ELLIOTT D. POLLACK
& Company
FOR IMMEDIATE RELEASE
January 14th, 2019
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
The economy continues to move forward but at a decelerating pace. This was expected by virtually all forecasters. And while a few panicked souls predicted recession at the bottom of the recent stock market correction, they will probably prove to be premature in that prediction.
The consensus forecast is still for slowing grow in both 2019 and 2020. After real GDP growth of about 3.0% in 2018, growth is anticipated to be 2.6% this year and 1.9% next. Keep in mind that this is a consensus forecast. So, many expect somewhat faster growth, and many expect slower growth. Some even expect a recession next year. But, in terms of general expectations, it is simply for slower growth.
It is clear that psychology is playing a factor here. When people hear that a recession is even a possibility, they start to focus on what happened in 2007-2009 and on the painfully slow recovery that followed from 2010-2014. This is short sighted.
Most recessions are relatively short and shallow. And a recession remains a low probability event for 2019. Of the 11 recessions since the end of World War II, only three were severe. In 1973-1975, the economy had to deal with the oil embargo, the specter of wage and price controls and the residual of leaving the gold standard. In 1982, inflation was in the double digits. In 2007-2009, the effects of the housing bubble caused credit markets to crater.
Other than those unusual events, recessions lasted 8-11 months and were not deep. Yet, people have very short-term memories when it comes to financial history. It is not surprising that many focus on the last event even though a repeat of such an event is highly unlikely in our lifetime.
So, while it is good to be cautious and the cycle is aged, that doesn’t change the outlook. Slowing but continued growth in 2019. A recession out there somewhere but not just around the corner. And, at the present time, no imbalances in the economy that would cause a recession, when one inevitably does show up, to be anything but short and shallow. The ride is not over.
U.S. Snapshot:
- Total outstanding consumer credit increased at a 6.7% annual rate in November and now stands 4.3% above a year ago. Revolving credit (mostly credit card debt) rose at a 5.5% annual rate and is now just 2.2% above where it was a year ago. This indicates that consumers are being careful with their credit cards. Non-revolving credit (mainly auto and student loan debt) rose at a 7.1% annual rate and stands 5.1% above a year ago.
- The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1% in December after being unchanged in November. The index now stands 1.9% above a year ago. All items less food and energy, known as the base rate of inflation, was up 0.2% for the month and stands 2.2% above a year ago. Thus, inflationary pressures appear to have remained under control in December.
- The ISM’s non-manufacturing index fell to 57.6 in December from November’s 60.7. A year ago, the index stood at 56.0. Any reading above 50 indicates that the non-manufacturing sector is expanding.
Arizona Snapshot:
- According to the Home Builders Association of Central Arizona, there were 1,591 permits for new single family homes in Greater Phoenix in December. This compares to 1,606 in December 2017. For 2018 as a whole, there were 22,437 permits issued in Greater Phoenix. In 2017, 19,864 permits were issued. This is a gain of 13.0%.
- Apartment demand has exceeded development in the Greater Phoenix area according to Berkadia. Builders brought more than 8,200 units on line in 2018. Even with this, vacancy rates in the 4th quarter of 2018 were 4.6% compared to 5.4% a year earlier. Rents averaged $1,045 in the 4th quarter. That’s up 5.5% from the 4th quarter of 2017.
- According to Berkadia, apartment fundamentals in the Greater Tucson area also improved. Vacancy rates fell to 5.5% in the 4th quarter of 2018 compared to 5.6% a year earlier. Rents were up 5.2% for the year ending the 4th quarter to $777.
About EDPCo
Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers. For more information, contact –
Elliott D. Pollack & company
7505 East Sixth Avenue, Suite 100
Scottsdale, Arizona 85251
480-423-9200
