Economic News of the Wiregrass

Roger Peterson Thursday 16 February 2017

Populism: A current philosophical trend within a group, individual or political movement that believe in the rights, wisdom, or virtues of the common people.

~ Source: Webster's Collegiate Dictionary

Background to the current U.S. Economy:

The word populism has come to describe the current discussion within the political landscape that has emerged in both the United States and Europe in recent times. Many scholars attribute this trend to a rejection of the power of the elites (Wall Street. Professional Politicians, Unelected Administrative Agencies, special interest groups, among others) that have created rules that direct and impact the lives of individuals over which they believe they have no control.

For example, it has become popular for the Congress to write rules to correct perceived national problems in general terms using broad language and then turn over the task of establishing specific rules to the scores of unelected administrative agencies. The agencies in turn, craft specific rules within their perceived mandate. Most commonly, the public is notified of the rules in the Federal Register and offered a defined period-of-time to comment on them. The agency decides which comments to accept or reject. Legal challenges are often decided by Administrative Law Judges who function outside the established legal framework and are paid civil service employees of the Agency itself.

There is a fundamental logic to this process in a large and varied society dealing with the complex world of today. It could be said that without this process, nothing would ever get done. The problem of course is that the rights, wisdom and freedom of the individual could be trampled in the process. The current state of affairs with a rise in populism may be the signal that the administrative function has over reached with rules and procedures that go beyond what the common people perceive to be the norm needed to resolve the issue at hand.

The solution may be through enlightened leadership within the Congress and the Administration to seek the balance between the need to solve the problem and the impact on the common people. The search for the balance has been a common goal since the founding of our republic. The search may account for the wild swings in the political landscape as each group within the body politic seeks to attain their objective. Each group or faction have their own agenda for what they believe to be the proper action going forward. Without a common frame of goals and objectives among the factions there a sense that the body politic consists of a maze of differing opinions without a common purpose. This is the reason democracy is often criticized for being slow and inefficient. The problem of course is that the alternative systems do not achieve the rights, wisdom and virtues of the common people.

The answer to achieve the needed balance may be to turn to the free market place of ideas -- A market place where ideas are freely examined, analyzed and decided in the halls of Congress, the free press and within individual citizens themselves. The ideas that offer the clearest solution to the challenge of balance will survive, all others will be brushed aside. The free market place of ideas needs to avoid emotional appeals to the fashion of the moment and should be conducted in an atmosphere of mutual respect which seeks to understand the most practical answer.

The Founding Fathers of our great nation built a political framework which makes the process of the free market place of ideas practical and real. They begin with the words “We the People” in the Constitution which establishes that the common people are the sovereign of our nation all others – the Congress, The President, The Supreme Court are only our representatives needed to exercise the will of the common people. The common people have the obligation to bring forth the ideas needed to achieve our national goals – ideas created in the liberty of open debate in a free market place of ideas.

Overview of the U.S. Economy:

The Rate of Productivity Growth:

Unit labor costs in the nonfarm business sector increased 1.7 percent in the fourth quarter of 2016, reflecting a 3.0-percent increase in hourly compensation and a 1.3-percent increase in productivity. Unit labor costs increased 1.9 percent over the last four quarters.

The 3.0-percent increase in hourly compensation is a critical indicator of the potential future spending by consumers for homes, home furnishings, autos and other consumer goods. Since consumer spending makes up over 70% of the GDP, the future looks bright for the economy.

GDP Growth:

The US economy advanced an annualized 1.9 percent on quarter in the three months to December of 2016, lower than a 3.5 percent expansion in the previous period and below market expectations of 2.2 percent which advance estimates showed. The deceleration in real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports, a deceleration in Personal Consumption Expenditure (PCE), and a downturn in federal government spending that were partly offset by an upturn in residential fixed investment, an acceleration in private inventory investment, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment. GDP Growth Rate in the United States averaged 3.22 percent from 1947 until 2016.

Most economists believe that it takes a sustained 3.0% growth rate is needed to achieve a rate of recovery equal to the historical pace of recovery experienced following all past recessions. Thus, the economy continues to recover but at a sluggish pace.
US GDP Growth Rate

Employment Situation:

The U. S. unemployment rate fell to 4.8% in January 2017 which is the lowest since the 10.0% rate in January 2010. It is fashionable for most economic analysts to consider 5.0% the full employment rate. It is the rate below which wage pressures increase and wages begin to rise.

U. S. unemployment rate

With several bright spots – employment on the rise, wage increases and the markets reaching new historical highs on a weekly basis -- all of which suggests that the polity at large may reaching new levels of optimism not seen for nearly a decade.

What Does It All Mean?

Some knowledgeable analysts claim that there is ten thirteen trillion dollars sitting on the sideline as cash or cash equivalents waiting for a clear signal for the economy to show clear signs of recovery.

When this huge hoard of cash moves from the sidelines into new plant, equipment and jobs; the economy may see a new rate of growth that could be surprising in its magnitude as the cash moves from paper investments into real assets.

The government may be taking a hard look at the blizzard of existing and future regulations (now 89,000 pages waiting to be implemented) which involve engineering the environment and society and therefore determine the cost to near term economic growth versus long term improvements to society. In other words, the task may be to get the economy growing which would then earn more taxes from the increased income and thus may pay for all the future social engineering. Hopefully, the executive branch will declare a moratorium on new regulations for a stated period – like three to four years.

Private enterprise can do a lot. With the improved ability to analyze huge quantities of data from their own firms operating history together with an ever-increasing number of organizations publishing free economic data, private companies now have the capacity to estimate future risks with improved clarity given all the domestic and foreign headwinds that are resident in any global economy at any given time. With a better understanding of risks and opportunities, they should be able to move forward with constructive plans that put the surplus cash to the use for which it was originally intended.

What will it take to make all of this happen? Leadership – thoughtful and enlightened leadership that has the courage to listen carefully to the mood and thoughts of the people (populism?). Perhaps the place to start is an open and frank debate within the Congress with participation from all sides and factions. The current debate now underway in the Congress over the revision and simplification of the tax code may be a good place to begin this dialogue by the representatives of the people.

Be careful with these thoughts. Remember they were made up by a simple country boy from Santa Monica sitting at the knee of scholars while attending UCLA, Colorado, Harvard and CalTech.

Economic Outlook for Alabama:

Alabama Business Confidence Optimistic for Beginning of 2017

Business confidence grew significantly to reach 62.7 on the first quarter 2017 Alabama Business Confidence Index TM (ABCI) survey, conducted by the Center for Business and Economic Research in UA’s Culverhouse College of Commerce (Any value above 50.0 indicates growth). The index gained 10.1 from the fourth quarter survey, passing 60 for the first time since 2006 and indicating increased confidence in economic growth. Alabama business leaders feel optimistic about economic potential both a nationally and in the state, with significant increases in both indices. Industry confidence also saw a boost, with relatively high confidence in profits, sales, hiring, and capital expenditures this quarter.

Alabama Home Sales:

Home prices are on the rise nationwide. According to the recently-released Home Price Index for November (S&P Dow Jones Indices), the U.S. National Home Price Index grew by 10.4 percent in November, the National Home Builders Association said. The median sales price for homes sold during December was $232,200 according to the National Association of Realtors, a 4 percent rise over December 2015. 

So where does Alabama stack up in the home price surge?  As a whole, the state experience a 6 percent rise in its median sales price during 2016 at $141,442, compared to $133,991 during 2015. This establishes a new peak for the state and is 39 percent above the 2002 trough of $101,761.

Alabama Job Growth Continues, Economic Forecast from UA’s CBER Updated

Recent numbers indicate that Alabama job growth continues its slow but solid pace.  The state added 24,500 jobs between October 2015 and October 2016.

Most of job gains were in services providing firms that added 20,700 workers.  Employment levels within goods-producing firms also rose, by 3,800.  Despite an improvement in both residential and commercial construction activity in the state, overall employment in construction-related firms fell by 2,200 over the twelve-month period ending in October 2016.  Meanwhile, manufacturing industries in the state gained 6,500 net new jobs: durable goods manufacturers added 2,200 jobs while producers of nondurable goods added 4,300.

Conclusion:

Statewide, the Alabama economy continues to improve with increased optimism for an accelerated pace of growth going forward.

The Economic Outlook for the Wiregrass:

Dothan Housing:

  Market Percent Change Percent Change
  4Q 2017 Year-over-year 5 Yr Avg
Total homes listed 1,078 -5.8% -9.5%
Total home sales 283 +11.4% +19.4%
Median Sales Price $143,733 +6.4 % +9.1%
Average Sales Price $156,920 +8.4% +7.8%
Average Days on the Market 137 -23.3% -10.3%

Clearly, the Dothan housing market is showing significant gains with inventory down (-5.8%) and sales up (+11.4%) resulting in the supply/demand ratio moving homes on the market faster (Days-on-the-market down – 23.3%.

Unemployment Rates for the Wiregrass:

The unemployment rate for the Wiregrass (5.9%)remains steady month-over-month and lower year-over-year. The future looks bright as more new jobs are planned for the expanded poultry plant and the new facilities for Army fixed wing training at Dothan Airport.

Dothan Sales Tax Collections:

Most Dothan merchants had a very merry Christmas, according to sales tax revenue numbers released by the City of Dothan.

January sales tax collections, which reflect December transactions, increased by $434,000 over collections from December of 2015. Collections also exceeded December of 2014 collections by $515,000. Dothan merchants remitted a total of $6.94 million in sales tax last month.

Overall, Dothan has collected $22.65 million during the 2017 fiscal year, a $982,000 increase from the same time period last year. Collections are also $2.66 million ahead of budgeted projections. Money received above expenses can be placed in any of several reserve funds. Source: Lance Griffin, Dothan Eagle, 2 February 2017

This is exciting news indeed as sales tax receipts can be considered a proxy for the level of retail business activity in the city. Since retail sales make up 70% of GDP, one can conclude that retail sales for Dothan and the local GDP is strong and growing.

Lodging tax collections, which are gathered separately, recently reported an outstanding 4.65% increase year over year. The lodging industry under the leadership of the Dothan Area Convention and Visitors Bureau has done a great job attracting major events that have brought an outsized number of visitors and consumers.

What does it mean for Dothan?

Taken collectively, the economic statistics for Dothan appear to be outperforming the similar state and national numbers. What makes Dothan special? The answer may be the result of the combined efforts of the Dothan Area Chamber of Commerce and along with the many ancillary programs associated with Chamber that are dedicated to growing existing businesses and recruiting entirely new ones.

It important to note that the growth statistics cited above are real numbers in the sense that they outpace the current rate of inflation by a significant amount. This means that the growth taking place in the Wiregrass is real and deserves the applause of the citizens.

For a Smile:

The Power of Populism

 


 

The Reader Is King and Queen: This piece is written with you in mind therefore, I would be grateful for your reaction, comments or suggestions to further improve the value of this newsletter to you.

 

Roger Peterson sbcrpeterson@outlook.com -- V 1.0 – Thursday 16 February 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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