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Arizona and National Economic Update ~ September 2013

National Economic News:

Finally, it appears that there has been some meaningful progress on the unemployment insurance front. While initial claims were actually up last week, the 4-week moving average has fallen to its lowest level in years and is now 16.8% below year earlier levels.

Also encouraging was the fact that the Conference Board index of leading indicators increased 0.7% in August and now stands 4.2% over August, 2012. Thus, after a brief pause, leading indicators rose sharply in July and August, resuming its upward trend.

Industrial production also advanced in August after having been unchanged in July. The gains were broadly based. Total industrial production in August was up 2.7% above its year earlier level. Capacity utilization for the industrial sector increased 0.3% in August. It is still 2.4 percentage points below its long run (1972-2012) average.

As for construction, the National Association of Homebuilders market index was unchanged in September. While it is at its highest level in 8 years, many reported a loss of momentum as the headwinds of tight credit, shrinking supply of lots for development and increased labor costs continue.

Existing home sales increased in August and reached the highest level in 6 ½ years, while the median price showed 9 consecutive months of double-digit increase. Total existing home sales rose 1.7% in August and now stand 13.2% higher than a year ago.

Privately owned housing starts in August were 0.9% above the revised July figure and were up 19.0% over a year ago.

Arizona Economic News

Arizona employment was up 1.6% or 39,800 jobs last month over the prior month. Government added the bulk of the jobs as school resumed. Six of the eleven major sectors (government, educational and health services, leisure and hospitality, trade transportation and utilities, financial activities and information) had gains while five (resources and mining, other services, professional and business services, manufacturing and construction) recorded losses. Over the last year, the state has added 48,100 jobs or growth of 2.0%. The seasonally adjusted unemployment rate now stands at 8.3%.

In Greater Phoenix, employment grew by 42,200 jobs or 2.4% over a year ago. The Greater Phoenix unemployment rate is 7.4%. Greater Tucson added 0.5% to jobs over the last year and has an unemployment rate of 7.7%.

Arizona and Maricopa County retail sales were up 5.7% and 6.5% respectively over July 2012.

R.L. Brown reports that 1,177 new home permits were issued in August in Greater Phoenix. This compared with 1,062 in August 2012. Year to date, 9,186 permits have been issued this year compared to 8,486 a year ago, a gain of 8.2% thus far this year. While the numbers have been sporadic, the basic trend still seems to be in place. In Greater Tucson, new home permits for the month of August were up 28.4% over a year ago.

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Arizona and National Economic Update ~ August 2013

Arizona Snapshot

Arizona weekly unemployment claims were still way down from a year ago, but, by a lower percentage than any time in the last year. Sky Harbor enplanements and deplanements were both up. Foreclosure starts were back to normal (pre-bubble) levels. Auctioned foreclosures were at the lowest since 2007. Auctioned foreclosures to lenders were at the lowest since 2006. Median prices were still going up.

U.S. Snapshot

U.S. employment increased modestly, but still moving in the right direction. Initial claims for unemployment insurance were moving down. As expected, second quarter GDP was up at a very modest rate. Manufacturing was improving. Consumer confidence was flat for July vs. June but way up vs. a year ago. Personal income, disposable personal income and personal consumption expenditures were all up, but, the savings rate was down. Home prices continue to rise. Rental vacancy rates were declining and construction spending continues to rise. Not great, but certainly not a bad picture at all. And the outlook for continued growth remains positive.


Arizona weekly unemployment insurance claims were down 36.2% from a year ago. Up until recently, the improvement has been in the 40% range. So, while unemployment insurance claims were improving vs. a year ago, the rate of improvement was slowing.

More people were landing in and flying out of Sky Harbor Airport today than did a year ago. Enplanements were up 2.0% while deplanements were up 1.7%.

The best news this week comes courtesy of Fletcher Wilcox. His latest data shows that total foreclosure starts were back to normal (i.e., at pre-bubble levels). The data for June, 2013 was 84.0% lower than it was for June, 2009 and about the same as the total number of foreclosures in June, 2003. Auctioned foreclosures were down 85.4% from June, 2009. Auctioned foreclosures to lenders were down 93.4% for the four-year period. The improvement was startling and was clear evidence that the worst is way behind us. We will spend the next year mopping up what remains of the problem.

As we have been saying for quite some time now, the housing market now has a more interesting problem. That is to find the means to expand building capacity in order to meet demand. That means not only more improved land, but more skilled labor to build 20,000-25,000 homes in Greater Phoenix by 2015. Don’t forget that when demand dropped almost 90% between 2005 and 2011, much of the home building infrastructure simply went away. To rebuild it quickly is the number one problem facing the industry at this time. The result will likely be higher prices for those things that go into building a house and, thus, higher housing prices. Be sure to read Catherine Reagor and Ronald Hansen’s article on the subject in the Sunday (Aug. 4) Arizona Republic or on AZcentral.com for an excellent discussion of the issues.


Nonfarm payroll employment continues to grow albeit at a modest rate. Jobs, full time and part time combined, grew by 162,000 in July and now stand 1.7% above July, 2012. The fastest growing sectors include retail, food and drinking places, financial activities and wholesale trade. The unemployment rate inched down to 7.4% as many continue to be out of the labor force. But, this was an improvement from 8.3% a year ago. Initial claims for unemployment insurance at the national level was showing improvement. It was 10.9% below year earlier levels.

As expected, second quarter real GDP was up at an annual rate of only 1.7% and now stands a very modest 1.4% above year earlier levels. In addition, as of June, personal income was up 3.1% from a year ago. Disposable personal income was up at a slower 1.9%. However, consumers did not slow their spending as personal consumption expenditures were up 3.3% over a year ago. This was the result of a decline in the personal savings rate to 4.4% from 5.6% a year ago. This is a reflection of higher consumer confidence over the year. While July confidence, according to the Conference Board, was actually slightly down from June, the 80.3 reported is much better than the 65.4 reported a year ago.

Manufacturing results were also better. The ISM manufacturing index for July was 55.4 compared to 50.9 last month and 50.5 a year ago. Any result in excess of 50 shows that manufacturing was expanding nationally. In that regard, new orders for manufactured goods were up 6.8% in the June, 2013 vs. June, 2012 period. Construction spending was also up but at a more modest 3.3% rate.

According to the S & P/Case-Shiller home price index, home prices (20-city index) were up 12.2% over the last year and 2.4% over the last month. In Greater Phoenix, the index says that as of May, home prices were up 20.6% from a year ago and 1.9% over April. The National Association of Realtors pending sales index was slightly down in June, but, was up over 11% from year earlier levels. Overall, the national picture of slow but continued growth remains in place.

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Economic Update – June, 2013

Home Buying Remains Affordable Despite Rising Rates

Mortgage interest rates increased for the fifth consecutive week ending June 6, according to Freddie Mac.

The 30-year fixed rate hit 3.91 percent, meaning, when compared to a month ago, an increase of $30 per month for every $100,000 of debt. The rising rates have prompted concerns about the impact on home affordability, however, a Goldman Sachs report indicates these concerns are premature.

Using National Association of Realtors data, the report says, “Even if mortgage rates continue to increase from here, the median home will still be affordable to the median borrower, based on the conventional 25 percent debt-to-income threshold.”

Mansions are Back

New single-family homes are getting larger, according to Census Bureau data.
The median size rose to 2,306 square feet in 2012, up 8 percent from 2009, marking the highest median square footage since 1973 when the Census Bureau began tracking square footage. Despite an average home buyer household of fewer than three people, 41 percent of new homes had four or more bedrooms, and 30 percent had at least three bathrooms.

Following the financial crisis, the average new home decreased in size by 6 percent over two years, prompting some industry experts to predict the Mansion trend to be over. However, home builders now say money or lack thereof influenced the move away from Mansions. Now that the economy is turning around, buyers are looking for bigger homes because they can afford to buy them again.

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Arizona and National Economic Update ~ May 28th, 2013

Arizona Snapshot:
The latest population figures from the U.S. Census Bureau show that Arizona and Greater Phoenix are growing more rapidly than most places. But, the absolute rate continues to be slow by historic standards. Maricopa County accounts for the bulk of the population growth in the State. The Southern Arizona housing market continues to improve, but, at a much slower rate than in Greater Phoenix. Retail sales in the State were up strongly in April with information, clothing, building materials and motor vehicle sales leading the way in the year over year comparisons.

U.S. Snapshot:
Initial claims for unemployment insurance continued to show moderate improvement as did new orders for durable goods. Total existing home sales continued to show improvement and median prices of existing homes continued to increase. New home sales and prices followed the same trends as existing homes.

The latest population data for mid-year estimates as of July 1, 2012 show that Maricopa County grew by 73,644 or 1.9%. While this is very slow by historic standards, it shows an improving trend following the Great Recession. Pima County grew by a modest 0.5% and Pinal County grew by 1.0%. Within Maricopa County in terms of the top ten largest cities, Gilbert was the fastest growing city in percentage terms (3.4%) followed by Chandler (2.5%). The City of Phoenix is ranked as the 6th largest city in the U.S. and, according to the Census Bureau, grew by 1.7%. In terms of all cities in the U.S., Buckeye was one of the fastest growing cities with populations over 50,000.

The Southern Arizona housing market continued to show moderate improvement. Median resale prices were up 10.7% over a year ago to $164,900 while median new home prices were up 12.0% to $239,700. A total of 172 new homes were permitted in the Greater Tucson area. This is up 21.1% over a year ago. Foreclosures were down about 31% from a year ago.

Retail sales in April were up a strong 8.2% over a year ago. Leading the way were information, clothing, building materials and motor vehicles. Year to date, retail sales are up 7.3%.

Initial claims for unemployment insurance were 340,000. This continues the moderate decline that has taken place over the last few months. Last week’s figure was 8.4% below a year ago. New orders for manufactured durable goods in April increased $7.2 billion or 3.3%. This increase, up two of the last three months, followed a 5.9% decrease in March.

Existing home sales in April were 9.7% above year earlier levels and about flat with March levels. Median home prices for existing homes now stand 11.0% above year earlier levels to $192,000 compared to $173,700 a year ago and $183,900 in March. New home sales were up 16.8% in April compared to a year ago and were about flat with March. Median new home prices were up 14.9% over the last year to $271,600. This, combined with a rising stock market, should make consumers feel better and create a situation where fewer home owners are under water. All of this is good news.

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Builders More Upbeat About New-Home Sales

Builders are feeling more confident about new-home sales, sales expectations for the next six months, and prospective buyer traffic, according to the May reading on the National Association of Home Builders/Wells Fargo Housing Market Index.

The index—which gauges builders’ sentiment on those three indicators—rose three points to 44 in May. Still, it takes a number over 50 on the index to indicate that more builders view conditions as good rather than poor.

All three indicators posed gains in May, with expectations for future sales reaching 53 on the index—the highest level since February 2007, NAHB reports.

“Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates, and strengthening local economies,” says NAHB Chairman Rick Judson. “This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots, and labor.”

The new-home sector continues to battle against low inventories. It will take time for builders to “re-establish themselves following recession-related cutbacks,” says NAHB Chief Economist David Crowe. “Builders’ view of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market in force.”

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Condition of The Economy ~ April 2013

U.S. Snapshot
U.S. initial weekly unemployment insurance claims continued to decline. BlueChip consensus forecast indicates growth in 2013 with a modest acceleration in 2014. Credit grew but mostly for non-revolving credit. Total wholesale trade numbers slowed in March but only modestly up from year earlier levels.

The trends of the last year continued in Greater Phoenix housing over the last month. Single family listings declined modestly as did the total sold. Normal sales continue to play a larger role in the mix as foreclosures continue to decline. Resale prices continue to increase and now stand almost 25% over a year ago. Days on market continue to decline. This is all good news.

Arizona weekly unemployment total claims have actually increased over the past month. They are, however, still almost 40% below year earlier levels. The Department of Economic Security modestly reduced its forecast for 2013 employment due to issues related to sequestration. The forecast still calls for growth in 2013 and more rapidly so in 2014, yet still slow by historic standards in Greater Phoenix.

Initial claims for unemployment insurance have been in a significant downtrend over the last month (this is a positive because there are fewer people filing). Initial weekly claims are down to 323,000 compared to 348,000 a month ago. The Blue Chip national consensus forecast suggests that real GDP will be up a modest 2.0% this year. This is because of the sequestration effect on the second and third quarters of this year. For 2014, a more respectable but still modest 2.7% growth is expected.

Credit outstanding continues to grow (up 3.4% at an annual rate in March). But, the real story is that there has been very little growth in revolving credit (credit card debt). Non-revolving credit (used for items such as cars and light trucks), continues to grow rapidly in response to continued car and truck sales.

Wholesale trade numbers in the U.S.showed modest growth in March compared to February, but are still up 4.7% from year earlier levels. While inventories were up in March, the inventory to sales ratio was up only modestly for the month and now stands at about 1.21 compared to 1.17 a year ago.

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Signs That Inflation Is Nearing

The Cost Of Living – COL in the U.S. rose more than projected in February due to the biggest jump in gasoline prices in more than three years. The retreat in fuel expenses this month signals inflation will hover around the Federal Reserve’s goal.

The consumer-price index was up 0.7%, the first increase in four months and the biggest since June 2009, a Labor Department report showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.5% rise. The surge in gasoline accounted for almost 75% of last month’s total price advance.

Bloomberg reports that the cost of living in the U.S. rose more than projected in February due to the biggest jump in gasoline prices in more than three years. The consumer-price index was up 0.7%, a Labor Department report showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.5% increase. The Federal Reserve Bank of New York’s general economic index eased to 9.2 this month from 10 in February, which was the highest since May. Betty Liu and Sara Eisen report on Bloomberg Television’s “In the Loop.”

Gasoline Prices – Households may get relief as fuel expenses are cooling. The average cost of a gallon of regular gasoline, which surged to a four-month high of $3.79 on Feb. 26, was down almost 10 cents to $3.70 on March 13, according to AAA.

Food Costs –- Food costs increased 0.1% after being little changed in January. They were up 1.6% over the past 12 months.

Inflation’s Bite – The rising cost of living gain squeezed paychecks. Hourly earnings adjusted for inflation fell 0.6%. They were up 0.1% over the past 12 months.

Overall consumer prices increased 2% in the 12 months ended in February, after a 1.6% year-over-year gain the prior month.

The core CPI also rose 2% from February 2012, following a 1.9% advance in the prior 12 month period.

There are two factors on the sideline that will inevitability unleash inflation:

Interest Rates – rates will rise. For now the Fed has been artificially holding down rates and the pressure is building and starting to show in consumer prices like gas and food. Rates have no place to move but up and that will dramatically affect all sectors of the economy, especially housing.

Money Supply –- The Fed has been flooding billions of Fiat dollars, much of it electronic and all diluting the underlying value of the US dollars. All of it is backed by the credit and good faith of the government, not by a tangible asset such as gold. History is full of lessons of this practice going astray.

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Condition of The Economy ~ February 2013


Total weekly unemployment insurance claims have been flat for the last several weeks. Even so, total claims are down 37.8% from a year ago compared to a decline of only 1.3% nationally. The national number is shocking. The Arizona data suggests slow growth.


The latest U.S. Blue Chip consensus forecast shows that the consensus now predicts that real (inflation adjusted) GDP will register year over year growth of 1.9% in 2013 and increase by 2.4% on a 4th quarter/4th quarter basis. This is true despite the fact the real GDP was down slightly in the 4th quarter of 2012. Growth is still expected to be mediocre in 2013. As mentioned above, U.S. initial unemployment insurance weekly claims remain high. The gains made a month ago appear to have been transitory. In fact,claims are down only 1.3% from a year ago.

Nonfarm business sector labor productivity decreased at a 2.0% annual rate during the fourth quarter of 2012. The decrease in productivity reflects increases of 0.1% in output combined with a 2.2% increase in hours worked. This is not good news. Productivity is commonly linked to standard of living. Productivity must grow for our standard of living to grow. Unit labor costs in non-farm businesses increased 4.5% in the 4th quarter of 2012. This is due to the combined effect of the 2.0% decrease in productivity and a 2.4% increase in hourly compensation. If this were to continue, it would create inflationary pressures.

The consumer continues to take on new debt at a steady and strong clip. But, whether it points to rising demand is more problematic. Consumer credit increased at an annual rate of 6.3%. But, the revolving side, which is the credit card side, to these totals isn’t always adding to the total. Revolving credit has been very flat, up a little bit one month and then down a little bit the next and is down $3.6 billion in the latest data. What is going up is non-revolving credit where vehicle sales come into play, and they have been very strong. But, this is also where student loans are tracked. And they continue to climb straight up without much monthly variation. Thus, aside from vehicles and student loans (how do you spell bubble), consumers aren’t taking on much debt, a factor that is limiting the contribution from the consumer sector.

National Economic Update

The Blue Chip consensus forecast remains basically unchanged. Real GDP is estimated to increase at a 1.7% annual rate in the fourth quarter of 2012. After an estimated real GDP gain of 2.2% in 2012, the panel expects a 2.0% gain in 2013. That assumes the fiscal cliff is resolved. In the absence of a resolution, the Congressional Budget Office expects real GDP in 2013 to decline and unemployment to increase. U.S. initial claims for unemployment insurance remain about where they have been for quite some time. This is surprising for this point in the cycle and is another indicator of the lackluster performance the economy continues to deliver.

On the positive side, the University of Michigan consumer sentiment index rose again in November to 84.9. This is up from 82.6 in October and 64.1 a year ago. The domestic consumer is the ultimate engine of the U.S. economy and this report points to a rising contribution from consumer spending. In that regard, U.S. consumer credit increased in September at a 5% annual rate. With revolving credit declining at a 1.5% annual rate while non-revolving credit, such as auto loans, increased at a 6.5% annual rate. Thus, consumers are borrowing again for durable goods.

The Institute for Supply Management’s index of non-manufacturing activity grew in October to 54.2. A reading of 50 or more indicates expansion in that sector. October was the 34th month of continuous growth.

According to the National Association of Realtors, growth in metropolitan area median home prices increased in the third quarter. According to NAR, 120 out of 149 metro areas had growth in prices in the third quarter. This is up 7.6% from a year ago. Greater Phoenix had an increase of 34.9% and Tucson was up 15.5%. This will allow more homeowners to escape from being underwater (more debt than value). ASU’s monthly report on the Greater Phoenix housing market shows that new home prices were actually down 3.5% over the past year (as of September). Median prices of normal resales were up 8.2%. Distressed properties had the largest gains. For example, bank owned sales prices were up 45.0% over the past year.

Arizona retail sales for September were up 2.6%% from a year ago. While not great, it is at least moving in the right direction. Motor vehicle dealer sales were up 21.5% from a year ago. Retail sales in Maricopa County were up 3.1% for the same period.

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Obama Victory Keeps Focus on Pending Rules, Reforms

The reelection victory of President Barack Obama over Republican challenger former Massachusets Governor Mitt Romney means initiatives begun in the last four years to address past housing market excesses and help boost the market recovery, including proposed Dodd-Frank banking rules and reform of the secondary mortgage market, could command attention going into the president’s second term.

In his acceptance speech from Chicago delivered after midnight, President Obama said he hoped to meet with Gov. Romney in the coming weeks to explore how the two could work together to move the country forward. He also called for immigration reform and vowed action on two Republican priorities, tax reform and deficit reduction.

“I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together,” President Obama said. “Reducing our deficit, reforming our tax code, fixing our immigration system, freeing ourselves from foreign oil — we’ve got more work to do.”

The Obama administration two years ago released a white paper that contained options on reforming secondary mortgage market companies Fannie Mae and Freddie Mac, raising the possibility that reform of these companies, which have been in conservatorship for much of Obama’s term of office, could come under consideration in the new Congress.

NAR reports that it supports reforms that would pave the way for a return of private lenders into the mortgage market while maintaining an explicit, government-chartered, nonprofit federal presence in the market to ensure mortgage availability in good times and bad.

Similarly, important rulemaking by the Consumer Financial Protection Bureau to protect against future mortgage lending abuses, is slated to come to a head in early 2013. NAR has expressed concern with the approach in two of the rules, the qualified mortgage (QM) and qualified residential mortgage (QRM) rules.

The QM rule sets standards for lenders to ensure they make loans only to borrowers who have the ability to repay, and QRM requires lenders who originate loans for securitization retain 5 percent of the value of the loans unless they meet prescribed underwriting standards. In both cases, NAR has called for the rules to give flexibility to lenders in meeting consumer protections; otherwise pricing could put mortgage financing outside the reach of households of all but those with the strongest credit records.

In the presidential election campaign, Gov. Romney singled out QM as an example of a Dodd-Frank rule that was already hurting the market and raising the cost of mortgage financing because of the uncertainty it was causing, and he had vowed to reform it in a market-friendly way. It’s unclear under a second Obama administration how much the final versions of the QM and QRM rules will look like their proposed forms.

In the near term, NAR reports that it will be advocating for the extension of mortgage cancellation relief, which was enacted in 2007 to exempt underwater home owners of taxation on mortgage debt forgiven by a lender in a modification or distressed sale. The tax forgiveness expires at the end of 2012 and could be taken up before the end of the year, when the current Congress adjourns.

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