Economic News of the Wiregrass

Roger Peterson Thursday 12 April 2018

What others thought about us in 1996 – has anything changed since then? The paradox of contemporary American intellectual life lies in the fact that the virtues most prized by the American version of Western civilization—tolerance, freedom of thought, cultural pluralism—now seem to under attack from the very people who have benefitted from them the most. The wrangles may be over-reported. But America’s historic drive toward a unified language and culture looks to be losing out to those lobbies and pressure groups who shout loudest. For only in the USA do the true well-springs of Western civilization still flow. Norman Davies, British Historian, Author, Europe a History, 1996, page 31.

Overview of the U.S. Economy:

Despite all the uncertainty driven by the debate over international trade, the economy continues to hit on all cylinders. Here are some current statistics for February 2018.

Inflation Rate remains steady at an annual rate of 1.8% which is below the Federal Reserve target of 2.0%. Consequently, The Federal Reserve is constrained to raise interest rates too quickly and they now claim only two more raises are possible this year to bring the rates back toward a normal level.

Inflation

Job Market Remains Firm. U.S. nonfarm payrolls rose a seasonally adjusted 103,000 in March after February’s outsize 326,000. Seventeen million jobs have been created during the current recovery. “The monthly pace of job growth is more than sufficient to employ new entrants to the labor force,” says Jerome Powell, Chairman of the Federal Reserve. The Unemployment Rate remains at the historic low of 4.1%.

Retail Sales were $492.0 billion for a -0.1% decline. Most observers believe that the unusual harsh February weather had an impact on consumer’s shopping habits.

Retail Inventories were up +0.4% as businesses loaded up the shelves in anticipation of better shopping days ahead. Wholesale inventories were up a healthy +1.1% for much the same reason.

Manufacturing orders increased $7.4 billion or +3.1% to $247.7 billion an outsized number that brings cheer to the economy.

Construction spending was up +0.1% for a $1,273 billion increase.

Gross Domestic Product is up +2.9% for the fourth quarter 2017 from +3.2 in the previous quarter. The Federal Reserve has published an estimate of +3.0% for the full year.

What does it all mean: While there can be variations in the numbers from one month to the next, the general trend has been strongly positive that the economy continues on its path to recovery despite all of the noise associated with international trade.

Alabama Economy:

Job Picture:Alabama gained 32,500 jobs from December 2016 to December 2017, compared to 18,600 jobs gained a year prior. The seasonally adjusted unemployment rate declined from 6.3% to 3.5 percent for the same period. The state employed a total of 2,025,100 nonfarm workers in December of 2017, up from 1,992 ,600 a year ago. In November of 2017, Alabama had a total 2,028,600 nonfarm workers, the most ever recorded. Seasonally adjusted unemployment, based on the household survey, dropped from 137,875 in December 2016 to 75,698 in December 2017. During this period, the labor force declined from 2,185,628 to 2,168,761 which also helped push the unemployment rate down. Total nonfarm employment is forecasted to increase by about 1.3 percent in 2018, with transportation equipment; wood products; plastic and rubber products; leisure and hospitality; furniture and related products; construction; professional and business services; as well as education and health services adding most workers to their payrolls.

Gross Domestic Product (GDP):Overall, the state’s economy is forecast to grow by approximately 2.4 % in 2018, above the 2.2% growth rate in 2017.

Tax Revenues: After increasing by 4.2% in fiscal year 2016- 2017, state tax revenues are expected to grow by around 3.1% in FY2018. After increasing by 4.2 % in fiscal year 2016- 2017, state tax revenues are expected to grow by around 3.1% in FY2018.

Housing: Year-over-year (YOY) statewide residential sales are up +7.0% while supply (inventory) is down -10% and price is up +9.0%. All of which suggests a tightening real estate picture.

Forecast for 2018: Each quarter the Culverhouse College of Commerce, University of Alabama publishes the Alabama Business Confidence Index (ABCI) with scores above 50 representing growth. The 1st Quarter 2018 forecast value is 61.6 as shown.

ABCI

The Wiregrass Economy

Housing February vs. January 2018

Sales down -4,4%
Median price up +10.5%
Average sales price up +8.3%
Days-on-the-market +0.6%
Units listed for sale 1,042 units for +0.0% (month-over-month)
Inventory-to-sales ratio +4.7%

Conclusion: It appears that the housing market has slowed from a short-term month-over-month view during the winter quarter. Future and longer-range statistics may confirm or deny this sluggish conclusion.

Employment:The February 2018 unemployment rate (not seasonally adjusted) for Houston County is 4.3% versus the State rate of 4.3% and national rate of 4.1%. Of concern will be the impact of the closing of two Winn-Dixie stores and the complete closure of Toys-R-Us. Stay tuned.

Tax Collections: Sales tax collected by the City of Dothan is up year-to-date +1.88% or $615,850 over last year. Sales tax can be viewed as a proxy for measuring the level of business activity in the community. While +1.88% growth is a positive number, it is not noteworthy. Once again, the variation in short term statistics may hide the longer-term trends. A careful watch is in order.

Lodging Tax Collections:Once again, the lodging industry is the bright spot in the Dothan economy with a growth of +40.0% YTD with a blip of +6.75% month-to-date. Congratulations to the industry leaders as they provide significant oomph to the economy.

What does it all mean?The Dothan /Wiregrass economy appears to continue to move forward but at slower pace than recent quarters. A careful watch of the key statistics is clearly needed to detect an enduring trend of future growth.

Editorial:

Why all the volatility?

There are two major forces that drive market volatility – fear and greed. When a wisp of news, sometimes from thin air, hits a market made up of tens of thousands of separate and independent financial decision-makers either fear or greed can drive the market to extremes. Recently the DOW moved over 1,000 points (from high to low) in less than 32 hours based on a tweet that the President was considering a $100 billion tariff on Chinese imports. The next day the DOW went up 300 points while anything around 100 points up or down is considered normal. Fear took over when the investors interpreted such a move would have an outsize impact on the U.S. economy and wanted to sell out their stocks or exchange-traded-funds (ETF) while they still had value under the old assumptions. The next day greed took over as traders perceived that good stocks or ETFs were now a bargain and they had been and jump in and grab them before others got there ahead of them.

Many investors seek a guide that can measure this volatility. One such measure is the VIX (Volatility Index created by the Chicago Board Options Exchange or CBOE). The VIX is derived from the complex and arcane formula used to price an option on a stock or ETF. The method is beyond the scope of this discussion but it essentially a measure of the pace or change in the price of an option because of the volatility of the underlying stock or ETF. The long-term average for the VIS is a value of about 12. In recent time the value has reached 20 to 50. High is volatile and low is calm.

The arrow of time tells us that events in the past are known and the future is not. Entropy from the second law of thermodynamics in physics states that events in the future expand into greater levels of uncertainty as time moves forward. As time marches on, events become even more uncertain. Meaning: you cannot predict the market.

Conclusion: There is no silver bullet that will fix an economic policy problem in the future with one quick fashionable move. The answer is to stay calm with measured moves that narrows the entropy that lies ahead. Stay calm – move with measured moves based on careful analysis – seek consensus and be patient. The Fortunately, U.S. economy is moving ahead despite all the ragged news on TV or Facebook.

For A Smile

Joke

Roger Peterson sbcrpeterson@outlook.com -- V 2.0 -- Thursday 25 May 2017

The Economic News of the Wiregrass is offered free of charge as a public service to the community and does not represent the views of SunSouth Bank or its employees. It is produced by the author using a wide variety of media sources including: The Wall Street Journal, the Financial Times, Bloomberg.com, Econoday, Capital Economics, U.S. Bureau of Labor Statistics, Federal Deposit Insurance Corporation, U. S. Federal Reserve, Market Watch, CNBC News, the Dothan Eagle, Barron’s, Fortune, The Economist among others without attribution. The views and comments expressed are solely those of the author. There is no intention to offer investment or tax advice and readers should consult a professional advisor of their choice. There is no claim for the complete accuracy of the information and any errors or omissions are unintentional.


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