Analysis Brief – April 7, 2014 (NC Economic Outlook Summary)

Don’t forget about our upcoming Summer Conference, July 16th-18th at Grandover Resort in Greensboro (click here for more info).

NC Economic Outlook Summary

Wells Fargo released a seasonal outlook on North Carolina’s economy late last Thursday (click here). The report covers several metrics and provides comprehensive information on statewide trends. Here are the highlights:

  • Statewide employment conditions are improving, with net growth in jobs across all industry groups within the state and significant reductions in the unemployment since last summer. Professional and business services provide the largest share of job growth (4.5%).
  • About 70% of job growth the past 4 years took place in the Raleigh, Durham-Chapel Hill and Charlotte metro areas (MSAs).
  • Statewide manufacturing job growth lags other sectors, creating issues of disparity with manufacturing-intensive areas of the State.
  • Commercial real estate activity improving in areas of strong job growth.
  • Apartment construction in Charlotte is matching demand, while Raleigh’s increased construction rates (compared to demand) provide a slight increase in vacancies.
  • Single-family housing construction permits continue showing some improvement, but they still fall significantly below pre-recession levels.
  • Housing market prices, as measured in North Carolina by the CoreLogic HPI, show continued, modest improvement, with the metric appearing close to pre-recession levels. Nationally, the rate of recent growth is faster, but the index remains significantly below pre-recession levels.

The report also included these highlights regarding North Carolina’s key metro areas:

  • Raleigh experienced 4% year-to-year growth in total nonfarm employment, driven by nearly 10% growth in business & professional services.
  • Employment growth remains slow in Greensboro and Winston-Salem, reflecting continued challenges in the Triad area.
  • Asheville and Charlotte experienced strong growth in line with statewide trends (~3% to 4%), with Asheville’s housing market also recovering at a strong rate.

Following requests from several jurisdictions, we asked for and received chart sets for each North Carolina metro (see links below for PDFs):

North Carolina (Statewide)

Asheville

Burlington

Charlotte

Durham-Chapel Hill

Fayeteville

Greensboro

Greenville

Hickory

Jacksonville

Raleigh

Rocky Mount

Wilmington

Winston-Salem

Connaughton Updates Sector Growth, Job Forecasts

Last month, UNC-Charlotte’s John Connaughton produced his spring 2014 economic forecast, reporting 2013 gross state product (GSP) growth of 2.5% and 2014 GSP growth of 3%. Agriculture experienced the most significant year-to-year growth in GSP for 2013 (+22.7%), following by entertainment & hospitality (+4.9%), transporting, warehousing & utilities (+4.3%) and business & professional services (+4.1%). Manufacturing was relatively unchanged (+0.1%) and reflected about 20% of the total state economy (second to finance, insurance and real estate). Agriculture is expected to grow another 11% in 2014, with manufacturing projecting 2.7% growth, 2.2% for entertainment & hospitality, and 1.8% for business & professional services. Connaughton also anticipates net statewide job growth of 60,200 jobs  (1.5%) in 2014, slightly less than 2013 growth (64,500, up 1.6%). Connaughton found the information sector with the highest rate of growth in 2013 (+7.6%), but he does not anticipate sector growth continuing at the same pace for 2014 (+0.7%), surpassed by transportation/warehousing/utilities (+3.3%), construction (+3.7%), and entertainment/hospitality and business/professional services (+1.7%).

Walden’s LEI Outlook Not Promising

For March, the NCSU Index of Leading Economic Indicators, presented by Dr. Michael Walden, experienced another decline, dropping 1.6% to its lowest level since last August. The overall trend remains positive, and 6% than last March, and is potentially impacted in recent months due to traditional winter slow down and worse-than-usual weather. Permit activity, hours worked and employment earnings all showed declines, as did the number of jobless claims. Click here to review the March report.

PNC Identifies Improved Business Owner Outlook

PNC Bank’s latest survey of NC-based small-and middle-market business owners (click here) provided some room for optimism in coming months. 48% of respondents indicated anticipated growth in sales over the next six months, up significantly from 34% last October. Expectations for increased profit grew slightly from 32% to 37%, while hiring growth expectations grew a little, from 8% to 12%. Increased anticipation for growth was also met with slight reduction in respondents expecting contraction in sales (from 9% to 7%) and profits (from 17% to 16%). An unchanged 8% still anticipate decreasing staff, while 76% anticipated remaining the same. With respect to economic outlook, strong optimism declined with respect to both the national (from 11% to 8%) and in-state economies (from 15% to 10%), with prospects for North Carolina still remaining stronger than nationally. Moderate optimism on the state optimism grew from 41% to 54%, helping reduce pessimism from 42% to 36%. At the same, the survey also showed declines or continued lows in the rates of businesses anticipating upcoming capital investment (53%), pay raises (19%), taking out new loans (14%), and housing price increases (39%). Substantial majority of respondents (70%) do not anticipate increasing prices during the next six months.

Gas Prices, Now and Upcoming

Fuel040714

Crude oil prices have subsided some from recent spikes facilitated by unrest in Ukraine, now within a couple percentage points of last year’s mark. As for fuel, prices for unleaded are picking up with the arrival of the spring, though are still a few cents below their levels 12 months ago. The Energy Information Administration (EIA) will release its next short term outlook this Tuesday. Their March report anticipates stable prices for the coming year, with potential for a decline in annual average price for 2015. Locally, Diesel prices also appear to be showing some reduction, at least not growing in relation to recent increases with unleaded.

 

NCLGBA’s Analyst Brief – August 2, 2013

We had a little bit of a break after the summer conference. Check out what we had to share through workshops and other sessions on our conference archive page.

We encourage you to share this report with colleagues.

Final Legislative Updates

LeagueLINC Bulletin (NCLM)

NCACC Legislative Bulletin

Career Opportunities

Finance Officer/Director of General Administration – Wrightsville Beach (Closes Next Friday, 8/9)

Budget & Special Projects Manager – Town of Garner (Open Until Filled)

Financial Operations Manager – Town of Wake Forest (Open Until Filled)

State Budget Post Mortem

Click Here for NCLM’s Summary of FY 13-15 Budget Provisions

Click Here for Summary of Tax Reform Legislation Implementation (Schedule)

Adopted Budget Extends Transitional Hold Harmless Another Year

(Karl Knapp) The General Assembly approved its final version of the State budget (SB 402 Appropriations Act of 2013) this week and sent it to the Governor, who signed it into law this afternoon. Thanks to the efforts of municipal officials and the General Assembly, the budget includes a one-year extension of the Transitional Hold Harmless payment, which expired in August 2012. The 2013 payment would be made in September, and would be calculated as in past years, but each local government would receive only one-half of the amount calculated. There will be no further extension of the Transitional Hold Harmless beyond 2013. The budget contains several other provisions affecting cities and towns, including changes to water and sewer funding and economic development support.

Highlights

(BEA) 2nd Quarter GDP grew at an annualized rate of 1.7%, higher than most forecasts and the revised 1st Quarter GDP growth rate of 1.1%. Click here to check out analysis summary from PNC Bank.

(BLS/Wells Fargo) US job growth for July (162,000) was short of analyst expectations, with the reported national unemployment rate (7.4%), reaching its lowest level since December 2008, also reflecting the impact of the job growth and a 37,000 reduction in labor force. Average weekly hours worked and hourly earnings declined slightly. Labor force participation dropped to 63.4%, remaining at a level significantly below levels achieved over the past 30 years. Full-time employment (35+ hours) grew by 92,000 in July, showing growth of 172,000 for 2013 so far, though still 1.06 million less than December 2008. Part-time employment has grown by approximately 700,000 since the start of 2013.

(BLS/Wells Fargo) While personal income grew 0.3% in June, personal spending grew 0.5%.The personal saving rate declined to 4.4%.

(BLS/NCESC) North Carolina’s Unemployment Rate for June remained at 8.8%, despite the loss of 10,958 jobs compared to May (likely due to summer job shifts). Labor force also declined by 10,362. Had the labor force remained constant with May, the unemployment rate for June would have been 9.05%.

(NC Comptroller) May 2013 report showed FY12-13 tax revenues increasing 5.4% compared to last year. Personal income tax revenues are up 7.2% and corporate income taxes are up 6.3%, while state sales tax revenues are only up 0.3% for the year. Click here for the Comptroller’s Monthly Report

NCLEI13June

(NCSU) Mike Walden’s North Carolina Index of Leading Economic Indicators remained unchanged in June, though is still 2.7% compared to a year ago. Significant drops in construction activity (Building Permits) offset improvement in other areas (Unemployment Claims, work hours, employee earnings).

(WellsFargo) New orders grew 1.5% in June, nearly reaching the $500 billion mark and achieving an all-time high and marking continuation of levels over the past couple months that recovered above pre-recession levels.

(WellsFargo/Richmond Fed) June saw significant improvement in the ISM national production and new orders indices, reflecting continued expansion in the manufacturing sector. Click here for more information. For the Mid-Atlantic, including North Carolina, the index did improve in June, though declined significantly in July to -11, driven by lower capacity utilization and reduce order backlog, along with increased inventories in finished goods and raw materials. Regional employment in the sector was flat. Expectations for the remainder of 2013, however, grew and remain stronger than current conditions. Click here for the Richmond Fed District report.

(WellsFargo) Construction spending did fall less than 1% in June, consistent with other observations of an unexpected early summer slowdown. Revised information for earlier months point to a stronger spring. Click here for more information.

Economic Updates

Dr. Woody Hall’s updated presentation from the summer conference is now available (click here). You can also check out his presentation from last week’s NCLGIA Conference in the embed below:

Wells Fargo’s Outlook Videocast for July focused on current conditions and continued domestic recovery:

What’s Up with Gas Prices?

CrudeOil12mth080213

 

Crude Oil prices have surged up 25% compared to last summer. How is impacting retail prices?

12mthGas080213

 

Nationally, gas prices are a couple percent higher right now than they were a year ago. North Carolina prices, while increasing significantly compared to earlier this summer, are on par with last summer.

Still, the significant mid-summer increase does have an impact.

From FuelFix:

Gasoline prices jumped 14 cents per gallon in July, making this the third most expensive summer driving season so far, according to AAA.

The average national pump price took drivers on a roller-coaster ride during the month, surging 20 cents from the summer’s lowest gas price so far on July 7 ($3.47 per gallon) to the summer’s highest on July 19 ($3.67). In total, the average gasoline price grew 3.9 percent during the month, from $3.49 to $3.63.

Overall, it was the largest monthly increase since February.

“July was a volatile month for consumers with gas prices reeling from the lowest to the highest averages seen in months.” said Avery Ash, AAA spokesman. “A combination of expensive crude oil costs, refinery glitches and rising summer demand resulted in sharp price spikes for many motorists.”

For the entire month, gasoline averaged $3.58 per gallon, 16 cents higher than last July. Still, the month was less costly for drivers than July 2008 and July 2011, when gasoline averaged $4.06 and $3.65 respectively, according to AAA.

Those also were the years with the most expensive average summer gas prices. The average gas price so far this summer is $3.59 per gallon, compared to $4.04 during the same period in 2008 and $3.67 in 2011.

West Texas Intermediate crude oil hit a 16-month high of $108.05 per barrel on July 19. Crude prices account for about two-thirds of consumer gasoline prices, according to AAA.

“Millions of Americans take long road trips in August and any unexpected production problems can result in serious supply and demand issues,” continued Ash. “We often see refinery problems and major hurricanes drive up prices this time of year, which means motorists could be in for a rough time at the pump in the coming weeks if something goes wrong.”

The direction of gas prices for the rest of the summer driving season, which extends from Memorial Day (May 27) to Labor Day (Sept. 2), largely will depend on weather and refinery performance, AAA noted. Prices were hit hard in August 2012, when Hurricane Isaac temporarily took several refineries out of operation, causing gas prices to surge 33 cents over the month.

Today, a gallon of regular gasoline averages $3.63 per gallon, 13 cents higher than a year ago. Houston drivers are paying an average of $3.51, up 16 cents from a year ago.

News Notes

(AP/MSNBC) Four of Five Americans live in danger of falling into poverty

(Denver Business Journal) Ford launching CNG-powered F150

(Harvard) Intergenerational Mobility Varies by Region

(TBJ) Want to climb the income ladder? Get out of Raleigh

(NewGeorgraphy) E-Shopping Bubbling While Retail Bums Along

(NewGeography) Raleigh ranked in Top 5 of “Most Aspirational” Cities

Of Interest in History Today

On this day, 90 years ago, Calvin Coolidge was sworn in as the 30th President of the United States following the untimely death of the 29th President, Warren Harding.

Coolidge was vacationing with his parents at their home in Vermont. His father, a Notary Public, administered the Oath of Office in their living room.

From President Coolidge’s own account:

On the night of August 2, 1923, I was awakened by my father coming up the stairs, calling my name. I noticed that his voice trembled. As the only times I had ever observed that before were when death had visited our family, I knew that something of the gravest nature had occurred.

He placed in my hands an official report and told me that President Harding had just passed away. My wife and I at once dressed.

Before leaving the room I knelt down and, with the same prayer with which I have since approached the altar of the church, asked God to bless the American people and give me power to serve them.

My first thought was to express my sympathy for those who had been bereaved and after that was done to attempt to reassure the country with the knowledge that I proposed no sweeping displacement of the men then in office and that there were to be no violent changes in the administration of affairs. As soon as I had dispatched a telegram to Mrs. Harding, I therefore issued a short public statement declaratory of that purpose.

Meantime I had been examining the Constitution to determine what might be necessary for qualifying by taking the oath of office. It is not clear that any additional oath is required beyond what is taken by the vice president when he is sworn into office. It is the same form as that taken by the president.

Having found this form in the Constitution, I had it set up on the typewriter, and the oath was administered by my father in his capacity as a notary public, an office he had held for a great many years.

The oath was taken in what we always called the sitting room, by the light of the kerosene lamp, which was the most modern form of lighting that had then reached the neighborhood. The Bible which had belonged to my mother lay on the table at my hand. It was not officially used, as it is not the practice in Vermont or Massachusetts to use a Bible in connection with the administration of an oath.

Besides my father and myself, there were present my wife, Senator Dale, who happened to be stopping a few miles away, my stenographer, and my chauffeur.

 

Analysis Roundup for November 21, 2012

Watch the skies… “gobble, gobble”

Wells Fargo Economics
Leading Indicators Continue Slow Growth Trend

The national index of Leading Economic Indicators (LEI), updated earlier today, only increased 0.2% for October, indicating continued slow growth.

The six-month annualized rate of change in the LEI has
weakened since the start of the year, but remains well above the
negative 3.5 percent rate which often signals recession…

After the interest rate spread, the next largest contribution was
the Leading Credit Index, followed by first-time claims for
unemployment insurance. As fewer people file for jobless
benefits, this component pushes LEI higher.

 

BLS/NC Employment Security
October Sees Continued, Slow Employment Growth

Total Employment in North Carolina increased by nearly 44,000 in October, according to last week’s release of seasonally adjusted employment and unemployment data. The adjusted unemployment rate declined from 9.6% to 9.3%. Since last October, the state has gained a little more than 95,000 jobs.

With respect to nonfarm payrolls (more accurate depiction of permanent workforce), North Carolina only saw an increase of 8,000 jobs in October, all the result of private sector employment growth (+8,900). Since last October, total nonfarm payrolls have grown by 35,700, with private sector growth of 40,000. This means that there have been some employment losses in the public sector, reflecting the need for state agencies and local governments to reduce their workforces in response to permanent fiscal challenges.

 

Overall and private payrolls still remain more than 6% below pre-recession high levels.

Wells Fargo Economics
November Outlook focuses Globally

This month’s video outlook from Wells Fargo Economics Group provides further analysis on current global economic conditions and how they are influencing conditions here in the US. This month’s outlook host, Wells Fargo Economist Michael Brown, will present an Economic Update during the Winter 2012 NCLGBA Conference in Concord on December 7th.

NCSU/Dr. Michael Walden
NC Leading Indicators Improve a Little

Dr. Walden’s Index of Leading Economic Indicators in North Carolina did show a slight increase for September (+0.2%), ending four consecutive months of decline. All of the measures incorporated into the index showed improvement except building permits, which fell by 25%.

Compared to a year ago, the overall index is up 2.4%, with all categories except personal earnings showing improvement.

Wells Fargo/Modeled Behavior
October Home Sales Continue Market Improvement Trend

2012 has been a good year for the housing market, compared to where its position since the start of the last recession. Existing sales continued to improve in October, volume increasing 2.1% to an annual rate of 4.79 million units.

In a blog post, UNC School of Government Economist Karl Smith provides some analysis on the appearance of growth in housing starts, a prediction he discussed during his presentation at the Winter 2011 NCLGBA Conference. If trends pick up in a manner consistent with his original prediction (which he admits anticipated housing growth sooner in 2012 than what actually took place), overall economic activity might look better in 2013.

Finviz/Gas Buddy
Oil Prices Rise with Middle East Tension, Gas Prices Slide Little More

Some parts of NC are seeing retail prices for Regular Unleaded below $3.20/Gallon this week. Crude prices did go above $90/bbl this week as a result of hostilities initiated by terrorists in Gaza against Israel, creating concern for a prolonged conflict and potential supply disruptions. Weak demand, however, does limit the impact of this developing situation, especially here in the US.

Articles of Interest

Philadelphia Fed – November 2012 Business Outlook Survey

Firms responding to the November Business Outlook Survey reported declines in business activity this month following the disruptive effects of Hurricane Sandy on the region. The survey’s indicators for general activity, which had shown improvement in October, fell back into negative territory this month. Firms reported slight declines in shipments, employment, and hours worked. Indicators for the firms’ expectations over the next six months were near their levels in the previous month, but expectations for future employment and capital spending have weakened in the last two months.

WSJ – Investment Falls Off a Cliff


Forbes – The Entrepreneurs of Plymouth Rock

WITN – Computer Frozen, Message Says You’re Under FBI Investigation

GovLoop – Either Way a Fiscal Cliff

TBJ – Top 7 Emerging Trends in Real Estate

Bloomberg – Hospital Medicare Cash Lures Doctors as Costs Increase

St. Louis Fed – Price Level Targeting… The Fed Has It About Right(?)

Census – Facts for Features: Thanksgiving Day!

Have a Happy, Safe and Enjoyable Thanksgiving Holiday!

 

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.

 

USDA
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.