National Economic Outlook - November 2015

Written By:
Ingo Winzer, President

Local Market Monitor

At the height of the building boom before the recession of 2008, 3.5 million Americans were employed building homes - and that's not counting maybe a million illegal workers. During the recession the total dropped to 2 million and now it's 2.5 million workers. At the current rate of growth - about 4 percent - 100,000 home-building jobs will be added in the next year. During the boom, the maximum annual addition was 150,000 jobs.

At a minimum, the US needs 1.5 million new homes a year - but the current level of production is just 1 million. Because home builders can't add jobs overnight, the US will very soon be facing a shortage of housing that will last years. Since 2008, the real estate market has been dominated by falling home prices and speculation in foreclosed properties. That period is over. The next five years will see both home prices and rents rise faster than incomes.

The economy added 2.7 million jobs in the past year, a 1.9 percent growth rate. In October, jobs were up a modest 0.5 percent in manufacturing, 2 percent in retail trade, 3.3 percent in business services, 3.3 percent in healthcare, and 3.4 percent at restaurants. Government jobs were virtually flat. Unemployment remained at 5 percent.

National Economic Outlook - October 2015

National Economic Outlook - October 2015

Written By:
Ingo Winzer, President

Local Market Monitor

One of the main drivers of the economy in the past decade has been the healthcare sector, which now employs one in every eight workers. This is partly because of advances in medical care, partly because of the aging of baby boomers, and partly because more people have health insurance. In many communities where manufacturing was once dominant, healthcare is now the anchor of the economy.

Healthcare jobs require more skill and are better paid than in the past, with hourly wages of $24 that equal those in business services and finance, and are higher than those in manufacturing. Local markets with a growing healthcare sector will have steadily higher demand for homes and apartments.

The number of jobs in September was up 1.9 percent from last year, a slight slowing from previous months. The main culprit was manufacturing, where jobs increased just 0.7 percent - compared to 1.6 percent earlier this year. Jobs were higher by 2 percent in retail, 3.1 percent in business services, 3.1 percent in healthcare, and 3.2 percent at restaurants. Government jobs increased 0.8 percent, mainly at the state and local levels.

The slowdown in manufacturing was concentrated in metal products and machinery, probably linked to lower worldwide demand for mining and construction machinery. Jobs in the auto and aircraft manufacturing sector were up a solid 2.7 percent.

National Economic Outlook - September 2015

Written By:
Ingo Winzer, President

Local Market Monitor

Sub-prime mortgage lending on a massive scale produced a run-up in home prices, then a gigantic crash, then rebound speculation in foreclosed properties. Now, ten years after the start of this cycle, we seem to be near it's end. The latest home price data show just a residual flush in those areas most heavily infected by the sub-prime/foreclosure disease - Arizona, California, Florida, Nevada, and parts of Oregon and Idaho.

We could call it the Phoenix Syndrome because of the extremes in this major market - home prices up 40 percent in 2005, down 22 percent in 2008, up 19 percent in 2013, and now settled at 5 percent. The name aptly symbolizes the cycles of opportunity and destruction that characterize our real estate markets. Like it or not, in a country where people and jobs are always moving - and where government policy intrudes - the value of immovable assets goes up and down.

One aspect of this syndrome - which for real economists is just setting prices at the margin - is that the actual value of a typical home is often unknown. If foreclosed homes in Phoenix are worth 19 percent more, does that mean ALL homes in Phoenix are worth 19 percent more? Many of the difficulties in home lending and home construction are due to our ignorance of fundamental value.

In August - continuing the trend of the last six months - the number of jobs was up 2.1 percent over last year. Jobs were up 1 percent in manufacturing, 2 percent in retail trade, 3.4 percent in business services, 3 percent in healthcare, 3.5 percent at restaurants and 0.6 percent in government. The unemployment rate fell to 5.1 percent.

Note that jobs in transportation - a good indicator of business activity - were up a good 3 percent. On the other hand, the 3 percent increase in construction jobs is fairly modest - just a year ago it was 5 percent.

National Economic Outlook - August 2015

Written By:
Ingo Winzer, President

Local Market Monitor

One of the bright spots of the economy has been renewed growth in the manufacturing sector. This is partly due to greater automation - which makes labor a smaller part of overall costs - partly to political considerations, and partly to the lower cost of energy. Production has been up at a moderate rate across the board, in consumer products, business equipment, materials, and energy; only the Defense and paper industries are lagging.

Twenty years ago the US had 17 million manufacturing jobs, now just 12 million - and they now pay less than jobs in healthcare, go figure - but the economic benefits of MAKING THINGS extend well beyond the production floor. An economy with a growing manufacturing sector has much better prospects than one that just relies on services.

In July, jobs were up 2.1 percent over last year. They increased 3.5 percent in construction, 1.2 percent in manufacturing, 2.0 percent in retail sales, 3.0 percent in transport, 3.6 percent in business services, 3.0 percent in healthcare, and 3.5 percent at restaurants. Unemployment stayed at 5.3 percent.

National Economic Outlook - July 2015

Written By:
Ingo Winzer, President

Local Market Monitor

Real estate hasn't done much the recovery so far; the dysfunctional aspects that contributed heavily to the recession are still getting sorted out. But it looks like a more "normal" real estate situation is just around the corner.

The easiest way to see this is to look at new home sales - the statistics aren't contaminated by foreclosures. In normal times, around 800,000 new homes are sold in the US every year. During the recession, that level dropped to 300,000 but now it's up to 500,000. Each new home built directly translates into 4 full-time jobs, so the likely increase to 600,000 new homes next year will create 400,000 new jobs.

The economy in June had 3 million more jobs than a year ago, a 2.1 percent increase. Jobs were up 1.3 percent in manufacturing, 2.0 percent in retail, 3.5 percent in business services, 3.0 percent in healthcare, and 3.3 percent at restaurants. Jobs in finance increased 2 percent, but mainly because of additions at insurance companies. The unemployment rate fell to 5.3 percent

National Economic Outlook - June 2015

Written By:
Ingo Winzer, President

Local Market Monitor

Good as government statisticians are, they can't make adjustments for the weather. That's what they'd like to do with the Gross Domestic Product numbers from the first quarter of this year, which say the economy was down 0.7 percent. It's clear that nasty weather was to blame rather than some fundamental deterioration. The negatives were from exports, construction, and people not buying big-ticket items - just what you might expect if ports are frozen and snow drifts are blocking your front door.

Statisticians would like to make adjustments to the various home prices indexes, which not so long ago were telling us that prices were up 20 percent in Phoenix and Sacramento, for example - 26 percent in Las Vegas. Now that the booms in those markets have subsided, it's clear that we were seeing speculation in foreclosed properties instead of a real rise in home values. Although real estate is America's biggest industry and largest personal asset, our ability to measure and understand it is pitiful - compared, say, to our knowledge of employment.

(I could go on and on about this - how the financial crash and recession were entirely due to our ignorance about real estate...)

The employment numbers show an economy that is doing very well, even if the GDP numbers don't. Jobs in May were up 2.2 percent from last year - in line with results from recent months - and unemployment held steady at 5.5 percent. Jobs were up 1.4 percent in manufacturing, 2.2 percent in retail trade, 3.6 percent in business services, 2.8 percent in healthcare, and 3.4 percent at restaurants. As always, these days, government jobs were flat.

Jobs in construction were up 5 percent and jobs in furniture manufacture were up 5 percent. These are small potatoes so far, just hinting at stronger demand, but a reviving home construction industry would be a powerful and long-lasting support for the economy.

National Economic Outlook - May 2015

Written By:
Ingo Winzer, President

Local Market Monitor

Now that the economy is growing at a rate that seemed impossibly high a couple of years ago, we may wonder if this is just a rally with short legs - maybe goosed by short-term events like cheaper energy? - or evidence of structural growth that has fundamentally changed for the better. After all, the apparent strength of the economy just before the recession was fueled by consumers fecklessly spending money they didn't have - why should we be smarter this time around?

The job numbers suggest that our economy is adapting to new conditions and that we can therefore expect the current level of growth to continue for a while - until some unexpected shock hits the system, as it always does. The bulk of the 8 million new jobs added to the economy in the past 3 years have been in fields that aren't very susceptible to energy shocks or stupid government policies or foreign markets or financial chicanery: business services, retail, and healthcare. This is quite a change from an American economy that used to depend on manufacturing, construction, and government spending. Part of the change is just aging baby-boomers - but they'll keep aging for a while.

The number of jobs in April was up 2.2 percent from last year, while unemployment was 5.4 percent. Much like the situation in previous months, jobs were up 5 percent in construction, 1.6 percent in manufacturing, 2 percent in retail, 3.6 percent in business services, 2.7 percent in healthcare, and 3.7 percent at restaurants. Government jobs were flat.