Economic News of the Wiregrass

Roger Peterson Thursday 25 May 2017

Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.

~ Ronald Reagan, President of the United States.

Overview of the U.S. Economy:

The Rate of Productivity Growth:

With potential growth-creating policies from Washington unlikely to be rolled out until later this year or beyond, the U.S. economy will have to depend on its own strength. Currently such strength includes: A well-performing real estate market, steady wage and payroll gains and upbeat sentiment will ensure a degree of resilience among households, while a surge in business confidence will lead to a rebound in capital outlays following last year's slump. A group of economists known as the The Focus Economics panel sees GDP expanding 2.2% this year, which is down 0.1 percentage points from last month's projection. For 2018, the panel sees growth picking up slightly to 2.4%.

Despite facing challenges at the domestic level along with a rapidly transforming global landscape, the U.S. economy is still the largest and most important in the world. The U.S. economy represents about 20% of total global output, and is still larger than that of China. Moreover, according to the IMF, the U.S. has the sixth highest per capita GDP. The U.S. economy features a highly-developed and technologically-advanced services sector, which accounts for about 80% of its output. The U.S. economy is dominated by services-oriented companies in areas such as technology, financial services, healthcare and retail. Large U.S. corporations also play a major role on the global stage, with more than a fifth of companies on the Fortune Global 500 coming from the United States.

Even though the services sector is the main engine of the economy, the U.S. also has an important manufacturing base, which represents roughly 15% of output. The U.S. is the second largest manufacturer in the world and a leader in higher-value industries such as automobiles, aerospace, machinery, telecommunications and chemicals. Meanwhile, agriculture represents less than 2% of output. However, large amounts of arable land, advanced farming technology and generous government subsidies make the U.S. a net exporter of food and the largest agricultural exporting country in the world.

The U.S. economy maintains its powerhouse status through a combination of characteristics. The country has access to abundant natural resources and a sophisticated physical infrastructure. It also has a large, well-educated and productive workforce. Moreover, the physical and human capital is fully leveraged in a free-market and business-oriented environment. The government and the people of the United States both contribute to this unique economic environment. The government provides political stability, a functional legal system, and a regulatory structure that allow the economy to flourish. The general population, including a diversity of immigrants, brings a solid work ethic, as well as a sense of entrepreneurship and risk taking to the mix. Economic growth in the United States is constantly being driven forward by ongoing innovation, research and development as well as capital investment.

The U.S. economy is currently emerging from a period of considerable turmoil. A mix of factors, including low interest rates, widespread mortgage lending, excessive risk taking in the financial sector, high consumer indebtedness and lax government regulation, led to a major recession that began in 2008. The housing market and several major banks collapsed and the U.S. economy proceeded to contract until the third quarter of 2009 in what was the deepest and longest downturn since the Great Depression. The U.S. government intervened by using USD 700 billion to purchase troubled mortgage-related assets and propping up large floundering corporations to stabilize the financial system. It also introduced a stimulus package worth USD 831 billion to be spent across the following 10 years to boost the economy.

The economy has been recovering slowly yet unevenly since the depths of the recession in 2009. The economy has received further support through expansionary monetary policies. This includes not only holding interest rates at the lower bound, but also the unconventional practice of the government buying large amounts of financial assets to increase the money supply and hold down long term interest rates-a practice known as "quantitative easing".

While the labor market has recovered significantly and employment has returned to pre-crisis levels, there is still widespread debate regarding the health of the U.S. economy. In addition, even though the worst effects of the recession are now fading, the economy still faces a variety of significant challenges going forward. Deteriorating infrastructure, wage stagnation, rising income inequality, elevated pension and medical costs, as well as large current account and government budget deficits, are all issues facing the US economy.

 Most recently, 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:

Below is the map showing the GDP growth by state. The 2.2% growth for Alabama making the state in the top tier among others.

US GDP Growth Rate

A Comparative Economic View:

Occasionally it is useful to look at other major economies to see how they stack up when compared with the U.S.

  GDP Industrial
Production
Prices Unemployment
United States +2.2% +1.5% +2.3% 4.4%
China +6.6% +7.6% +2.3% 4.0%
Japan +1.3% +3.3% +0.7% 2.8%
Britain +1.6% +2.8% +2.7% 4.7%
Canada +2.1% +3.9% +1.9% 6.5%
Euro Area +1.7% +1.2% +1.6% 9.5%

What Does It All Mean?

The United States is the world's most powerful economy which has experienced a slow recovery from the 2008 crash. That rate of recovery has been disappointing and in recent time the pace has little changed. It is most likely to remain in a slow grind until some of the promised economic policies are resolved and action initiated. In the meantime it will continue to be a slow go . . .

Economic Outlook for Alabama:

Business confidence increased to 62.7 in the first quarter 2017 Alabama Business Confidence Index (ABCI) survey, which was conducted by the Center for Business and Economic Research at the University of Alabama's Culverhouse College of Commerce. Panelists are optimistic moving into 2017: the index gained 10.1 points this quarter, passing 60 for the first time since 2006. Panelists are more optimistic about growth on both the statewide and national level in the coming quarter. For the first time since Q2 2005, Alabama business leaders regard the U.S. outlook with more confidence than Alabama's. High expectations for growth in the state economy raised the Alabama index to 65.8, and the national economy index saw an even more dramatic rise to reach 69.8 this quarter. Sales, profits, hiring and capital expenditures are also expected to perform well in the first quarter of 2017. Alabama businesses continue to expect sales growth with the highest confidence of all the survey categories with an index of 63.4. Hiring is predicted to grow, though with the lowest index score of the survey categories at 57.6. The overall industry outlooks are positive in all categories with the majority of industries showing more confidence in growth in first quarter of 2017 than in the previous quarter. Panelists in manufacturing and professional, scientific, and technical services are the most optimistic with overall indices greater than 66. That being said, even the least confident industries still have overall ABCIs greater than 57. The only industry that is not as optimistic in Q1 2017 as Q4 2016 is construction, though they had the highest index in the Q4 2016 survey and are still expecting growth in the coming quarter with an index of 57.9.

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.

Alabama Housing: Quarterly Data

  Market 1Q 2017 Percent Change
Year-over-year
Total homes listed 26,897 -6.7%
Total home sales 12,189 +8.5%
Median Sales Price $138,530 +6.1 %
Average Sales Price $162,930 +6.7%
Average Days on the Market 139 -8.0%

The state housing picture appears to be on the move toward greater health with supply down (-6.7%), Sales up (+8.5%), prices up (+6.7%) and the pace of sales increasing with lower days-on-the-market (-8.0%).

Alabama Job Growth Continues.

The states seasonally adjusted unemployment rate , at 5.8% in March is down from February rate of 6.2% and below the year-ago rate of 5.9%

Recent numbers indicate that Alabama job growth continues its slow but solid pace. The state added 8,500 jobs in March.

Conclusion:

Statewide, the Alabama economy continues to improve with increased with strong evidence that business optimism is on the rise which could lead to an accelerated pace of growth going forward. Stay tuned . . .

The Economic Outlook for the Wiregrass:

Dothan Housing:

  Market April 2017 Percent Change
Month-over-month
Percent Change
Over Last Year
Total homes listed 1,077 +2.8% -0.8%
Total home sales 102 -23.3% -22.1%
Median Sales Price $140,250 +2.0% -3.6%
Average Sales Price $171,888 +32.2% +1.0%
Average Days on the Market 157 +6.1% -3.7%

The statistics on the Dothan housing market show a mixed signal month-over-month with sales down but prices up. The Inventory-to-Sales statistics for April over March show a supply of 10.6 months or an increase of 34.0%. With the supply-demand balance mismatched, one can conclude that the Dothan housing market is currently disappointing. Future statistics will reveal if this market condition continues.

Then along comes the report on the Residential Building Permits for March 2017 which shows an exciting bounce upward with 26 permits for an estimated value of $6.6 million. A typical monthly average is 10 permits and a value of $5.0 million. The April report dropped insignificantly with only 8 permits and an estimated value of just $1.76 million. Such is the volatility currently experienced in the Dothan housing market. One needs to look at these statistics over a longer time horizon to get a better understanding of the long-term direction of the market.

Unemployment Rates for the Wiregrass:

The current unemployment rate for the Wiregrass of 4.2% is lower than the previous month-over-month rate of 5.2% and lower than the year-over-year rate of 6.2%. The future looks bright as more new jobs are planned for the expanded poultry plant, new facilities for Army fixed wing training at Dothan Airport plus the new facilities at Southeast Medical Center.

Dothan Sales Tax Collections:

Sales tax collections make a good proxy for estimating the level and trends for the retail sector of the Dothan economy. The good news is that Dothan has collected $38.7 million in taxes so far this fiscal year for a 2.90% increase over the prior year. Interestingly, motor vehicle sales increased a dramatic 8.8%. It should be noted that the national trend in motor sales has shown a trend toward leveling off from a long period of dramatic growth. Future statistics will determine the trend for Dothan.

Lodging tax collections, which are gathered separately, recently reported an extraordinary 26.86% % increase year over year. The lodging industry under the leadership of the Dothan Area Convention and Visitors Bureau has done an outstanding job attracting major events to Dothan 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, The Convention and Visitors Bureau among others and along with the many ancillary programs associated with Chamber that are dedicated to growing existing businesses and recruiting entirely new ones - particularily small business.

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

For a Smile:

Roger Turns 88 on 7 June.

For A Laugh

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 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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