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.

 

Analysis Roundup – May 24, 2013

Starting June 3rd, the Analysis Roundup will be normally posted on Monday mornings.

How are we doing? We want to know if this regular update provides value to you as budget practitioners and members of NCLGBA, as well as ways we can improve it.

Click Here to Fill Out Our “Analysis Roundup” Feedback Survey

State Senate Passes Budget

The State Senate introduced their 14-15 biennial budget proposal this past Sunday and passed it on consecutive reading votes Wednesday and Thursday. The bill now goes to the House.

The League of Municipalities prepared an analysis of key budget provisions, which you can view by clicking here. Additional analysis was prepared by the Association of County Commissioners, which you can click here to view.

What does it mean for local governments? 

No Transitional Hold Harmless Included (via NCLM)

“The budget passed by the Senate this week does not include any extension of the transitional hold harmless payments for cities and counties. If these payments are to continue this year and beyond, it is imperative that they are extended in the budget the House passes and sends back to the Senate… If the transitional hold harmless payments are not included in the House budget, they will likely expire permanently.”

Potential Unfunded Mandates (via NCLM)

“The Senate budget contains two provisions that would place unfunded mandates on local governments. The first provision would require that if a State transfer of insurance tax revenue to the Worker’s Compensation Fund for Volunteer Safety Workers is not sufficient to meet the actuarial needs of the Fund, the remainder of the cost would be provided through an assessment of funds from those local governments served by volunteer fire departments and/or rescue squads. We have been told that the elimination of the transfer is planned, which would result in the full costs being placed on local governments. The second provision would take over $10 million per year from the Separate Insurance Benefit Trust, which pays for a modest death benefit and accident insurance for local and state law enforcement officers, and use the funds to pay State Health Plan premiums for State law enforcement officers. Local governments would receive none of the diverted funds, but could be required to replenish the Trust.”

Defunding Current Rural Economic Development Initiatives (via NCLM)

“The budget passed by the Senate this week would make significant changes to how the state supports economic development efforts. The bill would eliminate all State funding for the Center for Rural Economic Development ($16,619,194), Regional Economic Development Partnerships($2,151,517), and Councils of Governments ($328,105). It would transfer the economic development responsibilities of these groups to a new Rural Economic Development Division within the Departmentof Commerce and a new Rural Infrastructure Authority. Senate leaders said that the change is intended to remove an ineffective layer of bureaucracy from business recruitment and force Commerce Department officials to work outside of Raleigh.”

Transportation Funding Changes (via NCLM)

“In addition to the transportation reform provisions discussed in a separate article below, the Senate budget includes several additional transportation provisions affecting cities and towns. The budget would reduce public transportation operating support funding by two percent, following a cut of 9 percent over the last two years. It also would eliminate the Small Urban Construction program, which provides $7 million each year for urban projects on the State system. The allocation of State maintenance funding could change as the result of a provision that would require NCDOT to assess the level of congestion on primary highways and use the assessment as one of the criteria for developing its highway maintenance plan. The budget also would adjust MPO/RPO ethics reporting requirements so that only voting members would be covered. This provision mirrors that in SB 411 Ethics Requirements for MPOs/RPOs, which the League has been working on and which passed the Senate prior to crossover.”

Changes to Support for Water Infrastructure (via NCLM)

“Senate budget-writers proposed several policy changes of note in SB 402 Appropriations Act of 2013 that would affect the way the state awards water, wastewater, and stormwater infrastructure funds. First, the budget would consolidate the Clean Water Management Trust Fund and Natural Heritage Trust Fund into a new “Water and Land Conservation Fund.” Second, the proposal would move both the Drinking Water State Revolving Fund and Clean Water State Revolving Fund into a new “State Water Infrastructure Authority.” Both new funds would be overseen by separate nine-member authorities, who would have the ability to set the criteria for awarding grants and loans to local governments for these infrastructure projects. The oversight bodies would also make decisions on those awards. Other provisions in the environment section of the Senate budget proposal would make the same changes to the N.C. Environmental Management Commission that have beendebated in other bills this session, and would allow the state to direct taxpayer dollars to private recycling enterprises.”

Changes to Public School Capital Support from Lottery Proceeds (via NCACC)

“Of greatest concern to counties is the rewrite of the state’s lottery statutes to eliminate the guarantee of 40 percent of net lottery proceeds to county school construction. Removing the statutory intent to guarantee the 40 percent may result in future Legislatures using the county share of lottery proceeds for expenses other than school capital needs.”

House brings forward Tax Reform Plan

The Senate did not include any specifics on tax reform in the budget bill they passed this week, though they did forecast reducing tax revenue by approximately half a billion dollars as a result of some type of adopted reform. Last week, the House presented their proposal, which gained support from Governor McCrory.

Unlike the plan introduced a while back at a press conference by Senator Berger, which has not yet been drafted into legislation, the House plan has been submitted as a Committee Substitute to existing tax reform legislation (click here to view). It’s key components are as follows:

  • Eliminate tiered personal income tax rates and establish a single rate of 5.9% (rates are currently tiered at 6% to 7.75%)
  • Expand sales tax to include many services, leaving state rate at 4.5%
  • Reduce corporate income tax rate from 6.9% to 6.75%
  • Reduce state corporate franchise tax
  • Does not eliminate local business license taxes
  • Reduce Article 40 sales tax rate to 0.4%, and expand its base application
  • Eliminate franchise tax on electric and natural gas sales, and replace it with application of the local sales tax, with all funds distributed within each County (point-of-sale) to their municipal governments on a per capita basis.

The changes to the income tax would take effect on January 1, 2014, while the change to the sales tax base and Article 40 rate would take effect on October 1, 2013. The changes to taxation and distribution of tax on electric and natural gas sales would not take effect until July 1, 2014.

According to today’s “LINC IN” email, the League will work on analysis to determine the impact of these changes on individual municipalities. No hold harmless provisions are included in the House plan, as well.

Sequestration Hits Asset Forfeitures

The US Department of Justice Criminal Division distributed guidance to local law enforcement earlier this week (click here to view) that included the following announcement:

Having considered all available alternatives while working to ensure the continued financial health of Assets Forfeiture Fund (AFF), the Department determined that effective May 24, 2013, and continuing for the remainder of the federal government’s fiscal year (September 30, 2013), equitable sharing paid through the DOJ AFF will be reduced by 10 percent of the awarded amount. Computation of equitable shares will remain the same and determinations will be made under our pre-existing policies and guidelines.

Summer Gas Price Projections (h/t Karl Knapp)

From Calculated Risk and the EIA Short-Term Outlook…

Falling crude oil prices contributed to a decline in the U.S. regular gasoline retail price from a year-to-date high of $3.78 per gallon on February 25 to $3.52 per gallon on April 29. EIA expects the regular gasoline price will average $3.53 per gallon over the summer (April through September), down $0.10 per gallon from last month’s STEO. The annual average regular gasoline retail price is projected to decline from $3.63 per gallon in 2012 to $3.50 per gallon in 2013 and to $3.39 per gallon in 2014.

Last summer, gasoline prices averaged $3.76 per gallon during the April through September period – so this is a little good news for drivers.


The latest 12-month graph from Gas Buddy suggests prices are improving significantly for North Carolina going into the busy summer driving season. However, they do remain about 6% higher than our neighbors in South Carolina.

gasbuddy052413

Economic Notes (via Wells Fargo & BLS)

  • Federal Reserve does not appear to be pulling back on quantitative easing, at least until fall
  • Existing home sales moved close to annual pace of 5 million in April
  • Durable good orders improved in April, suggesting that manufacturing slowdown may be short-lived
  • Overall inflation as measured by CPI is relatively low (1.1% annual rate), though that appears to be driven by significant reductions in energy prices; regional performance in the Southeast and Mid-Atlantic are consistent with the national average
  • North Carolina was one of 40 states to see a reduction in the unemployment rate for April, from 9.2% to 8.9% (seasonally adjusted). Overall employment was up 73,300 from last April, while the unadjusted unemployed count managed to drop 20,000 for the month (to 398,000) with 3,000 of those actually dropping out of the labor force.

Click Here for Wells Fargo Weekly Commentary (PDF)

Click here for their May Outlook Video, including discussion of anticipated slowdown of growth during the second quarter of the year.

 

Enterprise Utility Bill Changed to Study, Passes House

Last month, NC League of Municipalities reported on H708, which would have dramatically limited the use of funds generated by local government enterprise utilities. The League indicated that the Bill would likely be redrafted to establish a Legislative Study Committee to research this ongoing issue and report back to the General Assembly next year.

A few weeks ago, the House Finance Committee approved this substitute, and the House passed the bill on to the State Senate prior to the “crossover” deadline. The language of the legislation does serve as a rebuke of long-established practices by North Carolina local governments and makes clear the interests and intent of the General Assembly.

SECTION 1.(a)  The General Assembly finds that the ability of a city or county to efficiently and effectively provide public enterprise services is imperiled by the use by that local government of those revenues for purposes other than:

(1)        Paying the costs of operating the public enterprise.

(2)        Making debt service payments.

(3)        Investing in improvements to the infrastructure of that public enterprise.

(4)        Reimbursing the unit of local government for actual direct services provided to the public enterprise.

SECTION 1.(b)  The General Assembly further finds that any excess net revenues should be used to lower rates, advance fund debt service, and fund infrastructure improvements of that public enterprise.

Obviously, this means that the matter, which directly impacts finances and budgeting for many North Carolina municipalities and counties, will be further scrutinized and reconsidered again next year. Last year, the General Assembly did pass limits on Electric Utility enterprise transfers, consistent with guidelines long recommended by the Local Government Commission.

First Quarter GDP Okay, Other Indicators Mixed

  • Overall US Gross Domestic Product grew 2.5% (annual rate) during the first quarter of 2013, according to the Bureau of Economic Analysis’ first report.
  • Actual Real Final Domestic Sales (End-Use Consumer Activity) grew 1.9% (annual rate) during the first quarter.
  • Personal consumption grew 3.2% (annual rate)

Analysis Roundup – March 1, 2013

Some updates from today and this week…

Treasurer Cowell Offers Update During Visit to Rocky Mount
By Kenneth Hunter

North Carolina Treasurer Janet Cowell attended a luncheon this afternoon in Rocky Mount with a diverse group of attendees, including public employees. Here are some highlights of her comments to the group:

  • State pension fund investments (for state and local employees) earned a little under 12% last year, and the fund overall has returned to the value it had prior to the 2008 recession.
  • “We’ve been a State that has managed its finances well. Don’t let anyone tell you otherwise.”
  • State Board of Education worked with the Treasurer’s Office to add financial literacy to the K-12 social studies curriculum. The subject will be discussed in the classroom in a formal matter starting this coming fall, for all grades and Kindergarten.
  • Treasurer’s Office is really pushing its Unclaimed Property Program. They made an award this morning to a man in Nashville worth approximately $7,000. More information is available on their website, www.nccash.com.
  • Since taking over the State’s employee health plans, the Treasurer’s Office has worked on implementing positive changes encouraged by employees. The Treasurer specifically mentioned that her work with employee health plans for state employees and retirees has been “one of the best personal experiences” in her work with government.
  • When asked by a local government employee about whether or not the State is looking at ways to offer healthcare options for local governments and their employees, the Treasurer mentioned there is no active conversation, though some choice for individual employees may open up with the arrival on insurance exchanges.
  • Soon, State Retirees will have access to Medicare Advantage plans.
  • The State Retirement System, which currently manages and offers pension, 401(k) and 457 plans (their 457 is largest in the country), will soon be offering a 403(b) plan for employees (managed by TIAA-CREF).
  • For the first time in 4 years, the State Government has excess debt capacity. In response to a question, the Treasurer did mention this may open the opportunity (depending on the interests of the legislature) for offering shared debt access for struggling local jurisdictions needed funds for capital projects (like schools).
  • The Treasurer’s Office is “ok” with legislation proposed this year by the General Assembly that would limit non-voter approved debt to only 25% of total debt issued (at the State level). This legislation does not affect locally-issued debt.
  • The Treasurer’s Office will “fight hard” to keep borrowing options open for local government. So far, the General Assembly has agreed with their guidance.
  • Community Colleges, in general, are “popular” with the General Assembly.
  • As a point of information, the Treasurer mentioned that approximately 20% of students in Durham and Pamlico Counties are now attending Charter Schools.
  • With respect to investment plan fees for employees, the size of the Statewide investment pools in 401(k) and 457 plans (more than $7 billion) enables the State Retirement System to leverage its position to keep fees low for its participants (averaging 0.5%). Treasurer also announced that in the near future, members will be paid back extra fees, anywhere from $10 to $120 per employee depending on plan and personal balance.
  • State employees now have access to health incentive programs, such as “Stork” programs for expecting mothers, which do provide benefits for abiding with expectation on pre-natal care and doctor visits.
  • When asked about guidance on implementing and explaining GASB requirements regarding pension fund obligations and unfunded liabilities, the Treasurer said that information will be provided to local governments, especially those who are part of the retirement system in the near future.

NCLM
Notable Legislation Would Regionalize Charlotte Airport, Limit Collections, Refund Deannexed Area Taxes

Click here to link to an NCLM post discussing 2 of these items. Excerpt below:

SB 81 was given a favorable report by the (Senate Finance) Committee, but not before some debate. The bill would transfer ownership of Charlotte Douglas International Airport from the City of Charlotte to a newly-established Charlotte Regional Airport Authority… A representative from the City of Charlotte also spoke to the Committee and indicated that the City was prepared to conduct a study on the airport’s ownership and present the results prior to the legislature’s adjournment this year, but the bill moved forward nonetheless.

SB 97 would prevent municipalities from collecting property taxes from areas that were part of the city for less than six months and have not yet been billed for their property tax. The idea for the bill was generated by the City of Wilmington and is intended to apply only to the Monkey Junction area, which was legislatively deannexed from Wilmington during last session. However, it is a statewide bill and thus could potentially apply in other areas of the state.

Another bill, HB5, would force cities with area forcibly deannexed last year to refund property tax revenue collected from property owners in the deannexed areas. Depending on the circumstances, this can have a significant impact on finances in a couple municipal areas.

NCSU/Mike Walden
NC Leading Indicators Dip for January, Economy Still Poised Good for 2013

NCLEI0113

The NCSU INDEX OF NORTH CAROLINA LEADING ECONOMIC INDICATORS (the “Index”), a forecast of the economy’s direction four to six months ahead, gave back a small amount of its recent gains by falling 0.4% in December. The components of the Index were mixed, with the national index, manufacturing hours, and manufacturing earnings improving, while an increase in initial jobless claims and a drop in building permits had negative impacts on the Index. Still the Index is higher than a year ago and much more “bullish” than in mid-2012. The Index is suggesting an acceleration of economic growth in the state – at least through the early part of 2013.

BEA/Wells Fargo
Personal Income Drops Significantly in January

Today’s report on January 2013 national personal income showed a 3.6% decline from the prior month, with a 4% decline in disposable income. Significant loss of total and disposable income was expected in part due to losses in total employment for the month (due to post-holiday transition) and the end of the payroll tax holiday. However, the actual numbers are significantly more than those predicted by forecasters.

January’s cut sliced more than half of the growth in personal income in the past year, pushing the annual growth rate downward to 4% for total income and 3% for real disposable income (Graphs Courtesy Wells Fargo).

Jan13Income

BEA
End-of-Year GDP Didn’t Contract, But It Didn’t Grow, Either

The Bureau of Econoimic Analysis released their second (revised) estimate for Gross Domestic Product for the Fourth Quarter of 2012. Initially, they estimated a decline of 0.1% within the last three months of the year. This time, however, they determined that there was actually some growth, equivalent to 0.1%.

Federal government expenditures remained the primary driving factor for the stagnant results, showing a 14.8% decline (22% decline in Defense) for the quarter. The GDP price index increased 1.5% for the quarter.

Notably to those whose local economies involve businesses that export products, the revised GDP shows that the real (indexed for inflation) value of exported goods declined 3.9% in the final quarter of 2012, while the real value of imports declined by 4.6% (so we actually had a 0.7% net “gain” to GDP).

Gas Buddy
Fuel Prices Stop Climbing, for at least This Week

Retail prices for gasoline and diesel did go down a little for the past week, though not as much as crude oil, which is ending the week hovering in the $90-91/bbl range.

Articles/Videos/Links of Interest

NCLM LeagueLINC Bulletin

NCACC Legislative Bulletin

 

Analysis Roundup: November 2, 2012

Wells Fargo Economics Group
NC Outlook shows “downshift”

Thursday evening, Wells Fargo Economics Group released their latest North Carolina Outlook. Their analysis points to how global downturn and uncertainty over the pending Federal “fiscal cliff” put negative pressure on economic activity within the state this year, as well as create potential decline going into 2013.

Metro-specific analysis is also included in the Outlook for Asheville, Charlotte, Raleigh, Greensboro and Winston-Salem.

Click Here for the NCLGBA Post & Access to the Outlook

National Retail Federation/Wells Fargo/NCLGBA
2012 Holiday Spending Growth Predicted

The National Retail Federation is predicting 4.1% annual growth in retail sales during the 2012 holiday season (November-December), while Wells Fargo also forecasts growth at 3.8%. While below last year’s 5.6% growth rate, it is still above the 3.1% rate reflecting the 10-year average.

Click Here for the NCLGBA Post on 2012 Holiday Sales

Bureau of Labor Statistics
National Workforce Gains 171,000 Jobs

Today, the BLS reported a 7.9% seasonally-adjusted national unemployment rate for October 2012, slightly above last month’s 7.8% rate. Nonfarm payroll increased 171,000 in October, with private sector workforce growth of 184,000. Growth in the services sector continued to outpace goods-production (click here for quick overview of sector performance).

Labor force participation remains below 64%. At the October 2011 participate level of 64.1%, unemployment would be 8.3%, with the rate remaining near or above 10% at pre-recession participation levels. Total nonfarm payroll is still more than 4 million jobs less than early 2008, prior to the start of the recession.

Click Here for the BLS Press Release

NC Employment Security/BLS
NC Counties, Metro See September Payroll Gains

95 of 100 North Carolina Counties and all of the State’s Metropolitan Areas saw increases in nonfarm payroll in September. County payroll growth for the month (1.67%) was close to the year-to-year growth rate for September (1.77%), reflecting the ongoing issues North Carolina is having with sustaining increasing in employment.

Metropolitan areas saw average 1-Month job growth of 1.6%, with 12-Month growth clocking in at an average of 2.7%. Rocky Mount, struggling with among the highest unemployment rates for NC Metropolitan Areas, had the strongest 12-Month job growth at 4.4%.

 

Gas Buddy/AAA/WTVD
“Demand Destruction” Helps Bring Gas Prices Down

Among the effects of Superstorm Sandy, North Carolina residents are noticing another significant drop in gas prices. This is due to the fact that while the storm did not disrupt national gasoline refinery or pipeline activity, the devastation and loss of end delivery infrastructure in the Northeast has created temporary “demand destruction” forcing prices to come down in other areas.

For a better explanation, check out this interview with NC State Economist, Dr. Michael Walden, aired Thursday night:

In the past week, the state average for unleaded as dropped 2.5%, and pump prices in many locations today are less than $3.30/gallon.

Since climbing to over $3.80/gallon shortly after Labor Day, the NC state average has dropped nearly 14%. In most metro areas, according to AAA, prices today are at or slightly above one year ago, though the state average is 21% higher than 2 years ago, reflecting considerable increases in gas prices and the impact felt on local budgets.

Training Opportunities

Next Wednesday, November 7th, 1PM ET – Unbalanced Mayhem: Trends, Challenges & Failures in Local Government Budgeting (Webinar Hosted by American Society for Public Administration & Association for Budgeting & Financial Management)

Presented by Kenneth Hunter, City of Rocky Mount, North Carolina

Across the country, local governments are struggling with fiscal pressures created by ongoing economic turmoil and its impact on revenues, expenditures and citizen quality of life. This presentation will examine specific challenges municipalities and counties encounter when developing annual budgets and how they impact local policy decisions with respect to personnel, capital, taxes and other facets of public administration. Click Here for Registration Info.

November 13th-15th – Intermediate Purchasing Seminar (UNC School of Government)

Click Here for More Info & To Register

Friday, November 16th – Positive Problem Solving (UNC School of Government)

Facilitating positive change is the focus of this one-day leadership development workshop for public staff and elected officials who are interested in involving others, building on current assets, and engaging in joint problem-solving.

The course provides an opportunity for significant interaction with instructors and the chance to apply the course content to real-time work scenarios in class.

Click Here for More Info & To Register

Wednesday, November 28th, 1PM ET – Michigan’s Emergency Manager Law:  Fiscal Fix or Loss of Local Democracy? (Webinar Hosted by American Society for Public Administration & Association for Budgeting & Financial Management)

This webinar discusses the Michigan Emergency Law (EM law), passed in 2011. It is considered the most aggressive attempt by a state to modify and reign in local democracy in an attempt to solve a serious fiscal crisis.  Most states take an approach where local officials are required to undertake certain actions in order to benefit from state support.  Other states insert a financial control board which has the power to oversee city operations and potentially veto certain local decisions.  Few states have implemented an approach that completely removes local decision making and local democracy.  The question arises as the justification for such extreme action. Click Here for Registration Info.

Thursday, November 29th – Accounting & Auditing Update (UNC School of Government)

Presented by Greg Allison

This one-day course will focus on new and emerging governmental accounting and financial reporting requirements. Recent pronouncements and exposure drafts of the Governmental Accounting Standards Board (GASB) will be highlighted, as will the GASB’s technical agenda. (8 Hours CPE)

Program Topics:

  • Overview of current GASB projects related to pension accounting
  • Changes to the reporting of certain assets and liabilities
  • Accounting and financial reporting requirements of GASB Statement No. 54 and other recent statements
  • Highlights of the GASB’s new Comprehensive Implementation Guide
  • Common accounting and financial reporting problems

Click Here for More Info & To Register

Links of Interest

Economic Snapshot – Federal Reserve Bank of Richmond (Includes North Carolina, Released Today)

ASPA National Blog – New Skills for Complex Times

Mercatus – Pensions in Peril

Census Bureau – New Findings on Metropolitan and Micropolitan America and Change Between 2000 and 2010

Wells Fargo Economics Group – An Early Look at the Impact of Hurricane Sandy

CREC – Regional Cluster Analysis – North Carolina’s Eastern Region (Industrial Economic Development)

Charlotte Business Journal – Piedmont Natural Gas Rates Bump Up November 1st

Charlotte Business Journal – Simon says only one outlet center will get built (in Charlotte)

Wells Fargo Economics Group – Fed Maintains Weak Growth, Low Inflation Outlook (Upholds justification for continued quantitative easing)

PNC Economic Outlook Survey, Fall 2012

WRAL – Consumer Confidence Continues Improvement

Durham Herald-Sun – Chapel Hill weighs trash options

WTVD – Feds provide funding to repair Outer Banks roads damaged by Sandy

Analysis Roundup for September 21, 2012

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

BLS/NC Employment Security
North Carolina Unemployment Rate Highest in Southeast

This morning’s release of state-based employment data was not good for the Tar Heel State. Seasonally adjusted statistics indicate only 1,100 nonfarm payroll jobs created in August, while total unemployed grew by 5,900. North Carolina’s unemployment rate rose from 9.6% to 9.7%, making it slightly higher than South Carolina (9.6%) and keeping it significantly above other states in the Southeastern US.

Overall, 26 states saw their jobless rates go up. North Carolina’s unemployment rate remains among the highest in the nation.

Special Report
Quantitative Easing Returns for the Long-Term

At least through the remainder of the year, the Federal Reserve will be engaging in the purchase of Mortgage-Backed Securities in an effort to help improve general economic growth.

This latest round of “Quantitative Easing” was announced last Thursday by Federal Reserve Chairman Ben Bernanke following the latest meeting of The Fed’s Open Market Committee.

Officially, the purpose of Quantitative Easing (QE) is for the Federal Reserve to expand the supply of available money and use it to purchase low-risk securities. As a result, according to the official explanation, holders of other capital will redirect their investments to those with higher risks in an effort to achieve some sort of positive return.

Unlike prior rounds of QE that had specific limits on how much in securities could be bought overall, QE3 sets a monthly limit of $40 billion. At the present, it is intended to last through the end of the year. The Fed will also continue to move its holdings of short-term securities into long-term securities (i.e., Operation Twist) at a rate of $45 billion a month, for a total monthly impact of $85 billion.

While Chairman Bernanke mentioned QE3 being in place through the end of year, he also indicated that the program would be open-ended based on the evaluation of economic benchmarks:

From Wells Fargo Economics Group:

Importantly, the Fed noted that if labor market conditions do not improve “substantially”, it would continue the MBS bond-buying program plus potentially undertake further easing measures. Moreover, the Fed “expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens”. Bottom line, whenever rates do rise, we should expect a more gradual-than-normal tightening process to unfold.

Following the announcement late last week, general market activity was positive going into the weekend. However, with the arrival of less-than-impressive earning reports from several major corporations, along with continued reports suggesting lackluster overall economic performance, markets are trending downward.

Increasing the money supply via QE3 has the potential to facilitate greater inflation, especially with commodities. Initially, crude oil remained near $100/barrel following the QE3 announcement, though its price has dropped into the mid-to-low $90’s due to disappointing economic news. We’ll see later if this is having any impact on actual prices for gasoline.

Wells Fargo Economics Group
Second Half 2012 Outlook Undercut

Wells Fargo Chief Economist John Silvia cut the group’s projection for second half GDP growth to 1.5%, based on a host of negative reports involving most of the elements contributing to overall economic activity. Watch the video to learn more, or find a full summary of the comments here at Diminished Return.

USDA
Drought all but over for NC Farmlands

The USDA’s latest weekly report on pasture and range conditions finds that less than 10% of North Carolina’s fields are in “poor to very poor condition,” among the best ratings in the country and significantly better than the State’s modest results last year.

Overall, this is good news for the State’s agricultural economy, which should expect strong fall harvests, good prices in the commodities market, and great potential for winter crops and next year’s growing seasons.

NAHB/Wells Fargo & National Association of Realtors
Housing Growing, for a “New Normal” Environment

The latest update to the National Association of Homebuilders/Wells Fargo Housing Index shows continued improvement, as the index returned to a level unseen since mid-2006.

Housing starts over the summer improved compared to levels in recent years, though they are still significantly below levels that existed prior to the recession and bursting of the housing bubble.

Historic low-interest rates also contributed to a substantial increasing in sales of existing housing for August, with overall volume increasing 7.8% last month. For the year, sales are up 4.1%. Inventories of existing homes have also subsided from post-recession peaks, including a significant decline in distressed inventories.

However, we do not know how much distressed inventory being withheld by banks and investors still remains to be processed through the market. With the media home price increasing this year by 9.5%, there may be some reason to believe the worst is behind us, though it is not absolutely certain.

GasBuddy/FinViz
Oil slips a little, Gasoline does not 

Crude oil futures slipped a little this past week following news of continued economic uncertainty. Given the breakout of additional violence in the Middle East, including the murder of the US Ambassador to Libya, the fact that prices did not spike upward in light of growing hostilities on the ground suggests that the market for crude is stable, and thus demand is not growing on a global scale.

If global demand is not increasing, or is in fact declining, it is also an indication that China’s economic woes are greater than identified.

With respect to gasoline prices, there is typically a delay between fluctuations in crude to their appearance with respect to end product. At the same time, while corn prices have declined 7% in the past 2 weeks, they are still close to the historic high for the grain.

Consequently, we have yet to see a noticeable drop in prices for motor fuel compared to where they were at peak around the Labor Day holiday.

At the same time, North Carolina prices remain closer to the national average, indicating a peak price situation within the state itself.

QE3 may also play a role in keeping gasoline prices high, especially if greater inflation kicks in. Overall, gasoline prices not only significantly impact local government budgets, but they also have a large influence on disposable personal income. Higher fuel prices in August contributed to an increase in the level of total US retail sales, a situation where greater spending does not necessarily reflect improved economic activity.

Worth Checking Out

Here are some articles worth taking a look at involving NC local governments, or possible strategies for local budgeting and finance:

Wilmington Star News: Brunswick board moves to take control of health, DSS agencies

Daily Southerner: Edgecombe County Manager discusses human services consolidation

Triad Business Journal: Can Greensboro learn from Raleigh about how to build a performing arts center?

GoUpstate.com: Shutterfly moving facility, 600 jobs from NC to SC

Charlotte Observer: Bank of America declines to confirm job cuts

Daily Southerner: LGC rules Princeville rehiring illegal

PA Times: Social Media, Government Engagement, and Generation Y

Triangle Business Journal: UNC to offer MPA Program Online

Training Opportunities

Here’s information on upcoming online training events

October 10th – 2pm ET – FREE – Governing Magazine presents “Streamline Budgeting: Break Free from Outdated Processes”

October 18th – 1pm ET – FREE – ASPA presents “Mentoring Essentials: What Every Mentor and Protege Should Know”

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.