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
Lots of data below, so pace yourself.
Inflation is dominating headlines. August’s report basically showed that the economy is still too hot, and any action taken by the Fed so far has done nothing to curb the current level of inflation. Many have pointed to the early 1980s as a comparable for what we are experiencing today. That’s also an appropriate period to review what lengths the Fed had to go to in raising interest rates to actually have any impact on inflation. Historically, interest rates have had to meet or exceed the rate of inflation to keep it in check. With 6.3% core inflation and 8.3% total inflation, you can start to see how far the Fed still needs to go before monetary policies will have an effect. As long as the Fed has the stomach for it, we don’t need to speculate regarding future rate increases happening at each of the next several Fed meetings. They are virtually guaranteed.
The rest of the data is mixed, as usual. Expect continued volatility broadly and for industries that are sensitive to interest rates to experience the largest shocks in the short term. Overall, we still have a strong jobs market, and a lot of households still have extra money saved up. This is counteracting the strategy of the Fed to slow the economy down, which we believe is still on the horizon over the coming year.
U.S. Snapshot:
- Stubborn high inflation continued in August. According to the latest CPI release, inflation for all items rose by 8.3% from a year ago, down from the 8.5% seen last month. The closely monitored core-inflation (removing energy and food categories), however, increased 6.3% compared to 5.9% last month. Total inflation declined in part due to the drop in gas prices but were offset by increases in other categories. Energy and food have high price volatility. Once you control for energy and food, the data showed that price increases were strong and broad in August.
- Retail sales dropped 0.4% for the month of July. The data reflects the decline in gasoline purchases as vehicles and back-to-school items saw increases. The data is not inflation adjusted, as retail spending has remained strong despite inflationary pressures.
- Consumer sentiment had a very slight uptick (58.2 to 59.5) in September’s preliminary reading. While the index has recovered since the lows of the summer, the level remains 18.3% below last year’s.
- July’s positive factory momentum did not continue into August, as both industrial production and capacity utilization fell in the month. Industrial production dropped to 104.5 from 104.7 while capacity utilization declined from 80.2% to 80.0%.
- ISM’s Service Purchasing Manager’s Index rose 0.2% to 56.9% in August. The service sector continued growing last month and remained well above the 50% threshold. August was the 27th month of growth.
- Consumer credit rose $28.3 billion in July. Revolving credit (credit cards) increased $10.9 and non-revolving credit (auto loans and student debt) rose $12.9 billion. The recent increase shows households are using more debt to finance purchases.
- Mortgage rates rose again last week as lenders factored in the Fed’s changes in monetary policy. The 30-year mortgage rate was 6.42%, up from 5.98% last week. This equates to a 112% increase from just a year ago.
Arizona Snapshot:
- Inflation in Greater Phoenix continues to outpace the nation. The U.S. saw overall inflation increase 8.3% with core-inflation increasing 6.3%. The Phoenix metro area saw an increase of 13% for total inflation and 12.3% in core-inflation. The 13% increase led all metros, with Atlanta and Tampa following with 11.7% and 11.2%, respectively. Greater Phoenix is likely to continue outpacing the nation, as the price for shelter (owner-equivalent rent and rent) has increased dramatically across the valley.
- Employment gains continued in Arizona. The year-to-date figures show the state adding 113,300 jobs, or 3.9% growth over last year. Greater Phoenix added 86,400 jobs (4.0%) and Greater Tucson had a 3.5% growth with 13,000 net job gains.
- On a seasonally adjusted basis, Arizona added 4,200 jobs for the month of August. Greater Phoenix added 1,200 jobs, with Greater Tucson growing by 800 jobs and the balance of the state 2,200 jobs. The State and Greater Phoenix have surpassed their February 2020 employment levels, while Greater Tucson remains 300 jobs below its 394,900 peak.
- Total sales in Arizona were up 5.2% in July, with retail sales increasing 4.6% from a year ago. Maricopa County saw smaller gains, with 4.5% for total taxable sales and 3.9% in retail sales.
- According to the Cromford Report, the number of active listings in Greater Phoenix increased to 19,400, up over 150% from a year earlier. Keep in mind, active listings are now roughly equivalent to active listing inventory from the 2015-2018 period which was considered a balanced market. The difference now is the drop off in buyer demand. Year-to-date resale volume is down 14% but recent weekly sales are down 33% compared to last year.
- The Tucson Association of Realtors’ August data shows the number of listings for single family homes was down 80.2% from a year earlier, as the number of closed sales declined 3.5% for the year in the Greater Tucson market.
