Analysis Brief – January 10, 2014

2014 ECONOMIC OUTLOOK SPECIAL!

This post may be updated as information become available over the course of the next couple days.

With the New Year comes resolutions, and predictions. This is especially true about the direction of the economy. During our Winter Conference, Wells Fargo Economist Michael Brown shared a few, as noted in the following slides:

The day before this presentation in Asheville, fellow Wells Fargo Economists John Silvia, Jay Bryson and Mark Vitner shared their 2014 Economic Outlook. Overall, they see continued growth in the overall economy, while they are less “excited” about accelerating employment growth, a challenging issue for many places across North Carolina and the rest of the country.

This week, economic outlook presentations hosted by the North Carolina Chamber of Commerce (Monday) and Greater Raleigh Chamber of Commerce (Friday) offered additional perspectives.

NC Chamber/NC Bankers Association Economic Outlook

Most notable presentations during this annual morning meeting and luncheon were a conversation on the future of North Carolina’s military presence, and its economic impact, along with an update from Governor Pat McCrory.

Click Here for NC Military Presence Discussion Video

Click Here for Governor McCrory’s Remakrs Video

 (Running Commentary)

Presentations Coming Soon

Greater Raleigh Chamber 2014 Economic Outlook

Two of the strongest economic voices in the Mid-Atlantic headlined this event. Wells Fargo’s John Silvia joined Richmond Fed District President Jeffrey Lacker for a comparative presentation of outlooks for the coming year, as well as discussion with the audience.

Click Here for Video of the Presentations by Silvia & Lacker

 (Running Commentary)

Click Here for Richmond Fed President Lacker’s Prepared Remarks

Forecasts from North Carolina Economists

Several noted economists across the state have updated their outlooks for the coming year.

Dr. Michael Walden shared his seasonal and start-of-year outlook back in December. Dr. Walden anticipates 2.75% growth in 2014 for the national economy, with 100,000 new jobs for North Carolina residents, though many of those will be concentrated in select metropolitan areas, like Asheville, Charlotte, Raleigh and Durham.

Click Here for Dr. Walden’s Winter 2013/14 Outlook

Dr. Woody Hall with UNC-Wilmington shared his outlook for Southeastern North Carolina earlier this week during a forum hosted by the Wilmington Area Chamber of Commerce. Hall predicts 2.5% economic growth for the Wilmington-New Hanover County area in 2014, consistent with 2.5% growth this past year.

Click Here for Dr. Hall’s 2014 Outlook Presentation

Appalachain State’s Harry Davis offered an overview during the NC Chamber of Commerce/NC Bankers Association forum this past Monday. Click here for an article summarizing his comments (TBJ).

Dr. John Connaughton of UNC-Charlotte has not yet released an outlook for 2014 (stay tuned for an update).

Analysis Brief – November 22, 2013

Have a Happy Thanksgiving!

Winter Conference Notes

Presentations from NC Metro Mayors Coalition Conference

US Conference of Mayors Publishes Metro Economic Report

This report, released earlier this month, looks at the growth in metropolitan area economies with respect to time and their share of overall state growth. This summary, published Wednesday in the News & Observer, offers a highlight at the report’s findings:

The breakdown in North Carolina shows that the Charlotte metropolitan area is responsible for 25.5 percent of the state’s economy. Raleigh-Cary (13.5 percent) and Durham (8.7 percent) metro areas generate a total of 22.2 percent. I combined them because they make up the Triangle, and it makes more sense to treat them as a single economic entity. So right there, the Triangle and Charlotte are nearly half the state’s economy.

The Triad weighs in at 13.1 percent (Greensboro, 8.1) and Winston-Salem (5.0); Fayetteville has 4.1 percent, and Wilmington has 3.4.

Brown/Bryson: Economic Growth May Cool Off Some

Wells Fargo Economist Michael Brown, who will present an outlook during the upcoming Winter Conference on December 13th, hosted Wells Fargo’s November Economic Outlook video with Global Economist Jay Bryson. Both individuals shared updates to their group’s forecast, anticipating some cooling in overall economic growth for the remainder of 2013 and into 2014. They anticipate an annual growth rate around 2%, with national job growth averaging less than 200,000 jobs per month.

Wells Fargo Economics will also host their 2014 Economic Outlook Conference Call at 1 p.m. ET on Thursday, December 12th. A summary of this call will be posted to the NCLGBA website on December 13th.

Employment Growth Trickle Continues, Wages Rise

Those able to find and retain work are at least seeing some growth in their pay checks, according to October employment and wage data released by BLS. The US labor market saw an increase of 202,000 jobs in October, while average raised were a little more than 2% higher than a year ago.

Earlier this week, BLS reported the Consumer Price Index dropped 0.1% in October, mostly the result of lower gasoline prices. The baseline measure of inflation, the CPI was up 1% compared to a year ago. The variance suggests workers could expect so increase in purchasing power and capacity to save, which could help offset the impact of personal inflation and debt deleveraging on the consumer spending side of overall economic activity.

Transportation-related expenditures have a volatile, bipolar impact on the economy at the present time. Lower gas prices negatively imapct retail sales, with gasoline sales activity down almost 7% over the 12 months prior to this September. At the same time, vehicle sales are up 4% compared year-to-year.

Another Month of Cooling for Home Sales

Existing home sales declined 3.2% in October, the second consecutive month for a drop off in activity. The October shutdown of the Federal Government, and its impact on delaying review and processing of applications for funding through Federal mortgage programs, may have effected sales in the short term. Overall, annual sales trends still remain above 5 million homes, with active inventories (2.1 million) close to pre-recession levels.

Small Businesses OK with Present, Don’t Like Future

“Wells Fargo’s Small Business Index fell 1 point to 24 in the fourth quarter. The present situation index rose 3 points, reflecting improving revenue, while the expectation series fell 4 points, reflecting headline concerns.”

Lacker Addresses Outlook in Asheboro

This Thursday, Richmond Fed President Jeffrey Lacker visited Asheboro SCORE to present a national economic outlook for the coming year. Click here for the text (video or audio likely to come soon).  Here are some themes and predictions from his speech:

  • Lacker reduced his GDP growth estimate from 3% to 2%, though he does see reasons for continued optimism
  • At the same time customers are scaling back and deleveraging, lenders are showing more unwillingness to extend funds.
  • Business investment is being held back due to public policy uncertainty.
  • Productivity growth is unlikely to change much, averaging roughly 1 percent per year.
  • Employment growth remains hard to forecast, though Lacker still predicts consistent growth at 0.9%. Increased hiring costs resulting from ACA implementation, along with skill “mismatch” in several parts of the country will serve to hinder positive growth potential.

Looking Back…

Today is the 50th anniversary of the death of President John F. Kennedy. Below is a radio special produced in the week following his death, providing a perspective of these historic events as they happened.

Analysis Brief – October 14, 2013

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

Where are We on the Shutdown & Debt Ceiling?

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

Need Economic Information?

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

Google Public Data (National Unemployment & GDP)

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

AccessNC (State & Local Economic Data)

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

US Bureau of Labor Statistics (Employment & Unemployment Data)

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

How’s the Job Market?

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

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

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

Consumer Debt Increasing, Optimism Muted

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

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

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

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

optimism-components-nfib-201310

 

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

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

Homebuilders are also showing some slowing of expectations.

HousingIndexSep13

 

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

 Housing Market Impacted by Shutdown (Because…)

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

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

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

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

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

New Memos from LGC on Cost Allocations and Component Units

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

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

FAQ Available from SOG on E-Verify Requirement

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

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

Department of Revenue clarifies Impact of Sales Tax Law Changes

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

League of Municipalities Releases New Legal Memos

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

NLC Annual Report Shows Improved Fiscal Results for Cities

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

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

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

What is the Future of Fiscal Federalism?

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

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

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

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

How is North Carolina Looking?

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


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

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

Regional Economic Survey Results

From Federal Reserve Bank of Richmond

Where Do Gas Prices Stand?GasBuddy101413

 

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

Free Course Available on Pension & Retirement Finance

Click Here for More Information & Registration

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

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

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

Lacker Discusses Importance of Human Capital as a Financial Investment

Click Here for Speech Transcript & Additional Information

Highlighted Points

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

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