Lower gasoline prices, strong job creation and improving consumer confidence are a potent combination for U.S. auto sales, and that is good news for Detroit. U.S. auto sales look like they are getting close to the top of the cycle, edging down to a 16.6 million unit rate in January. We forecast sales for 2015 to total 17.0 million units, slightly better than the top-of-the-cycle 16.9 million units sold in 2005. Auto production in Michigan will get a boost from the Bolt, General Motor’s new electric vehicle. GM will invest $200 million at its Orion Assembly plant and at its Pontiac Metal Center to support the Bolt. As GM hopes to get a bang from their Bolt, auto industry jobs will get a boost. According to the Anderson Economic Group, Southeast Michigan ranks first nationally in the number of advanced automotive industry jobs. However, the Motor City is getting more competition from Silicon Valley for leadership in transportation innovation. Apple is developing an electric vehicle and Google is pushing self-driving technology.
Much ink has been spilt about relatively weak wage growth in the aftermath of the Great Recession. As we progress through 2015, we expect to see more evidence of tightening labor markets and increasing wages. Wal-Mart has just announced a $1 billion pay and training package for its U.S. hourly workers. This will help to raise for the floor for minimum wage workers nationally. Unions are starting to reassert themselves as the U.S. economy improves. Dockworkers in California are making their presence felt. The United Auto Workers’ four-year contract expires this September 15.
The Southeast Michigan Purchasing Managers Index for January took a big step down to 50.0 indicating neither expansion nor contraction in area manufacturing. Some of the drop was due to lower commodity prices, which may be reflective of lower oil and natural gas prices and not indicative of increasing slack.
Click here for the complete Detroit Regional Economic Update: Detroit2014_Q4.
The significant decline in gasoline prices and gains in house price have boosted consumer confidence all over the nation, especially in Central West Michigan, where the economy is tightly connected with auto industry. Sales of SUVs and light trucks have accelerated in the past few months as fuel prices dropped, helping manufacturing industries in Central West Michigan. According to the Bureau of Economic Analysis, growth in manufacturing in the third quarter exceeded growth in any other major economic sector in Michigan. Demand for office furniture is expected to stay strong throughout 2015, pushing furniture production to its highest since 2008. Increased furniture production, basically from middle-market furniture producers, along with strong job growth, lower gasoline prices and increased consumer confidence are expected to help strengthen the Michigan economy.
Moderately strong job growth has brought the CWM unemployment rate to 4.9 percent in the fourth quarter of 2014. We expect the regional unemployment rate to continue to trend lower through 2015 and 2016, putting upward pressure on wage rates, especially for skilled positions.
Housing markets in the Grand Rapids area remain tight. Both rental rates and purchase prices are increasing. However, house construction has remained modest. Limited in-migration is contributing to below-average population growth, constraining demand for housing. In February, Trulia listed an average price per square foot of home as $134, an increase of 6.3 percent from that same period last year. Current low inventories and harsh weather has constrained the housing market over the winter. Ongoing economic growth along with strengthening credit quality will support housing markets in 2015 and further in 2016. We expect homeowners to increase their wealth as prices rise in a low interest rate environment.
Click here for the complete Central West Michigan Regional Economic Update: CentralWestMI2014_Q4.
The Phoenix metro area ended 2014 with a 2.7 percent increase in total nonfarm employment. Growth occurred in most employment sectors, with particularly pronounced December-over-December changes in professional and business services and education and health services. These two industries alone accounted for over three-fifths of the total job growth for Phoenix in 2014. The region’s large construction sector continued its downward trend, with jobs numbers ending the year down by 3.6 percent. However, the anticipated stronger growth in high-paying sectors will help to reverse the trend of the city’s construction sector as millennials and boomerang buyers enter into the housing market.
Housing starts and prices have yet to regain their pre-recession levels. Conditions, however, are improving by many measures. Distressed sales composed almost 40 percent less of total units sold year-over-year for December. The number of days homes spent on the market increased in 2014, however inventory growth slowed. The area is moving towards a more normalized market, with institutional buyers slowing and traditional buyers finding their footing as the U.S. economy firms up. The region is still popular among second-home buyers and retirees, who will benefit from improving economic conditions over 2015. The continued decline of distressed property sales and foreclosures will help to stoke home prices in the upcoming years.
Reports on the net benefit of the Super Bowl have been mixed. However, even if the initial estimates were overblown, Phoenix still experienced a bump in consumer spending thanks to fans in town for the game. Phoenix will continue its moderate growth for 2015, but real estate prices and construction, key drivers to the area economy, will not be approaching pre-recession levels. Although Phoenix isn’t rebounding strongly, its sustainable growth and low cost of living will help to attract more business to the “Silicon Desert.”
Click here for the complete Phoenix Regional Economic Update: Phoenix2014_Q4.
Increased congestion at the Ports of Los Angeles and Long Beach is disrupting normal supply chains. Companies importing goods have to make the decision between suspending manufacturing operations, diverting shipments to Gulf and East coast ports, or using more expensive airfreighting. Exporters are also feeling the pinch as delays prevent goods being sent to international markets. Businesses that deal with perishables are faced with product losses and cancelled orders. The Obama administration sent Labor Secretary Tom Perez to the Bay Area to help negotiate a deal between the Pacific Maritime Association and the International Longshore and Warehouse Union after vessel operations were suspended for all West Coast ports from February 14-16. Further deterioration in negotiations remains a major downside risk to area port activity this year.
Southern California homeowners are seeing some light at the end of the tunnel in terms of recovered home equity. Area home prices are expected to grow by another 6.3 percent in 2015. The gain in equity as well as sustained income growth may encourage more homeowners to put their homes on the market over the next two years. This will boost the supply of homes for the tight Southern California housing market.
The region’s labor markets continue to improve heading into 2015. Southern California added 171,000 nonfarm payrolls in the 12 months ending in December 2014. Though job gains were positive news, Southern California’s unemployment rate remained stubbornly high at 7.0 percent compared to the U.S. at 5.6 percent. We expect labor force participation to increase at a faster rate this year leading to a slower decline in the area’s unemployment rate. The slack in Southern California’s labor markets will keep area income growth at around 4.8 percent for 2015. This remains below the region’s average annual income growth of 5.6 percent between 1996 and 2006, and indicates that the region is still renormalizing to a pre-recession economy.
Click here for the complete Southern California Regional Economic Update: SouthernCA2014_Q4.
Northern California labor markets are heading into 2015 with strong momentum. The region added another 104,000 nonfarm payrolls in the 12 months ending in December 2014. The area’s labor force gained a net 85,000 participants last year, its highest annual gain since 2000. The area unemployment rate remained elevated compared to pre-recession lows at 5.0 percent, indicating that some slack in the labor market exists.
The modern urbanism movement is reducing housing affordability, putting a squeeze on middle income earners. Business professionals are pouring into major metro areas, increasing demand for housing. However, the change in housing stock is not keeping pace with the inflow of professionals into Northern California, leading to higher home prices. Trulia measured housing affordability using a total monthly cost for housing which did not exceed 31 percent of a metro area’s median income. The study noted that the San Francisco and San Jose metro areas had some of the lowest housing affordabilities at 15 and 30 percent ,respectively, in November 2014. This is a long-term issue for the region as labor availability is dependent on affordable living.
The Port of Oakland is facing increased congestion due to labor contract negotiations between the Pacific Maritime Association and the International Longshore and Warehouse Union. Ongoing port congestion is impeding normal supply chains. Companies importing goods have to make the decision between suspending manufacturing operations, diverting shipments to Gulf and East coast ports, or using more expensive airfreighting. Businesses that deal with perishables are faced with product losses and cancelled orders. The Obama administration sent Labor Secretary Tom Perez to the Bay Area to help negotiate a deal after vessel operations were suspended for all West Coast ports from February 14-16. Further deterioration in negotiations remains a major downside risk to area port activity this year.
Click here for the complete Northern California Regional Economic Update: NorthernCA2014_Q4.
The San Antonio economy will feel the drag from a consolidating energy sector this year. Oil field activity is slowing down in the Eagle Ford basin due to the decline in oil and natural gas prices that began at mid-year 2014. According to Baker Hughes, the total rotary rig count in Texas was down to 654 for the first week of February 2015, compared to 822 from the same period in 2014. In the Eagle Ford basin alone, the rig count declined to 168 in the first week of February from 248 a year ago. We expect rig counts to decline further, reflecting very low oil and natural gas prices in early 2015. The decline in drilling activity will be felt as both a direct and an indirect drag on the San Antonio economy. Job losses will be felt directly through a reduction in well drilling and service activity. Indirect effects will extend through many sectors of the local economy, including consumer and housing-related industries.
Job growth in natural resources and mining (NRM) has already started slowing down in the San Antonio metro area after peaking in early 2013. In 2014, the region was able to add about 766 NRM jobs, just half of what was added in 2013 in the sector. Fortunately, the region ended 2014 with good job gains outside of NRM, bringing the December unemployment rate down to 4.3 percent. We expect job growth to cool significantly through the second half of 2015 and into 2016 as direct and indirect drags from a consolidating energy sector are felt.
As oil field activity winds down, weighing on job growth, housing markets will cool as well. Total housing starts increased by nearly 25 percent in San Antonio in 2014. We expect construction activity to remain strong in 2015, in response to favorable demographics. However, as we look into 2016 we expect construction to plateau as weaker job creation leads to a slowdown in in-migration. By the third quarter of 2014, house price appreciation in San Antonio was outpacing the national average, reflecting the tight local housing market. As demand growth eases, we expect San Antonio house prices to soften and underperform the national average. A quick resumption of oil field activity would cause us to revise our outlook.
Click here for the complete San Antonio MSA Regional Economic Update: SanAntonio2014_Q4.
The North Texas economy finished 2014 strongly, with December payroll jobs up 4.4 percent over the previous 12 months. The metro area unemployment rate was down to 4.6 percent in December and is expected to continue to fall through 2015. The ability of North Texas to attract companies from out of state remains a fundamental positive for the area. However, lower oil prices will weigh on the regional economy in 2015. A direct impact will be felt on employment in oil and gas production and well servicing industries along the eastern and western edges of the metro area. Local communities will also feel the indirect drag of lower oil prices as oil field activity eases. In Dallas and Fort Worth proper, lower oil prices will weigh on job and income growth, but are not expected to throw the urban centers into recession. A diverse regional economy, fortified by marquis industries will provide a buffer against a weaker energy sector.
Oil prices have recently stabilized in the low $50/barrel range. But it is premature to call for a bottom in the oil market. U.S. production is still increasing even as the drilling rig count plummets. We expect oil prices to firm moderately through the second half of 2015 as U.S. production begins to ease and global demand increases.
Commercial property markets in North Texas are supported by a broad range of industries, helping to cushion the blow from lower oil prices. Net leasing for North Texas in 2014 was approximately 5 million square feet, the strongest in 15 years. Downtown Dallas is perking up. In 2014, for the first time in more than 20 years, the Dallas downtown office market generated more leases than suburban markets. Still, downtown Dallas has not seen a new skyscraper since the late 1980s. That may change as plans progress on a 1.75-acre downtown tract purchased in 2013 by Ross Perot Jr. We expect North Texas to avoid a regional recession with the collapse in oil prices, continuing support for office space in Dallas in 2015.
Click here for the complete North Texas Regional Economic Update: NorthTexas2014_Q4.
The Austin metropolitan area consistently outpaced U.S. job growth for most of the last 25 years. The key exception was during the aftermath of the 2001 recession, the so-called “jobless recovery,” when Austin underperformed. Recently, payroll job growth in Austin has stepped down from an exceptional 5 percent year-over-year job growth in mid-2013 to 2.9 percent as of December 2014. The Austin region added more than 30,600 payroll jobs in 2014, about 7,000 less than in 2013, bringing the metro area unemployment down to a tight 3.9 percent in December.
The big story for all Texas metro areas for 2015 will be the impact of lower oil prices on their regional economies. The oil and natural gas sector accounted for about 12 percent of Texas GDP in 2012, and the Austin metro area includes significant oil and natural gas production along its eastern and southern flanks. However, Austin is also home to three big industries, which will buffer the impact of lower oil prices. Austin is the seat of Texas state government. Although the state is dependent on taxes from oil and gas production, the drag on state government employment and state projects from lower oil prices will operate with a significant lag. Second, Austin is home to the University of Texas, a major employer. Austin is also home to an extensive high-tech industry that will not be dragged down by lower energy prices. We expect Austin’s job growth to ease through 2015 and 2016, but we are not forecasting a regional recession at this time.
Austin’s real estate market remains strong, fueled by surging income growth from high-paying tech and services sector jobs. Home prices in the Austin metropolitan region have surged since bottoming out in 2011. House prices in Austin increased through 2014 at nearly double the U.S. average rate. We expect that such high home price growth will not be sustainable as job and income growth ease this year and next.
Click here for the complete Austin Regional Economic Update: Austin2014_Q4.
The Houston economy is showing more evidence that lower oil prices will be a significant drag in 2015. There is still a gap between official data and anecdotal reports of cooling conditions. Over the next few months we expect to see an increasing body of data consistent with a downshift in the regional economy. A key early indicator has already turned south. The Houston Purchasing Managers Index fell to 48.9 in January, its first drop below the break-even 50 mark since August 2009. The below-50 reading is consistent with a contracting regional economy over the next three to four months.
Property markets will feel the chill. According to the Houston Association of Realtors, January sales of mid-level single-family homes were still strong, but sales of homes priced above $500,000 had slowed noticeably. Anecdotal reports tell of an increasing number of low-ball offers for million-dollar houses. Sales of townhomes and condominiums have declined as well. Commercial property markets are also vulnerable. One-sixth of all office space under construction in the U.S. is within the Houston metro area. According to Costar, Houston had about 80 office buildings, totaling 18 million square feet, under construction at the end of 2014. Some of the new office buildings are entirely speculative and may have difficulty attracting tenants. Energy-related layoffs are picking up momentum, translating into less need for office space.
World-wide, large-scale layoffs in the energy sector number more than 100,000. Houston area layoffs could reach into the tens of thousands this year. We expect to see deteriorating labor market conditions through the second half of 2015. Oil prices have recently stabilized in the low $50/barrel range. But it is premature to call for a bottom for oil prices. Even stability near $50/barrel could result in a chain reaction of job cuts through the Houston economy this year.
Click here for the complete Houston Regional Economic Update: Houston2014_Q4.
Miami saw a record year for real estate in 2014. Single-family home sales saw their highest number ever recorded on an annual basis, while condos sold the second-highest number on record. Miami consumers are feeling confident and are aware of the prodigious growth their region has seen since the market’s bust. The Case-Shiller index for the city was up 8.6 percent over the past 12-month period from November 2014. While the average number of days on the market for both homes and condos rose over 2014, the rate remained tight, at 45 and 57 days, respectively. Institutional buyers are exiting the market, as evidenced by the slight decline of cash transactions; however, foreign investors are still flocking to Miami. Our outlook for the global economy lends to further positive housing market expectations, as foreign investors continue to use Miami for safe-haven investment and for fun. The downside risk, in addition to a strengthening dollar, is creating a market so strong that investors are priced out. S&P recently upgraded Miami’s bond rating to A+ from BBB.
Miami continues to see better-than-national labor market improvements. The metro area is poised to hit a sub-5 percent unemployment rate by year-end. Payroll employment grew near or above 3 percent for all of 2014, a trend that we expect to continue in 2015, maintaining its strong rate. Indicative of the real estate boom occurring in the city, construction jobs grew 7.9 percent over 2014, while large industries like leisure and hospitality, education and health services, financial activities and trade, transportation and utilities all grew around 3 percent for the year. Professional and business services grew nearly 5 percent for 2014. We look for Miami to experience a similar 2015, sustaining strong income gains.
Optimism in development will not be waning any time soon, as evidenced by projects like tourist-drawing SkyRise tower. Condo demand will remain strong; over 9,500 units were under construction going into 2015.
Click here for the complete Miami MSA Regional Economic Update: Miami2014_Q4.