of truck drivers is now at 80,000, up from 60,000 just three years ago. The industry hauls 72.5% of all freight transported in the United States and employs about 6% of all full-time workers. Many factors contribute to a lack of drivers including age demographics, trouble recruiting and retaining female drivers, the COVID-19 pandemic, drug testing, age restrictions (commercial drivers must be 21), time away from home, and pay. Vaccine mandates may also further affect the industry. The ATA estimates that the industry will have to recruit 1 million new drivers within the next nine years to replace retiring drivers. While Southern California ports have been ordered to stay open all night to unload ships, the lack of truck drivers to move the goods is still impeding deliveries. The industry will need some overhaul to improve conditions for drivers including increased pay, regulatory changes, and modifications to distribution business practices.
Sky Harbor International Airport is seeing continued improvement in passenger traffic. The first quarter of 2021 saw passenger traffic at only 55% of 2019 levels. However, since then there has been rapid improvement and since June, traffic has only been off about 4% on average each month compared to 2019. This trend is expected to continue for the remainder of the year, and we expect total 2021 passenger levels to end somewhere around 83% to 85% of 2019 levels. Traffic should continue to improve into 2022 although business travel throughout the U.S. is still only estimated at 35% of pre-pandemic levels.
Passenger traffic at Sky Harbor is indicative of the improvement in the hotel market in Greater Phoenix. The American Hotel and Lodging Association (AHLA) now rates Phoenix as the fourth best performing hotel market in the country behind Miami, Tampa, and Norfolk/Virginia Beach. The AHLA rates the Greater Phoenix hotel market as in the “Stabilizing/Recovery” phase with Revenue Per Available Room (RevPAR) at 6% below 2019 levels. This compares to the U.S. average at -22%. In some markets such as San Francisco, Boston, Washington, DC, and New York, RevPAR is off anywhere from 60% to 70% to 2019 levels. While this is good news for Phoenix, employment in the industry is still well below pre-pandemic levels.
U.S. Snapshot:
- The U.S. economic growth slowed further than expected as real GDP increased at 2% annualized rate below the 3% expectation. The majority of the decline was in consumer spending. A combination of factors led to a slowdown in spending including a resurgence in COVID-19 cases and the expiration of forgivable loans, grants and social benefits.
- Growth in household spending slowed but continued despite personal income decreasing 1.0% for the month. Consumer spending grew 0.6% in September following a 1.0% increase in August.
- The Consumer Confidence Index rose for the first time in three months in October. While the fear of inflation remained present in consumer’s minds, it was outweighed by improvement in the labor market. October’s reading was 113.8, up 4.1% for the month and 12.2% for the year. The University of Michigan Consumer Sentiment did not see the same improvement as the Consumer Confidence Index. Consumer sentiment remained 0.1 below the 2020 low of 71.8 as inflation had a bigger influence on this index.
Arizona Snapshot:
- Passenger levels continued to recover in September at Sky Harbor Airport. In September, there were 1.65 million enplaned, 1.64 million deplaned and total passenger traffic of 3.29 million for the month. Compared to 2019, September’s level was down 4.6%.
- The Greater Phoenix home prices increased at a headline-making pace in August, according to the latest S&P CoreLogic Case-Shiller data release. Greater Phoenix led all metros with 33.3% year-over-year growth. The closest metro was San Diego with 26.2% and the 20-City Composite at 19.7%.
- The positive momentum in Greater Phoenix’s industrial market continues, albeit at a slower rate of absorption according to the third quarter data. There was over 3.2 million sq. ft. of positive net absorption bringing the 2021 total to 15.2 million sq. ft. There were a total of 2.1 million sq. ft. of new construction delivered, bringing the vacancy rate down to 4.2%.
- The Greater Phoenix office market saw some positive light despite another quarter of negative absorption. In the third quarter, net absorption declined by 436,371 sq. ft. bringing the vacancy rate up to 20%. The majority of the absorption decline was expected as the vacates at the Chase Tower occurred during the quarter. The positive news was the absorption of 171,025 sq. ft. in the suburban markets. Bringing some much-needed optimism that firms are maneuvering the working from home versus in-office dynamics.
