Download Economic News of the Wiregrass

Economic News of the Wiregrass
Roger Peterson
Thursday 30 June 2016
We the people of the United States, in order to form a more perfect union, establish justice,
insure domestic tranquility, provide for the common defense, promote the general welfare, and
secure the blessings of liberty to ourselves and our posterity, do ordain and establish this
Constitution for the United States of America.
The people of the United States are the sovereign of our great nation, all others are the
representatives of the people. The President, Congress, and the Supreme Court are not
the sovereign.
The uncertainties are sizable, and progress toward our goals and, by implication, the
appropriate stance of monetary policy will depend on how these uncertainties evolve.
Janet Yellen. Chairman of the Federal Reserve, Speech June 6, 2016
This is not the end, this is not even the beginning of the end, this is just perhaps the end of the
beginning."
Winston Churchill, 1942
The National Scene:
Is the economic measure of Gross Domestic Product (GDP) Flawed?
Does It Adequately Measure the Growth in Our Economy?
I was born on June 7, 1929 when the life expectancy of an adult male born in 1929 was 56 years.
Today a child born in 2016 can expect to live on the average to age 78. I am now 87 years old
and my life expectancy now is to live to age 91. What happened? Why didn’t I die at age 56 or
at age 78 which is the norm today? First is luck, I didn’t get shot down after taking over 400 hits
in Vietnam while serving as an aircraft commander and Air Force Major at age 40. An even
more important reason could be the environment in which I was brought up, the parental
nurturing, the nutrition, the medical care, the physical environment and perhaps my personal life
style. What is it worth to live 31 years (87 minus 56) beyond the original statistical forecast?
Let’s assume a hypothetical case of an individual that earns an average of $60,000 for 31 years
or $1.8 million beyond that which was predicted. This same concept applies to every individual
born in 1929 and for those born every year thereafter (with of course different results). While
the dollar advantage is important, it is the 31 years of additional life that is the really big payoff.
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What has this got to do with Gross Domestic Product (GDP)? First GDP does not measure the
changes that have occurred in our society since 1929 beyond those elements that are captured in
the statistics that make up the GDP – the production of goods and services. It does not measure
the cost and time of parental nurturing, it does not measure the advances in nutrition, medical
care and the progress in creating a more livable environment.
Thus, when we worry about the slow growth in the economy, are we measuring the right things?
Is it possible that our society is advancing in areas yet to be measured that define the present and
future of the happiness and well-being of our society? For example, GDP does not measure the
value of the enormous advances in information technology much of which is delivered free to the
consumer, business or government. Microsoft offers its new Windows 10 free to users of
Windows 7. The new version adds 1,800 new features at no cost.
Most of the economists that I have read agree that the GDP is an incomplete measure of the
quality of life in our economy – and the pace at which it is advancing. However, they have yet to
come up with an alternative. Thus, we are cautioned to use GDP as a rough measure of the
advances that are taking place every day in our land within the limits of its scope.
Why Is Economic Growth in the U.S. So Slow?
The current recovery since the downturn in 2008 has been the slowest recovery from any recession
since World War II. Furthermore, the rate of recovery is declining and thus raising the specter of
moving into negative territory – although most economists don’t believe that will happen yet.
As this author has stated in previous editions of this newsletter, the cause of slow growth is
uncertainty over the future course of events. Consumers, businesses and governments are
reluctant to make commitments to expand, hire and start new enterprises in the face of the many
unknowns present in the economy today. The mixed signals resident in the scores of economic
indicators scare off bold moves and signal caution. Even Janet Yellen, Chairman of the Federal
Reserve admits that the road ahead is not clear enough for the Fed to change course.
The move by the UK to leave the EU under Brexit is the clearest example of a whole new range
of uncertainties for all of the economies across the globe. In the U.S. the stock market dropped
over 600 points, the dollar strengthened against the Pound by over 7%, the yield on 10-year U.S.
Treasuries dropped to 1.65%, gold and silver shot up – each of which create their own set of
uncertainties within their sphere of the economy.
The Way Forward.
China, Japan, Russia, Brazil, among others, are experiencing slowing or negative growth. Brexit
will only compound the problem with the need for new and untested trade agreements that will be
necessary to recast the world’s trade and financial relationships with the UK.
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When measured against other world economies, the U.S. is the strongest and will gain as a global
safe haven for nervous foreign money, which will drive up the price of U.S. bonds and thus
lowering their yields. The negatives for the U.S. include the loss of confidence in the future
performance of U.S. stocks and the dramatic loss in the market. Another negative is the dramatic
rise in the value of the dollar which will make U.S. exports costlier. Fortunately, the U.S. has the
financial firepower to stay ahead of events. But even that firepower (credit expansion) has its
limits.
The way forward will take time and a lot of patience on the part of investors, consumers, businesses
and governments. It is not at all clear how all of this will work itself out. On the local level, it
may well be that the state, county and city may well be able to forge ahead when focused on
meeting the economic needs of its citizens and drawing on the benefit of ultra-low interest rates,
cheap oil and foreign goods.
Success at the local level versus the drag of the state and national economic statistics brings up a
whole new subject which will be discussed in future editions of this newsletter – stay tuned.
U.S. Unemployment Rate:
The unemployment rate declined by 0.3 p.p. to 4.7 percent in May 2016 from 5 percent in April,
beating market expectations of 4.9 percent. It was the lowest reading since November 2007, as the
number of unemployed persons declined by 484,000 to 7.4 million and the labor force participation
rate fell for the second month in a row. Unemployment Rate in the United States averaged 5.82
percent from 1948 until 2016, reaching an all-time high of 10.80 percent in November of 1982 and
a record low of 2.50 percent in May of 1953. Unemployment Rate in the United States is reported
by the U.S. Bureau of Labor Statistics.
Economic Outlook for Alabama:
Forecast:
Every three months the University of Alabama’s Culverhouse College of Commerce Center for
Business and Economic Research produces an Index known as the Alabama Business Confidence
Index™ (ABCI) which reports the views of a panel consisting of scores of Alabama business
leaders (including the author of this newsletter) as to their perception of the economic outlook
for the forthcoming quarter.
The latest edition of the index states that Business confidence rose to 55.1 on the second quarter
2016. The index increased 2.1 points and closed at its highest level in three quarters. That said,
panelists are now less optimistic than a year ago when the ABCI registered 57.6. Note that an
index value above 50 indicates a positive outlook.
Panelists continue to see expansion in the Alabama economy, but are less optimistic about the
national economy. The outlook for the state economy rose, while the national economy index
remained near the neutral mark at a slightly positive 50.9.
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Alabama Home
Total homes listed
Sales:
Percent Change
May 2016
30,515
Year-over-year
-8.3%
Total home sale
s
Median Sales Price
$145,838
Average Sales Price
$164,995
Average Days on the Market
5,279
+11.4%
+ 3.2%
-2.0%
138
-11.4%
Home sales are up statewide (+11.4%) with prices remaining about level suggesting that
sellers are willing to concede on price to make the sale. The inventory of homes for sale is
down (-8.3%) and the inventory is turning over faster (Days-on-the-market down -11.4%) all
of which would suggest that the Alabama housing market is strengthening.
Alabama Unemployment Rate:
The Alabama unemployment rate for the month of May 2016 is steady at 6.1 percent while the
U.S. rate is now 4.7 % from a previous report of 4.9.
The Economic Outlook for the Wiregrass:
Dothan Home Sales:
Percent Change
Year-over-year
May 2016
Total homes listed
Total home sale
1,137
s
151
Median Sales Price
$ 128,000
Average Sales Price
$ 141,021
Average Days on the Market
-11.0%
150
+57.3%
-15.7%
-18.9%
-13.8%
Comment: The spectacular increase in home sales in Dothan (+57.3%) year-over-year for May
2016 appears to come from the lower end of the market with the decrease in home prices.
Apparently, sellers are willing to hold prices down in order to make the sale. Consequently, the
average days on the market (-13.8%) shows that sales are occurring faster.
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With inventory declining (Total Homes Listed -11.0%), it would appear that the Dothan housing
market is moving toward a balance between supply and demand and is likely to be poised for a
future of growth.
Houston County Unemployment Rate: The May 2016 Unemployment Rate for Houston
County is now 5.7% which is much improved from the same month last year where it stood at
6.4%. There is, however, the promise of higher employment for the Wiregrass at large with the
potential arrival of new businesses in the Wiregrass that offer the promise of even more new
jobs.
Dothan Sales Tax Collections:
Sales tax collections in May outpaced those from May of 2015 by $330,000, or 6.73 percent. The
city collected $5.234 million in sales tax revenue during May, which reflects transactions made
in April.
Overall, the city has collected more sales tax for each of the months in the 2016 fiscal year with
the exception of last November. Dothan has collected $1.678 million more in sales tax than it
did during the first eight months of the 2015 fiscal year and is $3.483 million ahead of
conservative budget projections.
This is exciting news indeed as sales tax receipts can be considered a proxy for the level of retail
business activity in the city. Since retail sales make up 70% of GDP, one can conclude that
retail sales make up to 70% of the GDP, and therefore the GDP for Dothan is strong.
Lodging tax collections, which are gathered separately, recently reported an outstanding 14.6%
increase year over year. The lodging industry under the leadership of the Dothan Area
Convention and Visitors Bureau has done a great job attracting major events that have brought
an outsized number of visitors and consumers -- congratulations to all.
What does it mean for Dothan?
Taken collectively, the economic statistics for Dothan appear to be outperforming the similar
state and national numbers. What makes Dothan special? More on this subject in future editions
– stay tuned.
For a Smile:
As an avid cigar smoker, I have always enjoyed this report of an interview by Barbara Walters
with comedian George Burns:
Walters: Congratulation on your 94th birthday. I understand you still smoke cigars. How many
do you smoke every day?
Burns: I smoke about four cigars a day.
Walters: Wow, you smoke four cigars a day at age 94. What does your doctor say about that?
Burns: I don’t know – he is dead.
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Roger Peterson [email protected] -- V 1.0– Thursday 30 June 2016
The Economic News of the Wiregrass is offered free of charge as a public service to the community and does not represent the views of SunSouth
Bank or its employees. It is produced by the author using a wide variety of media sources including: The Wall Street Journal, the Financial
Times, Bloomberg.com, Econoday, Capital Economics, U.S. Bureau of Labor Statistics, Federal Deposit Insurance Corporation, U. S. Federal
Reserve, Market Watch, CNBC News, the Dothan Eagle, Barron’s, Fortune, The Economist among others without attribution. The views and
comments expressed are solely those of the author. There is no intention to offer investment or tax advice and readers should consult a
professional advisor of their choice. There is no claim for the complete accuracy of the information and any errors or omissions are unintentional.
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