Economic News of the Wiregrass

Roger Peterson Thursday 11 August 2016

In a broader context, we are obligated in our neighborhood to be good neighbors so that the neighborhood would thrive. Whether there was to be clean thriving neighborhood was directly connected to our efforts, so there was always a connection to what we valued most and our personal obligations. There would be no freedom without each of us discharging our responsibilities

~ Clarence Thomas, Associate Justice, Supreme Court of the United States. Reflecting on his youth in Pin Point, Georgia.

The basis of a civilized, decent and just society is law, but law, if it is to be respected, must be rooted in core values and eternal truths.

~ Star Parker is the President and founder of CURE, the Center for Urban Renewal and Education.

It is very important to respect yourself, respect others and accept responsibility for our own actions.

~ Vanessa Riley Harris, President Ladi Vees’s Etiquetter and Consulting, Dothan Alabama.

Without fulfilling our obligations to ourselves, family, community, state and nation; there is no freedom.

~ Roger Peterson, Author of this newsletter.

The National Scene:

COMMENTS ON THE US ECONOMY

In the Wednesday 27 July policy statement, the U.S. Federal Reserve opened the door to an interest rate hike later this year, possibly as early as September, after a policy meeting at which officials concluded that the economy is on a more solid footing and risks to the outlook have diminished.

This is a very interesting statement when compared with the Fed’s earlier prediction in December 2015 that interest rates would be increased to 1.0% by the end of 2016. What happened between December 2015 and today? The answer is that the economy has dragged along at the slowest pace of improvement of any recovery since World War II and it continues today to move forward at a snail’s pace typical of the past seven years.

Two days after the Fed announcement, the U.S. Department of Commerce released the latest Gross Domestic Product (GDP) with the shocking news that the First Quarter GDP increased at an annual rate of only 1.2% in the face of a prediction of 2.6%. The Second Quarter results were better than the dismal 0.8% increase for the first quarter. Consumer spending (70% of GDP) saved the day with a stellar increase of 4.4% increase for the quarter. Fixed investment (plant and equipment) fell a dismal -2.2% which pulled down the GDP by three tenths for the quarter.

Why this continuing sagging performance to growth? As has been stated several times in this newsletter, the answer is “uncertainty” in the market place. It is the uncertainty of world events, rapidly changing international trade patterns, a blizzard of new domestic regulations, the competing claims for the outcome of the Presidential election, a sagging inflation rate, the dilly dallying Fed as to the future cost of money (interest rates), among others that make life difficult for those that must reach out to commit capital for expansion, establish new enterprises that create jobs and put cash into the hands of the consumer.

Some knowledgeable analysts claim that there is nine to ten trillion dollars sitting on the sideline as cash or cash equivalents waiting for the fog of uncertainty to clear sufficiently for the entrepreneurs to estimate the risks more clearly and thus move forward with constructive actions for growth.

This hoarding of cash is the reason behind the financial markets zooming to new historic highs at the very time the economy continues to disappoint all by failing to live up to the predictions for growth for the past seven years. With uncertainty as to the future so compelling, investors are holding back expansion of plant and equipment and instead seeking some form of return in the financial markets (stocks and bonds), increasing the demand and thus bidding up the prices of these instruments. The huge liquidity created by the Fed (quantitative easing) to encourage investment has instead ended up in the financial markets not investing in the building of new physical plants and thus creating jobs and income as originally intended. Using surplus cash to increase dividends or stock buy backs (to elevate the value of the company’s shares) does not build plants, buy machinery or create jobs and increase individual income.

The answer clearly is to focus on the various causes of the uncertainty and come up with a plan for penetrating the fog and arrive at concrete actions at the Fed, government and private levels to reduce the unknowns. For example, if the Fed were to state when and how much they are going to raise rates and stick to it, it would go a long way toward erasing the uncertainty surrounding the future cost of money so that businessmen can nail down the cost of loans and the future value of profits.

The government could take a hard look at the blizzard of existing and future regulations involving the engineering of the environment and society and therefore determine the cost to near term economic growth versus long term improvements to society. In other words, get the economy growing which would then earn more taxes from the increased income and thus may pay for all the future social engineering. Perhaps the executive branch could 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 of 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 (the people are the sovereign of this great country not the legislative, executive, supreme court or industry moguls). Will it happen? Not until you the people demand it. 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 that earned his knowledge of economics from UCLA, University of Colorado, Harvard and CalTech – all at taxpayers’ expense. Thank you taxpayer. If he were good at forecasting, he would be rich – since he is not – so look out reader.

Economic Outlook for Alabama:

Forecast:

Every three months the University of Alabama’s Culverhouse College of Commerce Center for Business and Economic Research produces an Index known as the Alabama Business Confidence Index™ (ABCI) which reports the views of a panel consisting of scores of Alabama business leaders (including the author of this newsletter) as to their perception of the economic outlook for the forthcoming quarter.

The latest edition of the index states that the outlook for the third quarter drops to 52.4 from the outlook for the previous quarter or 55.1 or down -2.8 points. Survey participants forecast a dim outlook for the national economy with a score of 49.0 which is down -1.9 points. Other scores include:

  Score Change from Q2
Alabama economy 52.8 -3.6 points
Industry Sales 54.9 -4.9
Industry Profit 53.0 -3.3
Industry Hiring 51.3 -3.2
Capital Expenditures 53.4 +0.4

Note that an index value above 50 indicates a positive outlook.

Alabama Home Sales:

  2Q 2016 Percent Change Year-over-year Percent Change 5 Yr Avg
Total homes listed 171,583 + 7.7% + 12.0%
Total home sales 15,381 + 11.4% + 27.2%
Median Sales Price $ 144,637 + 5.9% + 11.4%
Average Sales Price $ 171,583 + 4.0% + 12.0%
Average Days on the Market 144 - 5.7% - 7.9%
 

Home sales are up statewide +11.4% (Y/Y) with prices up +5.9% suggesting that sellers may be willing to concede on price growth to make the sale. The inventory of homes for sale is up +7.7% and the days on the market (turnover) is down -5.7% which suggests that the market is clearing inventory faster. Taken together, the statistics suggest that the Alabama housing market is strengthening. I have added the percent change over the five-year average which provides a general view of the pace of recovery over the past five years.

Alabama Unemployment Rate:

Alabama Department of Labor Secretary Fitzgerald Washington announced recently that Alabama’s preliminary, seasonally adjusted June unemployment rate is 6.0%, unchanged from May’s revised rate of 6.0%, and below June 2015’s rate of 6.1%. June’s rate represents 130,349 unemployed persons, compared to 132,019 in May and 130,604 in June 2015. “Our unemployment rate continues to hold steady,” said Washington. “Even though there was no change in the rate over the month, nearly 34,000 more people are working now than last year, and fewer people are unemployed both over the month and over the year, and those numbers are important to most Alabamians.”

The Economic Outlook for the Wiregrass: Dothan Home Sales:

  2Q 2016 Percent Change Year-over-year Percent Change 5 Yr Avg
Total homes listed 1,131 - 11.1% - 9.3%
Total home sales 417 + 27.4% + 45.2%
Median Sales Price $ 147,833 + 2.7% + 5.8%
Average Sales Price $ 161,702 - 2.9% + 1.4%
Average Days on the Market 150 - 3.2% - 8.1%

Comment: The spectacular increase in home sales in Dothan (+27.4 year-over-year for the Second Quarter (2Q) 2016 appears to come from the lower end of the market as represented by the decrease in average home prices. Apparently, sellers are willing to hold prices down in order to make the sale. Consequently, the average days on the market (-3.2%%) shows that sales are occurring faster but at a slowing rate when compared with the five-year average (-8.1%).

With inventory declining (Total Homes Listed -11.1%), it would appear that the Dothan housing market could be moving toward a balance between supply and demand and thus may be poised for a future of growth.

Houston County Unemployment Rate:

The unemployment rates for the Wiregrass appear to be largely unchanged in 2016. To date the Wiregrass unemployment picture appears to be stuck in a rut which makes the current efforts to attract new businesses all the more imperative.

Houston County 6.4%
Geneva County 6.3%
Coffee County 6.6%
Dale County 6.4%
Henry County 7.0%
Barbour County 9.3%

Dothan Sales Tax Collections:

Sales tax collections in July outpaced those from July of 2015 by 6.73 percent.

Overall, the city has collected more sales tax for each of the months in the 2016 fiscal year with the exception of last November. Dothan has collected $2.184 million more in sales tax than it did during the first ten months of the 2015 fiscal year and is $4.198 million ahead of conservative budget projections.

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 make up to 70% of the GDP, and therefore the GDP for Dothan is strong and growing..

Lodging tax collections, which are gathered separately, recently reported an outstanding 4.83% 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 -- congratulations to all.

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? More on this subject in future editions – stay tuned.

For a Smile:

You can live to be a hundred
if you give up all the things
that make you want to live to a hundred.
~ Woody Allen

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 3.0 – Thursday 11 August 2016

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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