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
The current economic landscape contains some very contradictory elements. On the positive side, we have very strong job reports, a low unemployment rate, 6% wage growth, and millions of jobs not being filled. The negative side of the economy includes rising interest rates, high inflation, declining housing affordability, continued supply chain disruptions, lack of labor, the no-COVID policy in China (which will further exacerbate supply chain issues), and the war in Ukraine to name a few. Some economists, banks, and financial institutions are forecasting the probability of a recession in 2023.
The Fed is still planning for “soft” landing for the economy where inflation is brought down to reasonable levels while not impacting employment. But many elements such as the Ukraine war and supply chain disruptions are beyond their control.
The Conference Board Leading Economic Index (LEI) for the U.S. decreased by 0.3 percent in April to 119.2 (2016 = 100), following a 0.1 percent increase in March. The LEI is now up 0.9 percent over the six-month period from October 2021 to April 2022. April’s decline was due to weak consumer expectations and a drop in residential building permits. Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board, said the US LEI was essentially flat in recent months which is in line with a moderate growth outlook in the near-term. The Conference Board projects the US economy should resume expanding in Q2 following Q1’s contraction. The full year projection is for 2.3% year-over-year growth in 2022.
Homebuilder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the NAHB/Wells Fargo Housing Market Index. The decline was due to affordability challenges resulting from rapidly rising interest rates, double-digit price increases for material costs, and ongoing home price appreciation.
Existing-home sales recorded a third straight month of declines, slipping slightly in April, according to the National Association of Realtors. Month-over-month sales were split amongst the four major U.S. regions, with two areas posting gains and the other two experiencing waning in April. Year-over-year sales struggled, as each of the four regions reported dips.
According to the R.L. Brown Phoenix Housing Market newsletter, the Greater Phoenix housing market is starting to soften. New home permits were down 19.3% from last April and almost 7% for the first four months of 2022. The average new home price now stands at $546,500 compared to $449,900 just one year ago. The Tucson housing market is experiencing a similar trend of declining permit activity.
- Weak consumer expectations dragged down the Leading Economic Index by 0.3%. Despite the decline, the index is up 0.9% since October 2021. The Conference Board has dropped their GDP forecast to 2.3% for 2022 as the index has flattened in the last few months.
- Retail sales were up 0.9% for the month and 8.2% for the year. While consumers continue to spend and drive demand, they are getting less for their money. Retail sales are not adjusted for inflation. Consumers spent more in restaurants and cut back on gas (gas prices dropped slightly in April).
- Industrial production (a measure of factory, mining and utility output) increased 1.1% for the month. April’s increase was the fourth consecutive month.
- As affordability declines and material costs increase, NAHB’s Housing Market Index dropped 8 points to 69. May’s level was the lowest level since June 2020 and the fifth consecutive month with a decline.
- Housing starts in the U.S. in April dropped slightly for the month but were up 14.6% from a year earlier. Permits declined 3.2% for the month and were up 3.1% for the year. Unfortunately, completions declined again for the month and is down 8.6% from last year’s level.
- The number of existing home sales fell across the nation in April. The sales rate dropped 5.9% from a year ago as prices increased 14.8% for the same period. Inventory has improved but remains below a normal market.
- Arizona added 13,100 jobs in April, with 8,000 coming from Greater Phoenix, 2,200 in Greater Tucson and 2,900 in the balance of the state. The majority of employment gains in the state were in Professional & Business Services (5,500), Manufacturing (3,600) & Government (3,500). Trade, Transportation & Utilities had a monthly decline of 5,100 with 3,500 coming in the Greater Phoenix metro.
- Year-to-date, employment for both Arizona and Greater Phoenix was up 4.0% from a year ago. Greater Tucson outperforms both with a 4.1% growth rate.
- Price and interest rate increases have worked their way into the Arizona housing market, according to the latest RLBrownReports.com.
- Metro Phoenix saw an annual decline in April for resales, new home sales and permits. The number of resales were down 9.9% in April, while prices were still up 26.3% for the same period. New home closings declined 8.9% with prices increasing 22.8% from a year ago. Permits had the biggest decline with 19.3% compared to April 2021.
- Year-to-date, resales were down 3.2%, new home closings declined 5.0% and permits dropped 6.7%.
- Resales in Greater Tucson declined 7.0% from a year earlier but remain up 1.8% for the year compared to the same period last year. New home closings were up 3.1% for the year, but the 2022 year-to-date total was down 1% from 2021. April permits declined 15.6% with the year-to-date total declining 7.5%.
- Median sales prices continued to increase in Metro Tucson. Resale prices increased 24% and new home prices were up 22.3%.