Pollack: Inflation, what a drag

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

Inflation’s drag on the economy continue to persist and it has continued to increase recession odds. Economists surveyed by The Wall Street Journal recently raised the probability of recession to 44% in the next 12 months. This level of probability is usually seen only on the brink of or during actual recessions. We also have a third reading of GDP for the first quarter showing a contraction of 1% and forecasters are now clinging to only slightly positive GDP growth or the second quarter.

Consumers are also unhappy. Consumer spending has softened, and their short-term expectations outlook has dropped substantially. The culprit again is inflation and the loss of purchasing power compared to 12-24 months ago.

Despite the gloomy news, recent data on specific sectors of the state’s economy continue to show improvement. Lodging performance posted another gain for the month of May compared to last year and occupancy year-to-date improved to 68.3% from strong growth in demand with supply relatively unchanged. Passenger activity at Sky Harbor also improved year-to-date compared to last year. However, we still have not surpassed pre-pandemic activity levels. Finally, home prices reported another gain and Phoenix remains a top-3 market across the country in terms of home price appreciation. That is good news if you are already a homeowner but yet another data point shouting for increased housing supply in the market.

U.S. Snapshot:

  • Real GDP declined more than previously reported, according to last week’s revisions from the Commerce Department. The annualized rate for the first quarter declined by 1.6% down from the previous estimate of 1.5%. Despite the first quarter decline, growth is expected to resume in the second quarter, but the growth rate is forecasted to be below 1%.
  • Personal income increased $113.4 billion or 0.5% in May, according to the latest Bureau of Economic Analysis. Personal consumption expenditures rose 0.2%, down from 0.6% growth rate seen in April.
  • Consumer Confidence fell to 98.7, the lowest level since February 2021. The Present Situation Index (business and labor market) remained nearly unchanged in May. But, the Expectation Index (short-term income, business, and labor) portion of consumer confidence suffered the sharpest decline, reaching its lowest level since 2013.
  • ISM’s Manufacturing PMI fell 3.1% to 53% in June. This was the lowest level since June 2020. Despite the decline, the index remained above the 50% threshold that signals growth in the manufacturing sector.

Arizona Snapshot:

  • Arizona’s lodging performance for May continued to improve from 2021. Last month, the occupancy level increased 6.8% to 68.3% for the year. Demand increased 7.1% with supply only increasing by 0.3% over the same period.
  • Passenger activity at Sky Harbor improved as well. Year-to-date through May, total activity in 2022 was up 8.1% from 2021. When compared to a pre-pandemic 2019, overall activity remains down 7.1% in 2022.
  • Home prices in Greater Phoenix continued growing but at a slower rate, according to the Case-Shiller Index April data. Greater Phoenix’s home prices grew 31.3% down from 32.4% in March. The Phoenix metro remained in the top 3 with Tampa and Miami growing at a faster rate. Prices nationally rose 20.4%.
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