Analysis Roundup: October 22, 2012

Here’s a collection of data and information from the past couple weeks of interest to local budget and financial analysts:

NC Department of Transportation
FY 2013 Powell Bill Allocations Released

The first half of Powell Bill allocations for qualifying municipalities were distributed on September 30th. The remaining 50% will be distributed on or before December 31st.

According to the NCDOT report detailing the September 30th distribution, payouts to municipalities were 3.2% higher than last December. Total payouts were $71.4 million, reflecting a total FY 2013 allocation to cities and towns of $142.8 million, distributed in shares of $20.43 per capita and $1,610.94 per mile.

Bureau of Labor Statistics/NC Employment Security
North Carolina Added 29k Jobs in September, or Did We?

Last Friday saw the release of the latest employment and unemployment numbers for states. North Carolina’s seasonally-adjusted unemployment rate dropped slightly from 9.7% to 9.6%. The state “gained” 29,232 jobs (+0.7%) while the labor force grew by 25,656 (+0.6%).

According to BLS, North Carolina was one of 35 states that saw an increase in jobs, and among 41 with a decrease in the unemployment rate.

The Employment Security Commission provides an overview of distribution of nonfarm employment through their Current Employment Statistics. Comparing September to August, growth looks a lot more murky:

  • Seasonally-adjusted total growth is only 100 nonfarm jobs for September
  • Unadjusted numbers indicate total growth of 11,900 nonfarm jobs, though the private sector contracted by 18,700.
  • Goods producing jobs did increase by 1,900, signalling some help for manufacturing and contraction by more than 20,000 in the private service sector
  • Government jobs grew by 30,600, almost entirely facilitated by education services and the start of the school year

According to BLS, North Carolina has gained 50,839 total jobs since January 2009 (+1.2%), not keeping pace with labor growth of 88,387 (+2.7%).

With respect to nonfarm employment, North Carolina has lost 52,700 jobs since January 2009.

County-level data should be available on or by November 2nd.

NC Department of Transportation
Joint Legislative Committee Reviewing NCDOT Progress

The Metro Mayors Coalition shared several presentations last week from September and October meetings of the Joint Legislative Transportation Oversight Committee. These presentations give us an idea of what NCDOT is work on with respect to several major initiatives:

2040 Plan

Consolidation of Division of Highways

Secondary Roads Program

NC Turnpike Authority Projects

The General Assembly’s Program Evaluation Division also just completed an analysis of the North Carolina Railroad Company, recommending that the company’s “unique relationship” with the State as sole shareholder should facilitate payment of an annual dividend to the State, along with improving reporting requirements.

NC Department of Revenue
August 2012 Retail Taxable Sales Slightly Above Last Year

NCLGBA will start creating monthly reports of retail sales activity, analyzing monthly report distributed by the North Carolina Deparment of Revenue. For August, taxable sales were 0.7% higher than last August. Compared to July 2012, sales were 6.9% less, reflecting seasonal differences.

From the perspective of a 3-month rolling average, August 2012 sales were 3.1% higher than last year. Tax collections were down, reflecting the last month where the difference includes the presence of the 1% temporary sales tax increase that was in place through June 2011.

Click Here to Review Our Analysis

Wells Fargo/ABFM
Economist Vitner sees Continued Economic Slowdown

Wells Fargo Senior Economist Mark Vitner did not express much optimism for improved economic growth through the end of 2012 and into next year, as he shared several concerns during his October 2012 Economic Outlook discussion.

Click Here to Access Video & Review Summary of Topics

Click Here for Wells Fargo’s Latest Economic & Financial Commentary

Lincoln Institute of Land Policy
What’s going on with voluntary nonprofit PILOT’s

This study takes a look at recent activity with voluntary payments in lieu of taxes (PILOTs) by nonprofits to local governments. Here are the highlights with respect to their findings:

  • PILOTs have been received by at least 218 localities in at least 28 states since 2000; these payments are collectively worth more than $92 million per year. This is a much greater number of PILOTs than identified in previous studies, with the increase due to a more expansive methodology.
  • Although more than 90 percent of all PILOT revenue comes from “eds and meds”—college payments are far more important than hospital payments with colleges contributing about two-thirds of PILOT payments and hospitals another quarter.
  • Many other types of nonprofits also make PILOTs even if their contributions are generally small. This report identifies nonprofits that make PILOTs of these types: housing (47), religious organizations including churches (36), social services (15), and arts/culture (11).
  • The Northeast accounts for roughly 75 to 80 percent of PILOT activity, with the  largest share in Massachusetts and Pennsylvania.
  • Most nonprofits make fairly small PILOTs while most revenue generated comes from a small number of multi-million dollar PILOTs. As a result, the average PILOT for all nonprofits ($292,952) is nearly 10 times larger than the median ($30,000).
  • While at least 420 nonprofits make PILOTs, the majority of revenue comes from just 10 organizations: Harvard University, Yale University, Stanford University, Brown University, Boston University, Massachusetts General Hospital, Dartmouth College, Brigham & Women’s Center, Massachusetts Institute of Technology, and Princeton University (in order of payments, beginning with the highest).
  • PILOTs generate little revenue in most localities—accounting for less than 1 percent of total general revenue in 165 out of 181 localities that have information available.
  • Localities use a variety of methods to receive PILOTs; the most common are long-term contracts (used by 58 percent of localities) and routine annual payments (34 percent).
  • Most PILOTs go to cities and towns, but at least seven school districts and four counties also receive PILOTs.
Thanks to Tony McDowell (City of Asheville) for sharing this report.

Click Here to Access the Report

Cobalt Community Research/ABFM
Local Government Employee/Retiree Healthcare Coverage Struggling

“…The report shows 7% fewer local units of government provide health coverage to their active employees than in 2011.  Governments who do provide health coverage are paying a slightly smaller share of the premium.  Fewer local governments are self‐insuring…”

Click Here to Access Report & Summary Press Release

Articles of Interest

San Francisco Chronicle: Prudential Said to be Near Systemic-Risk Tag in US Review of Firm

Prudential, manager of North Carolina’s 401(k) program, is being reviewed by the Financial Stability Oversight Council, an arm of the Treasury Department established by Dodd-Frank. Due to its size in the overall financial market, the insurance and financial services company could be subject to greater federal oversight and restrictions on dividends and buybacks if deemed necessary by regulators following a final round of review and testing. Prudential did not receive any Federal bailout funds.

Charlotte Business Journal: Regulators: Duke Energy improperly sealed Progress merger records

Charlotte Business Journal: Charlotte wins $580 million from Feds for Light Rail Extension

WRAL: 2012 State Fair ends on a high note

WRAL: Amtrak through NC hits highest percentage of growth in the nation

Triangle Business Journal: NCDOT getting plenty of feedback on proposed rate increase




Analysis Roundup for September 7, 2012

Here’s this week’s collection of topics discussed in economic reports of note from financial institutions and government agencies.

NC State
Walden’s Leading Economic Indicator Index remains flat for August

Dr. Walden’s August Update of Leading Economic Indicators for North Carolina fell a slight 0.1% compared to July. This also happened to be the year-to-year rate of decline.

Initial jobless claims and manufacturing job hours and earnings for North Carolina workers all declined, offsetting gains seen in construction permits. The index also countered national leading indicators, which increased 0.7% for the month.

The state economy is essentially “treading water”, with no clear direction up or down.  The manufacturing sector has certainly slowed, but residential housing is showing some promising signs. Investors may be waiting for clearer signs from the upcoming election results.

Bureau of Labor Statistics
US Unemployment Rate drops to 8.1% because of some job growth, more labor pool decline

The seasonally-adjusted national unemployment rate for August was 8.1%, according to this morning’s report from the Labor Department’s Bureau of Labor Statistics. They report a 96,000 increase in total nonfarm employment for the month, moving the monthly average for 2012 to 139,000 (down from 153,000/month in 2011).

Including agricultural employment, total employment declined by 119,000 jobs in August to 142.1 million.

The total labor force contracted by 368,000 (seasonally-adjusted) reducing the participate rate to 63.5%. This is the lowest percentage since September 1981.

Private-sector employment grew overall nationally by 103,000 jobs, all of it due to service sector growth (+119,000). Goods-producing industries lost 16,000, with manufacturing (major component to North Carolina workforce activity) declining by 15,000.

Wells Fargo Economics Group’s analysis this morning of the report reaffirms their belief that overall national economic growth will remain below 2% for the rest of 2012.

An RBC economist also offered this assessment of how today’s employment report might influence action in the coming week from the Federal Reserve.

To help generate even greater job gains, the Fed is expected to keep policy highly accommodative. Fed Chairman Bernanke in hisJackson Hole speech last week signalled a preparedness to introduce additional ease if conditions warranted. Thus, next week’s Federal Open Market Committee (FOMC) could see the central bank extending the forward guidance (as to the maintenance of the current range for fed funds) to “sometime in 2015” from the reference to “late 2014” as indicated following the last FOMC in August. The disappointing August job gain will likely prompt discussion at the FOMC about the need for another round of asset purchases.

Richmond District – Federal Reserve
What do you know, and not know, about migration?

The Richmond Fed’s Region Focus is a quarterly publication highlighting their research on various economic and statistical topics. Their latest issue (published this week) includes an interesting article on residential migration, an activity that often dramatically-impacts local government operations and finances.

While the article is written from the premise of trying to figure out if common arguments for recent decline in migration (underwater mortgages, telecommuting, etc.) are relevant with respect to actual data, the work really is a more effective means of understanding some common characteristics associated with migration and the demographic variables that influence its growth or decline, especially at the local level.

The latest Region Focus also includes two more great articles of interest to local governments. Their cover story focuses on the factors contributing to the declining size of our national labor force. They also include a short feature on the concept of “Charter Cities” and the recent establishment of them in Honduras.

Click here for all of the content from the latest Region Focus.


Wells Fargo Economics Group
Chartbook: How does commercial real estate factor into all of this?

The commercial real estate market did not see as much valuation volatility as the housing market did during and after the economic crisis in 2008 caused in part by the proliferation of risky mortgage-backed securities. However, the commercial property market could still pose a threat, and would have possibly over the last couple years if not for the Federal Reserve’s two prior rounds of quantitative easing. The latest commercial property chart book from Wells Fargo offers some background on the subject, which may be of interest to cities with high levels of commercial property.

The huge mountain of commercial real estate loans maturing around the middle of the decade has been one of the motivating forces behind the Fed’s monetary policy strategy, which has driven long-term interest rates down to historic lows and removed
much of the near-term interest rate risk. Lower interest rates have also made it possible to refinance and restructure a larger proportion of maturing and potentially problematic loans maturing later in the decade. Moreover, the drop in Treasury yields has also pushed liquidity into other areas, including stocks and real estate. Furthermore, higher stock market valuations have allowed insurance companies and pension funds to allocate a larger portion of their investment portfolio to real estate. A healthier equity market has also made it easier for REITS to raise funds.

However, investors should remember that all magic comes with a price. Ben Bernanke outlined what he believed the costs of the Fed’s asset purchase program have been and by his account they have been manageable. The yield curve has narrowed and inflation premiums, as measured by TIPS, have remained relatively low. This analysis misses one key point, which is the large increase in the demand for liquidity arising from the uncertainty surrounding the Fed’s unprecedented policy moves. Investors’ increased preference for liquidity has manifested in a number of ways, including significantly higher prices for assets with more certain cash flows. No cash flow is more certain than Treasuries, which means the Fed’s measure of potential costs may be flawed.

The drive for liquidity is also affecting commercial real estate. Demand has soared for well-located properties with strong tenants in deep, liquid markets like New York and San Francisco. While that sounds perfectly logical, it means that the most significant gains in commercial real estate values have been limited to a relative handful of projects in a small number of markets.

In other words, while the commercial real estate sector may seem somewhat healthy, it could be thrown into turmoil very easily. Future Federal Reserve policy, especially in light of sluggish overall economic growth and employment activity, could have profound impact.


Fuel Update

Crude oil prices remained between $94-$98/bbl for the week after Labor Day, and average North Carolina prices for regular unleaded stayed at or close to the $3.80/gallon mark influenced prior to the holiday by summer driving, rising corn prices and storm activity in the Gulf of Mexico.

Corn prices remain a concern with respect to their impact on ethanol.They are below highs experienced in mid-to-late August, but still at an oppressive price in trading.


Continued crop export growth expected for 2013

US Secretary of Agriculture Tom Vilsack expressed optimism following release of future export estimates should remain above and near record levels set in the recent past.

This year, total farm exports are expected to reach $136.5 billion, close to a record level set last year. The record is expected to be set again in 2013, when exports are projected to reach $143.5 billion.

Export value growth has been 50% since 2009, influenced by increased demand from developing countries along with higher food prices.

Analysis Roundup for August 29, 2012

NCLGBA will post a collection of topics discussed in economic reports of note from financial institutions and government agencies on a regular (not necessarily weekly) basis.  Here is what we’ve found recently:

Bureau of Economic Analysis
US GDP Growth Slows Down in 2nd Quarter to 1.7%

Today’s report on GDP performance for the 2nd Quarter of 2012, a benchmark for general direction of the overall national economy, reflected concerns expressed by economists of the past several months of a slowing condition. US Real GDP (indexed for inflation) grew at an annual rate of 1.7% for the last quarter. This is less than the 1.9% growth achieved in the 1st Quarter.

Economists predicted GDP growth would reside between 1.5% and 2%. This snipped from today’s BEA Press Release provides an explanation of the factors contributing to recent performance:

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed  investment, and residential fixed investment that were partly offset by negative contributions from private inventory investment and from state and local government spending. Imports, which are a subtraction in the calculation of GDP,

AAA Carolinas/Gas Buddy
Late Summer Gas Price Spike Exacerbated by Hurricane Issac

Late spring and early summer saw a significant drop in crude oil, gasoline and diesel prices from winter and early spring highs, with prices falling about 30% between March and early July.

Unfortunately, fuel-oriented energy prices rebounded from mid-July through August, with gasoline prices increasing at a rate faster than crude and diesel because of the impact of high corn prices due to the use of Ethanol.

Now, anticipated supply disruptions created by the arrival of Hurricane Issac along the gulf coast of Louisiana and Texas is forcing additional price spikes. Today’s daily price report from AAA indicates that the national average increased 1.3% for regular unleaded compared to yesterday, with North Carolina metropolitan areas now at or close to the national average of $3.80/Gallon.

According to this comparative chart from Gas Buddy, North Carolina retail prices for regular unleaded have steadily returned upward to the national average in the second half of the summer.

While the neighboring state of South Carolina has seen price increases as well, they remain significantly below the national average. Over the long run, supply problems can force more localities to see prices move toward the national average, even with their traditional location “discount” and/or lower tax rates.

Source: AAA, 8/29/2012

Bureau of Labor Statistics
NC Metro Nonfarm Employment Falls, Overall Employment Rises for July

Toward the end of each month (or a week or so into the start of the next month), the Bureau of Labor Statistics (along with the North Carolina Department of Commerce Division of Employment Security, a.k.a. ESC) publish employment statistics for metropolitan areas (MSAs). For July, each of North Carolina’s 14 Metropolitan Areas saw an expected decline in nonfarm payroll, and indication of softening conditions this summer with some impact resulting from public sector contraction.

Overall, the State lost 75,200 nonfarm payroll positions in July, though overall employment for the month did increase by 12,900 compared to June as a result of seasonal hires in the agriculture sector. Nine MSAs in North Carolina also saw net job growth in July, with the biggest spike witnessed in the Raleigh-Cary MSA (+8,300).

All but 2 metropolitan areas in North Carolina (Wilmington and Winston-Salem) have seen positive growth in nonfarm payrolls compared to a year ago.

MSA unemployment rates for July range from a low of 7.7% (Asheville) and 7.9% (Raleigh) to a high of 13.1% (Rocky Mount). Eight MSAs had rates higher than the statewide rate of 9.8%.

Richmond Federal Reserve Bank
Nearly 17K Private Sector Jobs Gained in NC in June

The Richmond Fed produces a narrative “Regional Update” of employment conditions of each within their District on a monthly basis, providing additional perspective on monthly employment statistics distributed the third Friday of each month by the Bureau of Labor Statistics. Here is the text of their latest update from today on North Carolina’s job picture:

Labor market indicators for North Carolina were generally mixed in July, but the underlying employment data were encouraging. Private sector payrolls swelled even as the state’s unemployment rate rose. However, the results from our Carolinas Survey of Business Activity for July were disappointing, as more respondents reported that business activity had slowed and labor demand had softened.

North Carolina’s total payroll employment (seasonally adjusted) increased by 1,800 in July — its second monthly increase in a row. However, the relatively small gain in total payrolls belies a much bigger improvement in the private sector. Private sector firms added 16,600 net new jobs to payrolls and the gains were very widespread. Leisure and hospitality employment jumped by 5,900 in July, which reversed all of the losses that the industry had experienced in the first half of the year. In fact, employment in leisure and hospitality stood at its highest level since March 2008. Manufacturing also showed an impressive increase in July, rising by 3,400 jobs. Private education and health services jobs bounced back last month from a rare decline in June. The professional and business services and the other services categories also increased notably during July. The remaining major private sector industries saw more modest gains.

The big drag on North Carolina’s payroll employment during July was the public sector, especially local governments. After trending up between July 2011 and June 2012, local government employment dropped by 14,500 last month, accounting for all of the public sector job losses. State and federal government employment was largely unchanged. Over the year, private sector payrolls were up 42,500 in North Carolina, while government employment was off by 6,600 jobs.

Looking across North Carolina, the data varied widely. Eight of the state’s 14 metropolitan statistical areas (MSAs) showed month-to-month increases in employment, with the largest occurring in the Triangle area (the combination of the Raleigh and Durham MSAs). The Greensboro-High Point MSA was not far behind, with an increase in employment of 2,700 in July. Asheville, Burlington, Greenville, Jacksonville, and Rocky Mount experienced more modest increases. By contrast, the Charlotte MSA lost about 3,000 jobs during July and total employment in the area is off by 5,400 since April. The Winston-Salem MSA also experienced substantial jobs losses in July.

North Carolina’s unemployment rate, which is based on a different survey than the payroll employment estimates, increased for the first time in a year. After coming in at 9.4 percent for three straight months, the state’s seasonally adjusted unemployment rate increased 0.2 percentage point in July to 9.6 percent. The ranks of unemployed workers swelled by a little more than 5,300 workers, even as labor force participation in the Tar Heel state continued to move lower — a trend which started in March. Our Carolinas business activity index dropped into negative territory in July for the first time since last fall. Moreover, the deterioration in current general business conditions was accompanied by continued softness in current labor demand indicators.

Economic Reports Available for Charlotte & Raleigh Metro Areas

PNC, like other national banks, has an economics division that evaluates and provides research and analysis on national and global economic conditions. PNC also prepares quarterly economic updates on a regional basis for the markets they serve across the United States. A consolidated regional report includes link to metro area reports, including new ones they’ve added to cover their expanded markets in Charlotte and Raleigh as a result of their recent acquisition of RBC Bank.

Click Here for their most recent Regional Outlook

Click Here for their most recent Charlotte Market Outlook

Click Here for their most recent Raleigh Market Outlook

Click Here for their most recent National Economic Outlook Report (Monthly)

Replay information on their economic outlook conference call held August 23rd will be made available as soon as it is posted.

Analysis Roundup for August 17, 2012

NCLGBA will post a collection of topics discussed in economic reports of note from financial institutions and government agencies on a regular (not necessarily weekly) basis.  Here is what we’ve found recently:

Click Here for Information on Next Week’s PNC Financial Economic Update Conference Call
(Thursday, August 23rd, 2pm ET)


Bureau of Labor Statistics (BLS)
NC, Most States see Unemployment Rise in July

North Carolina’s seasonally-adjusted unemployment rate rose from 9.4% in June to 9.6% in July, making it one of 44 states to see an increase in their unemployment rate for the month.  The Tar Heel State is now tied for the 6th-highest rate (with South Carolina) among states in the US.

Compared to last year, the size of North Carolina’s labor force is pretty stagnant (4.647 million), though it did decrease by 8,400 in the past month. The number of “unemployment” increased by 5,300.

The unadjusted unemployment rate did drop a little from 9.9% to 9.8%, reflecting an increase in summer work. Unadjusted total nonfarm employment experienced a decline of 75,200, a share of the workforce (1.9%) in line with prior performance (2.0% July dropoff last year).

Seasonally adjusted nonfarm employment saw a net increase of 1,800 in July, indicating some improvement in North Carolina’s job market. Strongest sectors of

Wells Fargo Securities
July Leading Indicators Improve, Recession Not Likely

The Conference Board’s Leading Economic Index (LEI) rose 0.4% in July, with growth also reported in coincident and lagging indicators. July also saw increases in building permits and orders for nondefense capital goods, with industrial production remaining at least 4% higher than last year. Consumer confidence, however, continues to decline.

Consumers not embracing Back-to-School Spending

Retail sales taxes are heavily-influenced by families buying for back-to-school, even in an environment where “Sales Tax Holiday” weekends often distort buying patterns. While trade experts anticipate double-digit growth in sales for the season this year, reporter interaction with shoppers indicates they are doing their best to stay within last year’s budgets.

Wells Fargo Securities
Prices Up, Consumer Spending Up

Typically, the Bureau of Labor Statistics (BLS) releases its consumer spending report in conjunction with the Producer Price Index (PPI) for each preceding month, followed a day later by the Consumer Price Index (CPI) report. For July, the PPI increased 0.3%, and “finished” goods increased 0.2%. This was driven primarily by continued significant increases in prices for foodstuffs (+5.2%).

On the consumer side, the CPI for July remained flat compared to June, with the annual rate dropping below 2%. Consumer inflation is driven in large part due to food and energy prices, which are influenced by both producer prices and demand. The CPI for food has increased an annual rate of 2.6% over the past 3 months.

Erskine Bowles Talked About Much More than Paul Ryan

Earlier this week, viral video surfaced of former UNC Chancellor and Deficit Reduction Commission Co-Chair Erskine Bowles expressing compliments of U.S. House Budget Committee Chair (and Mitt Romney’s Vice-Presidential running mate) Paul Ryan. While media have focused on the meaning of this passive “endorsement” of Ryan’s personal capabilities and commitment to reducing the size of the annual Federal budget deficit (not necessarily his policy proposals), the entire speech made by Bowles last September during this UNC Lambeth Lecture is very insightful and worth a look.

In the course of an hour, Bowles provides a convincing case from multiple perspectives for deficit reduction, as well as outlines the vision and values that guided the Deficit Commission’s efforts.

NCLGBA Blog/Wells Fargo Securities
Vitner suggests US Economy growing “slower,” but not “close to the edge” for recession

Check out this August Outlook video, featuring Wells Fargo Economist Mark Vitner.

New York Federal Reserve
How did Banking and Prison Shape O. Henry?

At the New York Fed’s “Liberty Street Economic Blog, you can learn about the early life of famous American writer O. Henry and how his failures as a bank teller, eventually leading him to serving time in jail, helped him focus attention on his now-renowned life’s work.


Chart of Note: Consistent Look at Unemployment

Chart of Note: Consistent Look at Unemployment

By Kenneth Hunter

NOTE: The following represents the analysis-based opinion of the author and do not reflect those of his employer or any other affiliations

Last August, I wrote up a post for the ASPA Blog that looked at North Carolina’s published unemployment rate and critically-compared it to how it would look if labor participation was kept constant, rather than fluctuated on a monthly basis. As the graph below from that report showed, unemployment rates would be significantly higher if participation was locked-in at a long-term, pre-recession average for the State (72.5%).

Click here for link to alternative posting of the ASPA post

This week, the impressive news site Business Insider featured a similar graph that compared “published” national unemployment with an alternative rate, utilizing a constant national labor participation rate (67%). In light of the substantial decline in labor participation incorporated into January 2011 unemployment statistics reported by the BLS last week, the graph below is a pretty telling indicator of how uncertain we are when it comes to the health of the market and the overall economy.

Graph developed by Albert Edwards of Societe Generale

The 67% participation rate reflects labor involvement in 2000, as well as its long-term average prior to the recession. From a comparative perspective, labor force participation in the early-1960’s was a little over 50%, reflecting societal and workplace norms and practices of the time.

While we do not know if a constant participation rate will be incorporated into long-term changes to the calculating and reporting of critical statistics, the alternative look does provide us with a chance to seriously evaluate and consider what is “real” when it comes to the state of our national, state and local economies.