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

Consumer Spending Up, Holiday Retail Growth Predicted

As Halloween arrives, we see green and red mixed among the black and orange at most of our local retailers.

Christmastime will soon arrive, and along with it, the most essential time of the year for retail sales and associated tax revenue for local governments.

The National Retail Federation reports that holiday spending (retail spending in November and December) should increase 4.1% this year, to $586.1 Billion. This is less than the 5.6% growth experienced last year, though still above the 3.1% 10-year national average.

This forecast is being buoyed by other economists. Wells Fargo released their holiday sales forecast this morning, predicting 3.8% growth this year.

Recent indicators point to increased holiday spending, including improvements in consumer confidence and some growth in employment. However, Wells Fargo’s analysis does reflect some concern about underlying economic uncertainties, especially following the arrival of the new year:

The looming uncertainty around the impending fiscal cliff, sluggish job growth and slowing real disposable income will serve as headwinds to consumer spending this holiday season. On the plus side, the very slow expansion of consumer credit should help to support some consumer spending this holiday season even in light of very slow income growth…

“…The positive momentum in consumer confidence over the past few months will be balanced by slow personal income gains and economic uncertainty abroad along with uncertainty over domestic fiscal policy.

Lack of personal income growth is a serious concern as well.

Real disposable income grew by only 0.9 percent, on average, for the year ended September 2012 compared to a growth rate of 2.1 percent over the year-earlier period. It is true that real disposable income has been trending up lately, however the upward trend at this point is likely too weak to have a meaningful effect on this year’s holiday sales prospects. In addition, there are downside risks to after-tax income beginning next year. The impending fiscal cliff, which includes a series of tax increases, has the potential to dramatically cut real disposable income on the part of consumers. The cut to disposable income will also likely effect consumers’ ability to pay back any credit card debt racked up through holiday shopping.

This trend is already evident in the latest update to personal income and consumption, released earlier today. Spending increased 0.8% for the month of September, with half of that reflecting inflation due to rising prices in energy, food and other essentials. Personal income did increase 0.4% in September, but that follows a 0.3% decline for August.

Current annual trends show a 1.8% increase in real disposable income, compared to 2% increase in real consumer spending.

As a result, while there appears to be strong sentiment in favor of increased consumer spending and a “Merry Christmas” for retailers this year, there are several “headwinds” that could dampen retail activity shortly after the start of the year.

Again, from Wells Fargo…

…this spending trend may not be sustainable entering into 2013 if we do not see a significant improvement in the labor market. We believe this increase in consumption is at odds with the high probability that some taxes are going to increase early next year. Consumers may be trying to preempt this increase in taxes in the future by consuming today because they know they may not be able to increase consumption as much next year. In any case, we still believe that this improvement in consumption is not sustainable, and, while consumers still have some leeway, i.e., they can continue to save less to support higher consumption in the coming months, the end of this behavior is probably in sight. This is especially true, in our opinion, if personal income and employment does not improve considerably. Of course, consumers could be, once again, starting to use more credit, supported by an improvement in consumer confidence, but this, also, has to have some more real support to make this behavior sustainable in our view.

As for the ongoing transition of retail activity from brick-and-mortar stores to online sales, Deloitte reports that 25% will do most of their holiday shopping online, with 75% purchasing at least one holiday item in such a way.

Internet sales are projected to grow 12.1% this year, according to the National Retail Federation.

At the same time, brick-and-mortar stores are still optimistic they will stem the tide on  lost sales to the Internet. Expanded layaway, earlier promotions and other incentives will be used to encourage physical buying.

For local governments, several factors are at play. Local employment conditions can definitely skew the relevance of national trends, as can the arrival or loss of major retailers. The first half of 2012 saw several major stores, notably Sears and Best Buy, close several North Carolina locations.

At the same time, we have seen growth in other retail sectors, especially a dramatic rise in construction and opening of discounters like Dollar General and Family Dollar. Major drug stores like Walgreen’s and CVS, which also ramp up in-store sales for the holiday season, have also expanded across the state.

Independent and locally-owned businesses have also initiated significant efforts to increase visibility and awareness with residents and consumers. Given higher gas prices, those living outside major cities may be more open to choosing local business options for their physical shopping.

Retail activity for November and December will not be consistent across the State of North Carolina as a whole, and there are a lot of uncertainties that could further deepen the drop off we usually see the first couple months thereafter. However, if the economists, most areas should see some growth of sales, building upon the retail recovery we have experienced in the last year or so.