Tuesday, February 26, 2019

National Economic Outlook - February 2019


Written By: Ingo Winzer, President of Local Market Monitor, Inc.

The government shutdown affected most of the agencies from which we get data for our monthly commentaries, so this month we’re just providing the basics. Next month we’ll have a full range of options available, including a host of full-year data for 2018.

In January, total jobs were up 1.9 percent from the previous year, the best performance since 2015 and following an uptick to 1.8 percent last month. Through much of the last couple of years, job growth has bumped around at the 1.6 percent level.

While the increase is encouraging in general, the effect on real estate markets will be minor because many of the ‘extra’ jobs are in the lowest-paid sector of the economy: hotels and restaurants. Either more Americans are taking their vacations within the US or they’re getting more of their food from Starbucks and sandwich shops.

Jobs were up 2.1 percent in manufacturing, 2.6 percent in business services, 2.4 percent in healthcare, 1.5 percent in finance, and almost flat in retail and government. Unemployment rose slightly, to 4 percent.

Monday, January 21, 2019

National Economic Outlook - January 2019


Written By: Ingo Winzer, President of Local Market Monitor, Inc.

The economy is always changing, even though economists routinely pretend the data from one period can be directly compared with data from another. Some of the interesting changes can be seen by looking at the types of jobs the economy is creating.

For example, in 2018, of the 2.7 million new jobs created, 130,000 were at management and computer consulting companies, 100,000 at temp agencies, 160,000 at warehouse and delivery companies, and 280,000 in manufacturing.

The manufacturing jobs probably reflect more production from highly-automated factories that can now compete with imports; the warehouse and delivery jobs reflect the rise of on-line shopping; the consulting jobs show that companies are trying to adapt to a new environment; and the temp jobs show that companies are more aware of fluctuating demand for their products.

Computerized manufacturing and shopping are with us to stay, we’ll see more of that. But temp and consulting jobs will be the first to go when the economy slows down, an instability built into the system.

In December, total jobs were up 1.8 percent from last year. Jobs were up 2.8 percent in business services, 2.3 percent in manufacturing, 2.3 percent in healthcare, 2.2 percent at restaurants, and 1.3 percent in finance. Unemployment increased slightly, to 3.9 percent.

Tuesday, January 1, 2019

National Economic Outlook - December 2018

Written By: Ingo Winzer, President of Local Market Monitor, Inc.


Because homes are so expensive, income is an important way to look at real estate markets. The disturbing fact is that average income - adjusted for inflation - has remained almost the same for the past 15 years, cycling between $29,000 and $31,000. This is the median income, half of workers make more, half make less. If that’s how much money you make, you can’t buy a home (unless, of course, there are two of you).

Another way to see income is through IRS data. 80 million tax payers make less than $50,000 a year. 25 million make more than $100,000. And 30 million are in the middle. The 80 million mostly rent, the 25 million already own a home. The 30 million are the swing vote - they may rent, they may be first-time home buyers. Their economic future will have a lot to say about real estate.

In November, total jobs were up 1.6 percent from last year. Jobs were up 2.7 percent in business services, 2.2 percent in manufacturing, 2 percent in healthcare, 1.8 percent at restaurants, and 1.4 percent in finance. Jobs in retail and government were essentially flat.

While the job situation remains adequate, home prices in some large markets are leaping higher – so much higher that the danger of local real estate bubbles is again with us. Who would have thought so just five years ago? I don’t think either a recession or a real estate bust is at hand – yet. But a soft landing for either the economy or real estate markets is always wishful thinking. And bad news for one always makes the other worse.

Sunday, November 25, 2018

National Economic Outlook November 2018

Written By: Ingo Winzer, President of Local Market Monitor, Inc.


The Gross Domestic Product is one way of looking at the economy. It includes consumer spending, what companies invest in new equipment and buildings, changes in business and farm inventories, exports and imports, and government spending. In the news we usually hear how much it’s changed from quarter to quarter, which varies a lot. But if we look at the change from the same quarter of the previous year it’s easier to spot trends.

Seen that way, GDP has been steadily growing for the past two years, particularly because of more spending on healthcare. It doesn’t match the surge of healthcare spending when the Affordable Care Act was enacted, but points to the fact that healthcare spending – and the jobs it creates - will be driving local economies for quite some time.

In October, total jobs were up 1.7 percent from last year. Jobs were up 1.4 percent in finance, 2.6 percent in business services, 2.1 percent in healthcare, and 1.6 percent at restaurants. Government jobs barely increased, as did jobs in retail. With more and more on-line shopping, we have to accept that the low job growth in retail is now a permanent feature of the economy.

Job gains in manufacturing were 2.3 percent, continuing the trend of the past year. This may be a temporary response to international trade disputes, but it could also signal that highly-automated US factories have regained the edge in making good-quality products at a reasonable cost.

Tuesday, October 23, 2018

National Economic Outlook - October 2018

Written By: Ingo Winzer, President of Local Market Monitor, Inc.


After the wrenching ups and downs of real estate markets over the last ten years, it's fair to ask where we are now. Home construction can give us a partial answer. Back in the boom days before 2008, when sub-prime mortgages put an extra 5 million people into a home, builders were putting up units as fast as they could - about 2 million per year. It still wasn't enough, though, and home prices kept climbing.

Then, during with the recession, when many sub-prime loans ended in foreclosure, construction plunged to little more than half a million units per year - and many builders went out of business. In recent years activity picked up again and last year 1.3 million new homes were built.

For the size of the US population, however, the average number of homes built per year should be 1.8 million. We haven't seen that level since 2006. What this means is that even though too many homes were built before 2008, we're now facing a chronic shortage. Builders can't possibly scale up fast enough, so we'll see demand greater than supply for years - and higher home prices.

Total jobs in September were up 1.7 percent from last year, the same rate we've seen for months. Jobs were up 2.2 percent in manufacturing, 0.4 percent in retail, 1.4 percent in finance, 2.8 percent in business services, 1.9 percent in healthcare, and 1.7 percent at restaurants. As usual, government jobs were almost flat.

The increase in manufacturing jobs is encouraging, but it's business services that's pulling the economy along. The lack of growth in retail jobs - online shopping - looks like it's permanent.

Thursday, September 20, 2018

National Economic Outlook - September 2018


Written By: Ingo Winzer, President of Local Market Monitor, Inc.

I've been harping about consumer debt for a while now because I think it will cause the next recession. It won't trigger it, that will be some unrelated event, but all of a sudden people will realize they can't spend any more money. Here are some facts. Adjusted for inflation, ordinary consumer debt - that is, not including mortgages - is now $12,000 per man, woman and child in the US, up from $4,000 in 1980. That's equal to 40 percent of income, mainly in the form of credit cards and student loans. It used to be 20 percent.

The problem I see is that banks - which formerly made their money from businesses but now make it from consumers - have every incentive to encourage people to borrow more and more. And politicians have every incentive to help the banks do it.

With no natural brake on the system, where will it end? When debt is 50 percent of income, 80 percent? Or maybe it will never end and we'll have a larger portion of the population spending less and less, while an ever-smaller, wealthier one spends more and more. That would be a social and political disaster.

Jobs in August were up 1.7 percent over last year. They were up 2 percent in manufacturing, 2.6 percent in business services - the main driver for the economy right now - 2 percent in healthcare, and 1.6 percent at restaurants. Jobs in the retail sector struggled slightly higher after a disastrous year, while jobs in government were again essentially flat.  

Jobs in the construction sector were up 4 percent. This may seem like a big deal, but it's not. After a decade of empty homes and fewer people who can afford to buy - and despite the new boom in California - the construction industry is still smaller than it was ten years ago.

Monday, August 13, 2018

National Economic Outlook - August 2018

Written By: Ingo Winzer, President Local Market Monitor, Inc.


I normally don't pay much attention to the Gross Domestic Product. I'm not an economist and how you can accurately estimate the output of as large and complicated an economy as the US to within a percentage point is thankfully beyond my understanding. Furthermore, the swings from one quarter to the next are sometimes so large that the number in an quarter seems meaningless. The last time GDP was over 4 percent (4.9 percent, in the third quarter of 2014), in the very next quarter it was 1.9 percent.

But the 4.1 percent GDP growth in the second quarter of this year has been trumpeted as evidence of a very strong economy, so we better have a closer look. The largest portion of the 4.1 percent was 2.7 percent due to consumer spending. Other than that, exports were up, imports held steady, and the government spent a bit more. I actually find the high level of consumer spending a bit disturbing because I strongly suspect it was built on borrowed money - credit cards.

GDP is an income statement, not a balance sheet, and if GDP looks good only because consumers keep borrowing, what's good in the short run will have bad consequences down the road. The next GDP report comes out in late October, just in time for the elections.

Overall, jobs in July were up 1.6 percent from last year, the same level we've been at for months. Jobs were up 2.6 percent in manufacturing - this is a big deal if it continues. Manufacturing is now just 10 percent of the economy (measured by jobs) but if it's doing better because US factories have become more efficient, we can expect the entire sector to keep growing for years.

Jobs were up 2.6 percent in business services, 1.8 percent in healthcare, 1.8 percent at restaurants, 1.3 percent in finance, and just 0.6 percent in retail trade. As always, government jobs were flat.