The AEC Lens
Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick is Chief Economist for ConstructConnect. He is a frequent contributor to the Daily Commercial News and the Journal of Commerce. He has delivered presentations throughout North America on the Canadian, United States and world construction outlooks. A trusted and often-quoted source for … More »
A Dozen Mid-September Economic Nuggets
September 17th, 2015 by Alex Carrick, Chief Economist at ConstructConnect
Article source: CMDGroup
September 17 is fast approaching. In fact, by the time you read this, it may already have been and gone. Why is that date so important? Because that’s when the next Federal Open Market Committee (FOMC) of the Federal Reserve is scheduled to meet, with an announcement concerning interest rates to follow.
The federal funds rate hasn’t been altered from a range of 0.00% to 0.25% since December 16, 2008, nearly seven years ago. In mid-summer of this year, there seemed to be a strong likelihood the Fed would begin shifting yields higher in September. Then world stock markets fell into disarray as growth projections for China’s economy were scaled back and the yuan was devalued, slightly.
If the fed temporarily delays pulling the trigger out of concern over fragile world trade, the next FOMC meeting dates to mark on your calendar are October 28 and December 16 of this year and January 27 of 2016. Odds are pretty good that somewhere in that time frame, the fed will initiate tighter credit market action.
The Fed’s decision-making will take place against a backdrop that includes the following economic nuggets, as revealed in government reports and through media dissemination.
(1) U.S. quarter-to-quarter annualized ‘real’ (i.e., adjusted for inflation) gross domestic product (GDP) growth in the second quarter of this year was recently revised higher, from 2.3% to 3.7%, by the Bureau of Economic Analysis (BEA). Q1 2015’s performance has also been adjusted, from marginally negative to +0.6%. It would be hard not to like this improving trend.
(2) The Bank of Canada (BOC) has dodged a political bullet. While national output in the first two quarters of this year declined north of the border, signaling a mild recession, June-versus-May industry-based GDP jumped +0.5%, suggesting the worst may be past. Consequently, the BOC was able to escape its September 9 rate-setting meeting without feeling inordinate pressure to lower yields. The next time the BOC will meet is October 21, two days after the federal election on Monday, October 19. By taking a neutral stance for the moment, the BOC has avoided becoming a ‘hot button’ topic for party strategists on the campaign trail.
(3) Possibly my favorite statistical series has settled into a sweet spot and is giving birth to numbers that continue to purr. U.S. initial jobless claims for the latest week ending September 5 were 275,000, a decline of 6,000 from the week before. A key benchmark level is 300,000. A figure consistently below 300,000 will almost assuredly give rise to a month-to-month employment increase near 200,000 jobs, lowering the unemployment rate. Initial jobless claims have beaten 300,000 for 27 weeks in a row. America’s unemployment rate has fallen to 5.1%.
(4) Such a long string of low initial jobless claims numbers hasn’t occurred since the early 1970s. And that was at a time when the total labor force was much smaller. In a related area, the Chairman of the Fed, Janet Yellen, is said to be particularly interested in the results from the JOLTS (job openings and labor turnover statistics) report each month. In another indication of outstanding news for U.S. labor markets, the number of job openings at the end of July was 5.8 million, a new peak for the series that began in December 2000.
(5) Consumer confidence in the U.S. has apparently greatly improved recently. The Conference Board’s consumer confidence index soared from 91.0 in July to 101.5 in August. If crossing above 90.0 is considered excellent, then reaching 101.5 must be an indication of sentiment that is approaching ‘giddy’. In the latest month, there were also improvements in the Conference Board’s present situation (from 104.0 to 115.1) and expectations (from 82.3 to 92.5) indices.
(6) The higher-valued U.S. dollar may be presenting manufacturers with some challenges to maintain export sales, though. In August, the Purchasing Managers’ Index (PMI) of the Institute of Supply Management (ISM) did stay above the yardstick 50.0% level â indicating growth for the manufacturing sector â for the 32nd consecutive month, but it declined to 51.1% from 52.7% in July. The ISM’s new orders index retreated from 56.5% to 51.7%.
(7) One in three Americans lives in one of only four states, California, Texas, New York or Florida. The Philadelphia Federal Reserve publishes coincident and leading indicators for all the states that serve as proxies for GDP growth. For the 12 months ending in June, Florida (+4.8%) was the leader among the ‘big four’, closely followed by California (+4.7%), then Texas (+4.2%) and N.Y. (+3.7%). Over the next six months, the Philly Fed sees Florida tied with N.Y. in first place (+2.8% for half a year), with California (+2.2%) dropping to third and Texas (+1.4%) slipping to fourth. A depressed global oil price is hurting energy-dependent state economies.
(8) For a dozen of the most populous U.S. cities, I recently calculated separate rankings according to twenty demographic and economic criteria including population growth; unemployment rates; job growth overall and by key industry sub-sectors; average resale home prices; downtown office vacancy rates; and so on. (New York was left out of the mix, since that city is virtually a country unto its own.) When the results across the 20 rankings were condensed onto one score card, three cities emerged as quite separate from the rest of the pack. San Francisco, Seattle and Houston are currently duking it out for best urban economies. Due to their prominent and thriving high-technology sectors, the advantage at this time goes to the first two, while Houston deals with its energy-sector blues.
(9) One of the 20 sub-rankings of cities as set out in point (8) compares average weekly wages. The five leaders among the dozen cities are: San Francisco ($1,605); Boston ($1,426); Washington, D.C. ($1,385); Houston ($1,300); and Seattle ($1,260). But there is a metropolitan statistical area (MSA) not included among the 12 chosen ones that outshines all others on this count. The average weekly wage among all workers in San Jose (Silicon Valley) is $2,095.
(10) Macy’s has announced that it will soon be among the ranks of retailers closing stores. Between 35 and 40 of its locations - the ones with the weakest revenue performances – will be shuttered. The share of the shopkeeper’s total outlets affected is approximately 5%. Executives with Macy’s have been forthright with their public comments on this matter. A bricks-and-mortar store presence will continue to be important in the future retail environment, but it will continue to face an assault from the ongoing surge of online shopping.
(11) The pronouncements of some analysts concerning the imminent collapse of Canada’s residential real estate market are clearly being ignored. New home starts in the land of Mounties and Timbits climbed to 217,000 units (annualized) in August, their loftiest perch in nearly three years dating back to September 2012 (226,000 units). Toronto multiple-unit starts (i.e., mainly condominiums) this August were +268% when compared with the same month of last year. In the existing homes market, the Canadian Real Estate Association (CREA) is saying the average resale price in Toronto is +10.6% year over year. Vancouver is the nation’s runner-up, at +7.7%.
(12) Quebec leads Canada in exports of aerospace products. Much of the local strength in that sector derives from the aircraft sales and production levels of Bombardier Inc. Introduction of that firm’s new CSeries jet (featuring 100 to 150 seats) has taken longer than expected, postponing purchase commitments and sending the company’s share price south. Finally, though, there’s better news. Flight-testing is more than 85% complete. Certification for commercial operations is close at hand. And, upon testing for sound, which has become crucially important for many owners dealing with airport access, the CSeries has been found quietest in its class.
Category: CMD Group