National Economic Outlook - February 2016

National Economic Outlook - February 2016

Written By:
Ingo Winzer, President

Local Market Monitor

In the long run, the relative prosperity of a country depends on producing things that other countries want. Among the desirable things the US currently produces are food, complicated manufactured goods like airplanes, technological and scientific knowledge, and political stability. Technology and science have allowed the US economy to thrive but at the cost of concentrating income in fewer hands; technology and science are an elite specialty. As job-intensive manufacturing has moved off-shore, job opportunities for the majority of American workers are now confined to lower-pay service industries.

Since 2000, the US has added 10 million jobs, ALL in the service industries. This rapid shunting to lower-paid jobs indicates a permanent shift to lower-cost housing: smaller houses, more apartments, more single-family rentals.

Total jobs in January were up 1.9 percent from last year, following the trend of recent months. Jobs were up just 0.4 percent in manufacturing, but 2 percent in retail trade, 3.3 percent in business services, 3.3 percent in healthcare, and 3.6 percent at restaurants. Jobs in government were flat. Unemployment slid to 4.9 percent.

Somewhat ominously, the growth of jobs in transportation - mainly the movement of goods - has steadily fallen, from 5 percent a year a go to just 1.5 percent in January.

National Economic Outlook - January 2016

National Economic Outlook - January 2016

Written By:
Ingo Winzer, President

Local Market Monitor

The real estate construction industry is fragmented and highly conservative. Local builders and their bankers don't increase or decrease the volume of their activity unless the reasons to do so are very strong. This makes sense because construction works best at an even pace, but it also means that the industry as a whole doesn't easily respond to changes in demand. Hence real estate cycles.

Overall, we are now at the stage of the cycle where not enough construction has taken place and builders are just gearing up for more. In the past year, jobs in residential construction increased 6 percent. This is a sure sign of higher demand, but also a sure sign that rents and home prices in many markets will be going up.

Total jobs in December were up 1.9 percent over last year. As in previous months, gains were small in the manufacturing sector. Jobs were up 1.7 percent in retail trade, 3.1 percent in business services, 3.2 percent in healthcare, and 3.4 percent at restaurants. Government employment was flat. Unemployment stayed at 5 percent.

National Economic Outlook - December 2015

Written By:
Ingo Winzer, President

Local Market Monitor

The link between income and home prices is so strong that it only breaks down in special circumstances. The pre-recession boom was one, the recession bust was another, and the local boomlets in foreclosed properties were a third. Now that that dust has settled, we can foresee different futures for some groups of markets, according to the balance between income and home prices.

Some markets are still recovering; prices have risen rapidly but are still below the income level. This group includes many markets in Florida and California. Once prices are back in balance with income - in the next couple of years - expect more-modest increases.

In some markets, prices are in balance with income and are surging because of good economic growth. This group includes markets in Colorado, Texas and the Northwest, but also some in California (Bay Area) and Florida (Miami area). These markets are growing faster than builders can keep up, so expect home prices to rise for years - possibly into another boom.

Some markets, unfortunately, are stagnating; home prices are well below where income says they should be, but are not recovering, because economic growth is poor. This group includes many smaller markets throughout the country that depend on a few large employers, but also Hartford, Camden, Tucson. If local economies are not doing better at this stage of the economic recovery, expect flat home prices for years.

As in previous months, there were 1.9 percent more jobs in the US in November than a year ago. The surge of growth in manufacturing earlier in the year has abated, jobs were up just 0.3 percent. Retail jobs were up 1.8 percent, business services jobs up 3.2 percent, healthcare jobs up 3.2 percent, and restaurant jobs up 3.5 percent. Government jobs were up slightly, 0.4 percent, mainly at the state level. Unemployment remained at 5 percent.

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.