ELLIOTT D. POLLACK
& Company
FOR IMMEDIATE RELEASE
May 13th, 2019
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
The big economic news last week wasn’t the data. It was tariffs. The U.S. imposed an increase on $200 billion worth of Chinese goods from 10% to 25% because of a lack of progress in tariff talks. China accounted for 47% of the U.S. trade deficit in 2018. That amounts to $419.1 billion.
The Chinese government obviously thought that Trump was bluffing. He wasn’t. While talks are likely to continue, the tariffs are likely to remain in place until progress is made on several trade fronts including theft of intellectual property rights. Indeed, the Administration is talking about increasing tariffs on another $325 billion in Chinese goods.
Overall, there are winners and losers domestically. For the economy as a whole, the impact is minimal. American consumers were saddled with $69 billion in added costs because of the tariffs on U.S. imports last year including $250 billion on Chinese imports as well as levies on steel and aluminum. The U.S. had winners as well. For example, the federal government collected an estimated $39 billion from new tariffs and U.S. manufacturers and producers, such as steel mills and washing machine makers boosted income by $23 billion because tariffs on foreign competition let them charge more for their products. So, the net was $6.4 billion. This is a small amount in a $21 trillion economy. The rub is that it appears that higher U.S. tariffs were almost completely passed through in the form of higher U.S. domestic prices.
In addition to the tariff increase of last Friday, President Trump has also said he plans to “shortly” levy new 25% tariffs on $325 billion of Chinese goods which are mainly consumer goods. Given what the U.S. imports from China, the goods affected will include toys, sporting goods, clothing accessories, furniture and bedding accessories, non-textile apparel and textile apparel. China announced it will raise tariffs on $60 billion of U.S. goods starting June 1. If the increased tariffs last only a short time, the numbers will be significantly reduced. I still believe this is a battle the Chinese government can’t win.
In other economic news, the Blue Chip forecasting panel has raised its expectation for real GDP growth in 2019 and has held the expectation for 2020 steady. Inflation is expected to stay under control in both years. The number of job openings available continues to climb despite the rapid increase in employment. Revolving consumer credit remains under control while non-revolving credit continues to grow rapidly. Prices as measured by the CPI-U remain in the 2.0% range. And mortgage rates nationally are just over 4%.
In Greater Phoenix, resale housing remains strong with a higher resale level and modestly increased listings. The office market remains strong as well. And vacancy rates in the industrial market continue to decline on a year over year basis as absorption exceeds change in inventory.
Overall, the picture remains good.
U.S. Snapshot:
The unexpectedly strong real GDP growth in the 1st quarter contributed to an increase in the Blue Chip Economic Indicators panel forecast for all of 2019. The latest forecast is for 2.6% annual growth compared to 2.3% in the April forecast. For 2020, growth is forecasted to be 1.9% for the year. This is the same as the April forecast. Inflation, as measured by the consumer price index, is forecast for 1.9% for this year as a whole and 2.2% in 2020. These are unchanged from last month.
The number of job openings rose to 7.5 million on the last business day of March. This is up from February’s 7.1 million and 6.9 million a year ago. The increase for the month was almost entirely in the private sector.
The consumer price index for all urban consumers declined 0.3% in March and now stands 2.0% above year earlier levels. The base rate of inflation (all items less the volatile food and energy sectors) were up 0.1% for the month and stand 2.1% above year earlier levels. This is in line with expectations.
Total outstanding consumer credit increased by 0.3% for March and now stands 4.9% above year earlier levels. Revolving credit, mainly credit cards, were down 0.2% for the month and now stand up 3.2% from year earlier levels. Non-revolving credit, mainly auto and student loan debt, was up 0.4% for the month and is 5.6% above a year ago.
30-year fixed rate mortgage rates fell to 4.10% for the week of May 9. This is about the same as a month ago and down 0.45% from a year ago.
Arizona Snapshot:
According to the Cromford Report, active listings in April stood at 23,893 units. This is up very slightly from both March (23,790) and year earlier levels (22,383). Resales in the Greater Phoenix area were up 5.4% from a year ago to 9,677 units. Average days on the market were 67.5 compared to 71.0 in March and 64.1 a year ago.
According to CBRE, the Greater Phoenix retail market stabilized in the 1st quarter of 2019. Absorption was 280,186 square feet. This is the same general range as the second half of 2018. Change in inventory was a modest 52,470 square feet. This is significantly lower than the second half of 2018. Vacancy rates fell to 8.3% from 8.4% in the last quarter of 2018.
CBRE also stated that the office market, which was strong in 2018, continued to perform well in the 1st quarter of 2019. Net absorption in the 1st quarter totaled 582,309 square feet. This is below the market’s long-term absorption of nearly 700,000 square feet. Vacancy rates in the 1st quarter fell modestly to 15.0%. This is down from 15.2% in the 4th quarter and 16.5% a year ago.
According to CBRE, 2018 was a strong year for industrial real estate. The positive momentum in the industrial market carried into the 1st quarter of 2019. Absorption in the quarter was far in excess of the change in inventory. As a result, the industrial vacancy rate fell to 6.1% in the quarter. This compares to 6.5% in the 4th quarter of last year and 6.7% a year ago.
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.
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