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.


(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


(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?



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



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 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.

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.

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? 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 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.

GDP Revisions show Less Improvement

GDP Revisions show Less Improvement

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.

On July 29th, the Bureau of Economic Analysis (BEA) released its initial report on Gross Domestic Product (GDP) for the 2nd Quarter of 2011. Their findings showed that Real GDP (chained to factor inflation) increased at an annual rate of 1.3% during the second quarter, performance that was below expectations. Their findings also showed that Real GDP in the first quarter, earlier reported at more than 2% (annualized), was downgraded to 0.4%.

More significantly, the BEA revised its GDP data to match revisions to the national income and product accounts. These adjustments significantly altered Real GDP measurements from 2003 to the first quarter of 2011. As a result, the current measurement of Real GDP for the second quarter (annualized) of $13.23 Trillion is less than Real GDP in the second quarter 2008 ($13.31 Trillion), the last quarter prior to the economic collapse that exacerbated the recession that began in 2007 (see graph below).

The revision also shows that the impact of the recession was a 5.1% decline in GDP between the official start of the recession (second quarter, 2007), and its deepest point of decline (second quarter, 2009). Earlier reports showed an impact of about 4.1% decline.

Earlier this year, the BEA reported that Real GDP for the fourth quarter 2010 finally exceeded the level set in the second quarter of 2008.  While it is unlikely that this revision will change the formal timeframe for our most recent recession (2007-2009), it does better represent the realities still facing the economy and American people as they proceed with recovery.


What NC Economists are Saying

What NC Economists are Saying

Three of the better-known economists in North Carolina commented on the current state of the economy late this week, in anticipation and response to today’s BLS unemployment report for August. Here is a sample what they posted on the LocalTechWire blog:

Dr. Michael Unger, director of the Philosophy, Politics, and Economics Program at Duke University, offers some historic insight into the period some are trying to compare the present to, the mid-1930’s.

Dr. Michael Walden, William Neal Reynolds Distinguished Professor for the Department of Agricultural and Resource Economics at North Carolina State University, suggests the recent growth is slowing down considerably.

Finally, Dr. James Kleckley, director of the Bureau of Business Research in the College of Business at East Carolina University, focuses his attention on the job front, and how its lack of growth is an even bigger issue than the economy as a whole.

NAR Updates Economic Forecast

The National Association of Realtors prepares a monthly forecast of various national economic indicators, including GDP, employment, inflation, interest rates, home sales volume, and housing prices. Forecasts are extended on a quarterly and annual basis for two years.

To access this report (one-page, PDF), click on this link and then click on link under “Market Forecast”.

What’s the rest of 2010 going to look like?

One fiscal year ends and another begins for local government in North Carolina. Economically-speaking, what should we expect?

Yesterday’s outlook commentary from Wells Fargo Economics Group offers a few projections for the remainder of Calendar year 2010:

  • Economic growth for 2010 is considered “subpar” with Real GDP expected to remain at a 2% growth rate.
  • So far, performance is not showing any sustainable growth trend that could be use as a precursor for stability.
  • Federal spending growth will continue to have an impact on GDP performance.
  • Modest economic growth with respect to GDP likely means that the employment picture will not improve significantly, as also evident by this morning’s unemployment report.

Click here for a copy of the Wells Fargo Securities Economics Group report.

1st Quarter GDP grows, but by how much?

The Economics Group of Wells Fargo Securities published the report linked below earlier this morning reviewing national gross domestic product (GDP) performance for the first quarter of 2010.

First Quarter 2010 GDP Summary – Economics Group, Wells Fargo Securities

Initial data was reported by the Bureau of Economic Analysis, an agency of the U.S. Department of Commerce.

Media reports often focus on a singular statistic or metric of overall performance that the reporting agency will direct attention to within the first paragraph or two of an executive summary. Hence, the initial response from traditional outlets is that First Quarter GDP grew at 3.2%, signifying four consecutive quarters of growth (technically brining an end in the eyes of economists to our recent/current recession).

However, this 3.2% calculation of GDP growth is based on numerous factors that are not easily explained. The Wells Fargo report did identify some quarterly growth in a key area of interest to local governments, final sales (1.6% compared to last year).  This should translate into higher sales tax revenues at the state or local level (with the exception of business lost to online sales or non-taxed markets).

Wells Fargo also examined the GDP Price Index, which indicates quarterly growth of less than 1%, indicating that inflation is relatively under control. However, aggregate measures of inflation are not universally applicable, especially at the consumer level when considering that individuals experience different needs with respect to fuel, energy, medical care and housing.

Based on the Chained Dollar Value of GDP (adjusted for inflation), here are some other observations:

  • Quarterly GDP growth for the 1st Quarter, compared to the 4th Quarter of 2009, was less than 1%
  • The total Chined value of GDP ($13.255 Trillion) is still less than this value at its height in the 2nd Quarter of 2008 ($13.415 Trillion)
  • Growth in personal consumption is leaning more toward goods (durable and nondurable) and less toward services
  • Private Domestic Investment grew 3.5% in the last quarter, and is up 7.7% compared to the 1st Quarter of 2009. However, due to the significance of the stock market and housing market collapses, this portion of GDP is still down 19.4% compared to pre-crash values in the 1st Quarter of 2008.
  • Government expenditures (chained, adjusted for inflation) actually declined 0.5% compared to the last quarter. Federal spending continued to climb (+0.3%), while state and local spending declined for the third consecutive quarter (-1%)
  • Overall personal consumer inflation for purposes of GDP over the past year (+2%) is slightly higher than inflation applicable to state and local government (+1.7%) – This is based on the price deflator measure promoted by Dr. David Ammons