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Results, No Excuses

National Economic Update ~ August 2014

Across The United States:

As with the second quarter GDP, productivity (output per person hour) also rebounded. Second quarter productivity growth was up 2.5%. This is better than expectations and a considerable improvement from the 4.5% decline in the first quarter. Unit labor costs, which account for the majority of business costs, edged up 0.6% after surging 11.8% (annualized rate-poor weather induced) in the first quarter. This indicates less cost pressure than expected.

The manufacturing sector surged higher in June following a weak May with new orders up a much higher than expected 1.1%. This followed a downwardly revised 0.6% decline in May.

The Institute for Supply Management’s index for the non-manufacturing sector grew in July for the 54th consecutive month. The index stood in 58.7. This is up from 56.0 in June. Any reading of 50 or above indicates expansion.

Consumer credit rose at a 6.5% annual rate in June. It was driven once again by the non-revolving component (mainly autos and student loans) which grew at an 8.4% annual rate. Revolving credit (mainly credit cards) grew at a 1.3% annual rate indicating that outside of replacing autos and going to college, consumers remain reluctant to take on debt.

Arizona Snapshot:

After rising to its highest level in six years in April, the Arizona Consumer Confidence Index subsided modestly from 75.1 to 71.6 (see chart below). Confidence declined in both Greater Phoenix and Greater Tucson but rose in rural counties.

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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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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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State of The Economy Update ~ National and Arizona

Americans are borrowing more, with consumer credit shooting up in March to an annual rate of 10.2 percent, the Federal Reserve reported last week. Total consumer borrowing amounted to $2.54 trillion for the month, representing a $21.36 billion gain over the previous month.

Revolving debt, such as credit card debt, amounted to $803.6 trillion in comparison to February’s $798.5 trillion, and grew by an annual rate of 7.8 percent. Non-revolving debt, such as student loans and car loans, totaled $1.738 trillion, in comparison to February’s $1.722 trillion, and grew by an annual rate of 11.3 percent for the month.

The question is whether or not the gains represented increased economic activity and confidence.

“The optimistic read is that consumers’ improved outlook on the economy and employment prospects led them to feel comfortable spending on credit, while a more downbeat interpretation is that credit is needed for consumers to keep up,” analysts at Nomura Global Economics remarked in a public statement regarding the Fed’s data.

In employment news, initial jobless claims for the week ending May 5 dipped to 367,000, a decrease of 1,000 from the previous week’s revised figure of 368,000, the Employment and Training Administration reported last week. The four-week moving average was 379,000, a decrease of 5,250 from the previous week’s revised average of 384,250.

The Administration also reported that the total number of unemployed workers covered by insurance during the week ending April 28 dropped to 3,229,000, a decrease of 61,000 from the preceding week’s revised level of 3,290,000. The four-week moving average was 3,290,000, a decrease of 10,500 from the preceding week’s revised average of 3,300,500.

In the Arizona Economy, the outlook is a bit more favorable. Employment gains in Arizona should continue at a pace of around 2.0% for now. Sales tax collections will improve moderately as the year progresses as will other government tax revenues.

U.S. Needs Jobs First And Home Sales Will Follow

The healthier job market that’s lifted the U.S. economy in recent months shows no signs of slowing.

Applications for unemployment benefits are near a four-year low, raising expectations of further hiring gains. The news Thursday helped lift the Dow Jones industrial average to its highest close since May 2008.

More jobs and tame inflation are giving consumers more buying power. Their higher spending could further boost growth and lower the unemployment rate for February for a sixth-consecutive month.

Even the troubled housing market is benefiting. Builders expect improved sales in the near future. In response, they’re planning to break ground on more homes.

“The housing starts and unemployment claims numbers add to the belief that the economy is shifting gears,” said Joel Naroff, president of Naroff Economic Advisers. “The decline in the unemployment rate is real, and it should continue.”

A series of positive economic reports Thursday reinforced that message:

Weekly applications for unemployment benefits fell to a seasonally adjusted 348,000, the Labor Department said. That’s the lowest since March 2008. Unemployment applications have dropped 11 percent in four months.

Builders broke ground in January at a seasonally adjusted annual rate of 699,000 homes, the Commerce Department said. That nearly matches November’s three-year high. Single-family home construction cooled off slightly after a big jump in December.

Factory activity in the Philadelphia region grew in February at the fastest pace in five months, a survey by the Philadelphia Federal Reserve Bank found. That followed a report that showed a third-consecutive month of factory growth in the New York region.

Wholesale prices were largely unchanged in January, Commerce said. While gasoline prices are rising, they’ve been offset by falling costs for electricity, home heating oil and natural gas. Most economists see inflation as little threat.

Many analysts expect more good news in next month’s jobs report for February. Some say the net job gains could match or top January’s 243,000. For the past three months, the economy has gained an average of about 200,000 jobs.

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