The Monday Morning Quarterback, a quick analysis of important economic data released over the past week
ELLIOTT D. POLLACK & Company
It was a good week for economic information both nationally and in Arizona. Conditions on the unemployment side of the labor market remain positive. And although manufacturing does not appear to be rebounding from the weak first quarter, leading indicators are up and consumer prices appear under control. In addition, the number of homeowners with negative equity continues to decline.
In Arizona, employment continues to grow at a moderate rate but is still way below what has historically been normal for this point in the cycle. A modest rate of growth in the national economy and weak construction markets are to blame. But, more jobs are being created, especially in Greater Phoenix. That, along with the continued decline in the percent of homeowners with negative equity is good news. The state still has a way to go, though.
Arizona Snapshot
Arizona’s seasonally adjusted unemployment rate dropped from 6.0% to 5.8% in May. This is the 3rd month in a row that the rate has dropped at least 2/10 of a percent. A year ago, the unemployment rate in Arizona stood at 6.9% and the U. S. rate was 6.3%.
Arizona nonfarm employment grew by 2.4% or 61,100 jobs for the year ending May. The private sector accounted for 57,800 of the jobs.
Greater Phoenix lead the way with a gain of 55,200 jobs for the year ending in May. For the first 5 months of the year vs. the same period in 2014, Greater Phoenix gained 54,900 jobs. In absolute terms, educational and health services, professional and business services and leisure and hospitality lead the way. Greater Phoenix has now gained back 87% of the jobs lost in the great recession. The unemployment rate in Greater Phoenix dropped from 4.8% to 4.6% in May.
Greater Phoenix now ranks 12th out of 32 major employment markets in the U.S. for the first 5 months of 2015. While this is respectable, it is far below the area’s traditional relative ranking in a recovery.
While the unemployment rate in Greater Tucson is a low 4.9%, the area has gained only 2,800 jobs (a gain of 0.8%) over the past year and 4,200 jobs (a gain of 1.2%) for the first 5 months of the year compared to the similar 2014 period.
CoreLogic reports that the percent of home owners with negative equity in Greater Phoenix has dropped from 20.6% a year ago to 16.9% as of the 1st quarter of 2015. Yet, those with 1-20% equity (called under-equitied) rose from 20.3% to 22.0%. This is not surprising as so many have gained some equity back but not enough to give them a strong cushion.
May was a good month for housing with permits in Greater Phoenix up 41.1% compared to last May to 1,458 units. Year to date, the market is up 30.8% from 4,696 units last year to 6,142 units. The median new home price was $300,000.
Greater Tucson also had a good month with 217 permits, a gain of 22.6% from a year ago. Year to date, however, permits are down 4.7%.
U.S. Snapshot
Initial claims for unemployment insurance are back down near historic lows. This suggests that the unemployment rate should continue to decline.
Those favoring higher interest rates at this week’s FMOC meeting won’t be able to point to manufacturing as a strong factor. Instead of rebounding from a weak 1st quarter, industrial production slowed further in May. The May number declined 0.2% after a 0.5% decline in April. This is the 4th straight decline. The weakness in May was concentrated in consumer goods and construction supplies, the latter a disappointing indication for the housing market. Vehicles, on the other hand, were a positive.
Capacity utilization continued to decline and is now 1.3% below a year ago.
Leading indicators showed remarkable strength, surging 0.7% for a second month.
Consumer prices gained 0.4%. But, after adjusting for food and gas, it was up only 0.1%.
Despite the information contained in the industrial production report, housing starts and permits point to solid strength for the housing sector. Starts came in at a 1.036 million annual rate in May and April was revised up to 1.165 million. Permits surged 11.8% following a 9.8% gain in April. This is a strong rebound after the 1st quarter’s weather induced weakness.
The number of homeowners with negative equity fell to 10.2% in the 1st quarter compared to 12.9% a year ago and 10.8% in the 4th quarter. This is a big positive and, as the decline continues, will free up more home owners to move or at least feel less of a burden.
