Economic Update (August 6th Edition)

With the plethora of information out there in recent weeks, including release of new GDP and State and Local Employment Data, it doesn’t hurt to take a look at what’s going on.

Don’t forget to check out the Economic Update presentation from our Summer Conference

State & Local Employment – June 2014

These stats were published early last week and reflect the impact of summer transition for education and other academic year-oriented workers. Prior to the recession, these employment reductions would be offset by increases due to summertime employment, often by high school and college students. While that is still the case in selection locations (often tied to resorts and vacation destinations), much of North Carolina does experience employment decline in June, though the unemployment rate remains relatively unchanged due to a corresponding decrease in the active labor force (they’ll be back in the fall, or have retired).

Take a look at the following charts to see how things are going right now for North Carolina Counties and MSAs:

Jun14NCempMSA

 

Jun14NCcounty12mth

 

Jun14NCcountyYr14As you can see, despite the June adjustment, most North Carolina counties have experienced employment growth since the start of 2014, and the majority are ahead of their counts from last June.

Other Sources

The following notes are pulled from a variety of sources, including multiple Wells Fargo Economics reports. You also might want to take a look at the following reports and updates published this summer by prominent NC economists:

Dr. Michael Walden’s Summer 2014 Economic Outlook

Dr. John Connaughton’s Babson Capital/UNC Charlotte Economic Forecast

GDP/GSP (BEA, Connaughton)

  • National: 2nd Quarter up 4% (year-to-year), real GDP 2.4% (up less than 1% compared to revised 1st Quarter); 1.8% growth in 2013; strong export growth, stable trade deficit
  • Statewide: +2.3% in 2013 (first year outpacing National growth since recession); Manufacturing -0.4%

Employment (BLS & NC Commerce, 8/1/14)

  • National (July): Up 209,000, 12-month average at 214,000 (still below break-even), participation still at 63%; increase in health benefit costs still outpacing total benefits, 50% more growth than wages
  • North Carolina (June): Down 26,700 for month, up 57,000 year-to-year; 2013 +1.8%,-0.2% in Manufacturing; Since 2010, strongest growth in Professional/Business Services, weakest in Manufacturing and Construction; private sector real hourly wages declined 4 of last 5 years

Short-Term Economic Outlook (Leading Economic Indicators, Walden)

  • National: Increased 0.3% in July, up 3% in 2014
  • North Carolina: No change for July, up 4.5% year-to-year; unemployment claims down 50%, permits down 13%, employee hours up 5.6%, earnings up 3.5%

Business & Consumer Confidence (Multiple Sources)

  • Small Business Optimism improving, but still below growth point; hiring plans improving; most concerned about impact of regulations
  • Consumer confidence improving, up for July but still below pre-recession levels
  • Spending growth still outpacing income

Retail Sales (Census & NC Department of Revenue)

  • National: +4.3% year-to-year, driven by vehicle sales; +3.6% for 2014
  • North Carolina: Up 3% for 2014

Loan Demand (Senior Loan Officer Opinion Survey)

  • Home loan demand back up to summer 2013 levels (cycle restored), more banks loosening standards
  • Strong demand for auto loans and revolving debt
  • Stronger cyclical demand for commercial & industrial loans (still not at pre-recession levels)

Construction (US Department of Commerce)

  • Total current activity value still below $1 Trillion (pre-recession high, $1.2 Trillion)
  • Residential construction fell slightly in June, still up 7% compared to last year
  • Non-residential construction down nearly 3% in June, still up nearly 5% compared to last year
  • State & local government activity still sluggish (no growth since end of recovery)
    • Analysts consider this a “significant drag” on economic activity

Industrial Output (ISM; Richmond Fed)

  • Nationally: Factory orders up 3%, shipments up 4%, composite index recovering from winter slump
  • Mid-Atlantic (IncludesNC): Strong outlook across all indicators

Non-Manufacturing Output (ISM; Richmond Fed)

  • National: Composite, new orders and employment indices up to pre-recession levels, outlook positive
  • Mid-Atlantic (IncludesNC): Positive movement across indicators, strong expectations for future demand
  • Carolinas: Positive outlook, though softening some; challenge finding qualified workers

Consumer Spending (BLS)

  • 4% growth in personal income and personal expenditures
  • Significant inflation impact on expenditures
    • Core: +2.5% pace
    • Total: +3.0% pace
  • Strong growth in durable growth sales, up 14% in last 3 months, 5.8% year-to-year

Vehicle Sales (Wells Fargo, ESRI)

  • Annualized rate up 1 million in 2014 (16.5 million)

Housing (Multiple Sources)

  • Starts improving, but NOWHERE near pre-recession levels
  • Multi-family > Single-family
  • National and State prices up 5%
  • Millenials aren’t buying house (and maybe won’t)

An Agricultural State (Wells Fargo, Connaughton)

  • 1.6% of GDP (significantly greater than neighboring states), $7.7 Billion in Output (9th largest in US)
  • 28,800 employees (6th highest in US)
  • 2013 saw 16.4% growth in National Output, continued growth expected in 2014
  • North Carolina: 21.6% growth in 2013; forecast 10.9% growth in 2014 (strongest of sectors)

The Fed’s Strategy (Wells Fargo)

  • Eliminate QE asset purchases in October (estimate $2.5T in Treasuries on books EOY, $1.8T in MBS)
  • Need to raise interest rates (inflation, GDP growth); current environment detrimental to security and liquidity-focused investors (savers, Seniors, local governments)
  • Growth in asset purchases mirrors stock market performance since 2009

Summary: Condition & Predictions

  • Wells Fargo: Growth impact with broaden beyond strong present sectors (energy, technology, motor vehicles)
  • Walden (NC State)
    • Total household wealth improving on financial side, housing wealth stagnant
    • Anticipate 2.5% inflation in 2014 (highest since 2011)
    • Localized growth disparities likely to persist
  • John Connaughton (UNCC)
    • 2014: +1.9% GSP Growth , +0.8% in Manufacturing; +1.5% Statewide employment growth (59,700 jobs), +2.6% in Manufacturing
    • 2015: +2.1% GSP Growth, +2.1% Agriculture, +1.4% Manufacturing; +2.4% Employment (101,500 jobs), +5.1% Manufacturing (strongest sector)

 

Analysis Brief – October 14, 2013

Just because the Federal Executive Branch is turning off websites and not issuing economic reports as a result of their Shutdown does not mean there is nothing to report.

Where are We on the Shutdown & Debt Ceiling?

(From NASBO) As of the morning of Monday, October 14, Congress has yet to reach an agreement on both ending the federal government shutdown and raising the debt ceiling. The partial shutdown of federal government services has now been in effect since fiscal 2014 began on October 1, while the Treasury Department says it will be unable to meet its obligations beginning on Thursday, October 17. For months, the U.S. Treasury has been taking what are known as “extraordinary measures” to extend the nation’s borrowing authority while complying with the statutory debt limit, which was officially reached in May of this year. Late last week, negotiations between the administration and the House broke down and most of the discussions regarding raising the debt ceiling and ending the shutdown are now taking place in the Senate. A bipartisan group of senators has been working on a plan that would reportedly extend the debt ceiling longer than the previously discussed six-week period, would include a two-year delay on the 2.3 percent tax on medical devices that was included as part of the Affordable Care Act, and would fund the federal government at least into next year. Currently, there is an impasse in the Senate regarding the length of a continuing resolution (CR) and the funding levels, with some Republicans in the Senate pushing for a longer CR that would include a second year of sequestration cuts, while Democrats have expressed concerns about new sequester cuts scheduled to be implemented in mid-January. Some Republicans have expressed a willingness to give federal agencies greater flexibility in carrying out the sequester cuts, but do not want to see the overall spending cap raised in fiscal 2014.

Need Economic Information?

As you may have noticed, agencies within the Executive Branch shut down several websites that serve as regular sources of data for public sector analysis, including that at the local level. If you are looking for substitute sources of data, please consider the following alternatives:

Google Public Data (National Unemployment & GDP)

NC Division of Employment Security (State & Local Employment Data)

AccessNC (State & Local Economic Data)

FRED – Federal Reserve Economic Data (Repository of Economic Data)

US Bureau of Labor Statistics (Employment & Unemployment Data)

NC State Data Center (Population, Economics, etc.)

How’s the Job Market?

While national reports on unemployment from BLS are suspended for now as a result of the shutdown, we do have another metric available, courtesy payroll processing firm ADP:

Private sector employment increased by 166,000 jobs from August to September… The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. August’s job gain was revised down from 176,000 to 159,000.

Strongest sector growth was in trade/transportation/utilities (+54,000). Small businesses (less than 50 employees) added 74,000 jobs, while large businesses (500 employees or more) grew by 64,000.

Consumer Debt Increasing, Optimism Muted

Total consumer debt grew by nearly $14 billion in September, with the increase entirely due to nonrevolving debt growth likely tied to purchases of housing and vehicles. Revolving debt (i.e., credit cards) actually dropped by nearly $1 billion.

The Conference Board’s Consumer Confidence Index dropped more than 2% in September, driven by a more significant drop in future expectations.

Says Lynn Franco, Director of Economic Indicators: ‘Consumer Confidence decreased in September as concerns about the short-term outlook for both jobs and earnings resurfaced, while expectations for future business conditions were little changed. Consumers’ assessment of current business and labor market conditions, however, was more positive. While overall economic conditions appear to have moderately improved, consumers are uncertain that the momentum can be sustained in the months ahead.’

Small business owners also expressed pessimism, with the NFIB Optimism Index dropped 0.2 points, with an 8-point drop in future business condition expectations.

optimism-components-nfib-201310

 

(From Wells Fargo)The September figure from the NFIB does not fully reflect the effect of the government shutdown. Still, anxious anticipation of the shutdown may have been reflected in the fact that the biggest drag on the index was an eight point drop in expectations for improvement in the economy. One of the questions in the survey asks small businesses about the single most important problem that they face. In the early stages of the recovery in 2010, the answer was overwhelmingly business concern about poor sales.

That concern has been displaced more recently as businesses now cite regulation and taxes as their top concerns. The drop in expectations for improvement in the economy combined with smaller declines in earnings trends and hiring plans were enough to swap the more modest gains in other areas. One notable bright spot was the three point increase in rising expectations for future sales.

Homebuilders are also showing some slowing of expectations.

HousingIndexSep13

 

(From Wells Fargo) Confidence among home builders has improved markedly over the past year, with the NAHB/Wells Fargo Housing Market Index (HMI) increasing 18 points. Recently, however, gains have slowed; in September, the HMI was unchanged at 58 and up only two points from July. In addition to noting continued difficulty securing financing for new developments and rising labor costs, higher mortgage rates are reportedly weighing on builder sentiment. A dip in mortgage rates since the FOMC’s announcement not to begin tapering may spur some buyers to pull the trigger and lead to a pickup in single-family sales. Prospective buyer traffic continued to rise in September, indicating buyers remain in the market, even if they are slightly more hesitant. However, with increased turmoil in Washington weighing on the outlook, it would not be surprising to see builder confidence dip in October.

 Housing Market Impacted by Shutdown (Because…)

The US Department of Agriculture’s Rural Housing Services programs, which provide approximately 132,000 home loans a year, have been shut down due to absence of continued Federal funding. At the same time, the lack of access to Federal agencies and associated records is hindering the loan approval process for many more

(From LA Times) Housing lenders rely on a variety of government data, such as verification of borrowers’ income, which are unavailable with the partial closure of the Internal Revenue Service and other agencies.

The mortgage industry has found creative ways to work around the shutdown. Banks are getting data from other sources. Sometimes they’re simply taking the risk of making loans without some information.

Nevertheless, the shutdown is delaying loans around the country. And some experts warn that home lending could be much more severely disrupted if the political stalemate in Washington persists much longer.

‘How much momentum are our fragile housing markets going to lose?’ said Debra Still, chief executive of Pulte Mortgage and head of the Mortgage Bankers Assn. ‘The longer we’re shut down, the more it’ll negatively affect housing.’

New Memos from LGC on Cost Allocations and Component Units

Memo #2014-07 (Proper Accounting Treatment for Cost Allocations) seeks to address observed, inappropriate use of transfers between funds to account for cost allocations. Proper methods for showing cost allocations are discussed.

Memo #2014-08 (Operation and Accounting for Discretely Presented Component Units, including Tourism Development Authorities) discusses how to correctly operate and account these types of units within local jurisdictions.

FAQ Available from SOG on E-Verify Requirement

Norma Houston at the School of Government prepared this FAQ on application of the E-Verify Affidavit requirements required of local governments as a result of legislation passed in the General Assembly.

Click Here for Copy of E-Verification Affidavit (PDF) for Distribution to Vendors

Department of Revenue clarifies Impact of Sales Tax Law Changes

(From NCLM) At (last) week’s meeting of the legislative Revenue Laws Study Committee, the Department of Revenue indicated that it was interpreting a tax reform provision expanding the sales tax to cover service contracts differently than had been assumed during the legislative debate on tax reform. In the fiscal note for House Bill 998, this provision was assumed to apply to all service contracts for maintenance and repair of automobiles or personal property subject to sales tax. This expansion, included in HB 998, was expected to generate $1.9 million in new municipal revenue statewide during FY 2013-14 and over $4 million in future years. The Department is interpreting the provision in HB 998 to apply only to service contracts where the retailer selling the contract is the entity that provides the service. This will reduce the number of contracts subject to the sales tax and the amount of revenue to be received by an unknown amount. The Committee will consider recommending a legislative change to make clear that the sales tax should apply to all service contracts, regardless of which entity provides the service. Such a change would not take effect until July 1, 2014, however, so revenue this year will be reduced.

League of Municipalities Releases New Legal Memos

(From NCLM) he North Carolina League of Municipalities’ Legal and Government Affairs teams have prepared a selection of memos providing additional detail on some changes of note that were made during the 2013 Session of the General Assembly. The memos address the following:

NLC Annual Report Shows Improved Fiscal Results for Cities

The National League of Cities’ 28th annual survey of city finance officersreveals an overall picture of a gradually improving economy and improving city fiscal conditions. A majority of city finance officers report that their cities are better able to meet financial needs in 2013 than in 2012.

This is largely a result of slowly improving housing markets and increased consumer spending, which are strengthening local tax bases and economic outlooks in local and regional economies. However, continued high levels of unemployment, uncertainty about federal and state actions, and long-term pension and health benefit obligations continue to constrain the potential for strong economic growth for many cities.

Click Here to Review NLC’s City Fiscal Conditions in 2013 report

What is the Future of Fiscal Federalism?

(From ABFM) Originally, the first plenary session of the 2013 ABFM Conference, held Thursday, was meant to focus on the impact of this year’s Federal Budget sequestration on state governments.

For the panelists and audience, however, the presentations and discussion provided an opportunity to look beyond sequestration and consider other factors impacting the intergovernmental fiscal relations…

Click Here to See the Rest of This Article at ABFM.org

Check out these slides shared during the presentation discussed above by Paul Posner of George Mason University.

How is North Carolina Looking?

Check out these charts from the latest update of economic indicators provided by the Federal Reserve Bank of Richmond


In his latest update to NC’s Leading Economic Indicator Index, NC State’s Mike Walden sees some overall improvement for the Tar Heel State, though much work remains to be done:
NCLEI13Oct

The NCSU INDEX OF NORTH CAROLINA LEADING ECONOMIC INDICATORS, a forecast of the economy’s direction four to six months ahead, took a strong jump in August, rising 4% from July and almost 8% from the year earlier. All components of the Index improved except for initial jobless claims, which rose 7%. But even initial jobless claims are well down from their recessionary peak, and the other components also were much improved from a year earlier. The Index suggests the state economy is in recovery mode and will continue so. However, this may not translate to large job gains, as this recovery has been marked by much stronger growth in output than in jobs.

Regional Economic Survey Results

From Federal Reserve Bank of Richmond

Where Do Gas Prices Stand?GasBuddy101413

 

Fuel prices are about 10% below the same time last year, and North Carolina is a few cents below the National Average, though we remain significantly above our neighbors to the south and north (sub-$3/gallon unleaded was spotted at pumps in Virginia this weekend).

Free Course Available on Pension & Retirement Finance

Click Here for More Information & Registration

In this (FREE) eight-week course, you will learn the financial concepts behind sound retirement plan investment and pension fund management. Course participants will become more informed decision makers about their own portfolios, and be equipped to evaluate economic policy discussions that surround public pensions. The course begins with the principles of financial economics, such as the distribution of outcomes when investing in stocks, bonds, or annuities. These serve as the building blocks for an understanding of different retirement strategies that can help you improve your asset allocation. Finally, the course applies these principles to government programs and policies.

The Finance of Retirement and Pensions will culminate in an interactive symposium about the challenges of U.S. pension systems. Held in January 2014 at Stanford Graduate School of Business, the event will feature representatives of the MOOC teams with the five most promising ideas for pension reform, who will present their proposals to a distinguished panel of faculty and experts in finance and public policy. Expenses will be covered by Stanford Graduate School of Business and the Hoover Institution.

(Instructor) Joshua Rauh is a Professor of Finance at the Stanford Graduate School of Business, a Senior Fellow (by courtesy) at the Hoover Institution, and a Research Associate at the National Bureau of Economic Research (NBER). He studies corporate investment and financial structure, private equity and venture capital, and the financial structure of pension funds and their sponsors. Rauh’s research on state and local pension systems in the United States has received national media coverage in outlets such as the Wall Street Journal, New York Times, the Financial Times, and The Economist. Before joining the Stanford faculty in 2012, he taught at the University of Chicago’s Booth School of Business and the Kellogg School of Management.

Lacker Discusses Importance of Human Capital as a Financial Investment

Click Here for Speech Transcript & Additional Information

Highlighted Points

  • Many efforts are aimed at helping students decide how to finance college. But these efforts beg an important question: Is college the right investment for every student
  • On average, the payoff to college is large, but only students who graduate realize high returns on their investment. Currently, the dropout rate is about 50 percent, perhaps because many students do not have an accurate assessment of their own readiness for college.
  • The flipside of the dropout problem is the failure of relatively high-achieving students to apply to college, perhaps because they overestimate the costs of college or underestimate the future payoffs.
  • This suggests that students would benefit from accurate information about the returns to schooling, the level of preparedness that is required to succeed in college and options such as community college, vocational training and apprenticeship programs.
  • In addition, research shows that poor and minority children are much less likely to have access to high-quality early education, which lays the foundation for future academic and labor market success. Greater investments in early interventions could help ensure that children’s future choices about human capital investment aren’t limited by their backgrounds.

Click Here for a Recent Presentation by Jeffrey Lacker on the History of the Federal Reserve

September 17th: Practical Analytic Techniques for Local Government (Budget Certification Course)

September 17th: Practical Analytic Techniques for Local Government (Budget Certification Course)

On September 17th, the UNC School of Government will offer the workshop, “Practical Analytic Techniques for Local Government,” presented by David Ammons and Dale Roenigk. This workshop does meet the “evaluation course requirement” for anyone pursuing the Budget & Evaluation Certification.

For more information on the course, and to register, visit the following link:

http://www.sog.unc.edu/courses/0617/index.html

NC League of Municipalities Publishes Analysis of 2010 Legislation

The NCLM has released a series of memoranda on the impact of select pieces of legislation passed and signed into law during the 2010 Short Session of the North Carolina General Assembly.  These memos were written by the League’s Legal and Government Affairs staff and cover specific, complex,  top priority issues for local government.

Link to NCLM Legislative Resources

Links to Memos by Topic: