Phoenix Economy Ends 2013 with a Positive Outlook

After facing a number of headwinds in 2013, Phoenix’s moderate economic expansion will continue into 2014. Increased uncertainty and federal budget sequestration were a drag on local defense-related businesses throughout 2013. Honeywell International, whose aerospace division is headquartered in Phoenix, saw flat aerospace-related sales growth in 2013. Boeing, which has facilities in Mesa, saw military aircraft revenues decline by 1 percent in 2013. The passing of the Bipartisan Budget Act in December eased the uncertainty surrounding the defense budget in 2014. Under the act, discretionary defense spending will increase to $520.5 billion in FY2014 compared to $498 billion under sequestration.

Phoenix regional housing markets regained momentum at the end of 2013. After gaining ground in the first half of 2013, Phoenix housing starts dipped in 2013Q3, hitting a 19-month low of a 12,800 unit annual rate in September. Increased mortgage rates were a drag on housing markets during this time period. Housing starts then bounced back to a 20,000 unit annual rate in December. Housing permits in the region are worth noting as they reached a 69-month high of a 30,400 unit annual rate in December. We expect housing starts for the region to total 17,341 for 2014, increasing to 19,136 in 2015.

Phoenix total nonfarm payrolls increased by 43,000 from a year ago in December. Mining and logging were down 300 jobs; manufacturing lost 2,100; and government lost 2,100. Trade, transportation and utilities were up 12,800 jobs; education and health services gained 10,900; and financial activities were up 8,300. Unemployment in the Phoenix region declined to 6.4 percent in December, below the U.S. average of 6.7 percent. The outlook for area labor markets is positive in 2014. Total nonfarm payroll employment is expected to gain an additional 44,000 jobs by the end of 2014Q4. The unemployment rate is expected to decline to 5.1 percent by the end of 2014.

Phoenix 2013Q4

Click here for the complete Phoenix MSA Regional Economic Update: Phoenix 2013Q4.

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Miami’s Road to Recovery

The Miami metro area was pummeled by the Great Recession. The area’s economy bled jobs for 23 consecutive months. Home prices and housing markets were hammered. Bankruptcies jumped, while incomes and consumer spending slumped. Seven years after the beginning of the economic downturn, the Miami economy is still recovering. We have a cautiously optimistic outlook for Miami for 2014.

Area labor markets have made consistent gains since 2010. At the pre-recession peak of June 2007, Miami had a total nonfarm payroll of 2,425,000 jobs. By January 2010, the area lost approximately 250,000 jobs or around 10 percent of its total nonfarm employed. Beginning in 2010, modest job growth resumed after the near three-year hiatus. As of December 2013, Miami has regained 170,000 of the jobs lost from the Great Recession, leaving about 80,000 jobs to get back to its pre-recession peak. We expect approximately 49,000 jobs to be added in Miami in 2014 and another 56,000 jobs in 2015. This will elevate Miami payrolls to its pre-recession peak by 2015Q3.

Miami housing markets were hit disproportionately hard in the recession. Housing starts peaked in 2005Q3 at a 42,072 unit annual pace. Housing starts then bottomed out in 2009Q2 at a 3,093 unit annual pace. Our forecast has Miami housing starts reaching a 17,400 annual rate by 2014Q4 increasing up to 19,100 by 2015Q4. A firming labor market, strengthening income growth and increasing pent-up demand will be a boost for housing markets in 2014, with some drag from increasing mortgage rates.

Consumer spending in the region steadily increased throughout 2013 and heading into 2014. Sales tax revenues from the Miami metro area increased 6.7 percent from a year ago in December. Tourism has also been a boost to the area’s economy in 2013. According to Smith Travel Research, hotel occupancy in Miami was at 78.2 percent in December. This was third in the U.S. only to Oahu and New York City. Miami’s tourism and retail industries will continue to benefit from a pick-up in the overall U.S. economy and a synchronized global economic expansion.

Miami 2013Q4

Click here for the complete Miami MSA Regional Economic Update: Miami 2013Q4.

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San Antonio Poised for Moderate Economic Growth in 2014

The San Antonio MSA has benefited greatly from the Eagle-Ford Shale. The area will continue to benefit from the energy boom in 2014 albeit at a slower pace. Drilling activity moderated in second half of 2012 through 2013 as natural gas prices declined from more than $6/mmBtu in 2007-08 to less than $4 in 2012-13. Cold winter weather in much of the U.S. has elevated demand and brought natural gas prices up to more than $5/mmBtu recently. Our forecasts indicate natural gas prices to be around $4-5/mmBtu through 2014 as the weather returns to normal. We expect most of the job growth for San Antonio in 2014 to come from sectors like health care, tourism and small businesses.

The unemployment rate in San Antonio is expected to decline at a slower pace as the oil and gas drilling boom continues to moderate. San Antonio added more than 6,200 non-farm payroll jobs to the economy in 2013, most of them coming from services producing and construction sectors. Consequently, the unemployment rate in the area declined to 5.8 percent in 2013Q4 compared to 6.0 percent in the last quarter of 2012. Year-over-year payroll job growth is expected to grow moderately towards the national average in 2014. Both single and multifamily housing starts were up in 2013Q4 after consecutive drops in the previous two quarters. We expect San Antonio’s housing market to improve moderately, consistent with job and income growth in the area. 

San Antonio is one of the five so-called “Promise Zones” designated by President Barack Obama to fight poverty. The federal grant and support received from the program is expected to create jobs in key growth areas like energy, construction, healthcare and manufacturing. The program goals also include improving child enrollment in high-quality pre-K programs, improving early college enrollment and adult education opportunities, expanding public safety programs, affordable housing opportunities, and providing tax credits for private businesses upon approval by the Congress.

San Antonio 2013Q4

Click here for the complete San Antonio MSA Regional Economic Update: SanAntonio 2013Q4.

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North Texas Ends 2013 Flat, We Maintain our Positive Outlook

The jobs machine known as North Texas ended 2013 on a flat note, with essentially no payroll jobs added in November, followed by a large 10,400 net job loss in December. Reduced federal spending through 2013 was certainly a drag for specific industries. However, the December jobs loss reported for North Texas was broad-based across industries in the official data, out of character with anecdotal evidence at year-end. This suggests that there is a possibility of an eventual upward revision to the year-end data. It also suggests that it is premature to change our view that the North Texas economy remains a strong job generator. Certainly, if we were to see ongoing weak job growth in 2014, that would cause us to re-evaluate our assumptions.

Positive business news for North Texas is abundant. Both DFW Airport and Love Field are increasing in importance as major air transportation hubs. American Airlines is hard at work combining with the former US Airways. Southwest Airlines will add 15 new nonstop destinations from Love Field this fall. Ground transportation is also an important sector for the regional economy. Several speculative warehouse/distribution facilities are under construction in the area. Rail transportation is in the news as state and local officials discuss the possibility of a high-speed commuter line connecting Dallas to Fort Worth. Separately, there appears to be growing momentum for north/south high speed rail, possibly running from Oklahoma City to Dallas to Houston to Monterrey, Mexico.

Oil prices have firmed up, now near $100/bbl for WTI as of this writing. Natural gas prices have been boosted by strong demand due to a colder-than-normal winter. NG futures crested $5/mmBtu in late January, and have since relaxed to about $4.75. Texas drilling activity remains strong.

North Texas 2013Q4

Click here for the complete North Texas MSA Regional Economic Update: NorthTexas 2013Q4.

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Strong Year Ahead for Houston

Strong energy markets and a broadening economic base will drive the Houston economy ahead in 2014. WTI crude oil prices firmed to near $100 per barrel in mid-February. The extreme winter weather in much of the country has increased natural gas demand, supporting price gains. Gas futures were near $4.60 per mmBtu in mid-February, about a third higher than last November’s lows. Major oil companies are pushing for the repeal of crude oil export restrictions. If granted, this will be positive for the Houston economy, not only in terms of jobs in transportation and distribution industries, but also in terms of support for the price of crude oil. The southern leg of the Keystone XL pipeline opened in late January, increasing crude oil supply to Port Arthur refineries. A significant portion of the gasoline produced by Texas Gulf Coast refineries is exported, supporting the U.S. balance of trade.  Los Angeles-based Occidental Petroleum is moving its headquarters to Houston by early 2015.  As Mexico opens up its energy sector to international investment, Houston is poised to benefit.

Payroll job growth in the Houston metro area remains robust, at 3.0 percent year/year in December, well above the U.S. average rate of 1.7 percent. As expected, the positive performance gap between Houston job creation and the national average has narrowed, but we do not expect that gap to disappear anytime soon. At 5.8 percent in December, Houston’s unemployment rate was  well below the U.S. average of 6.7 for that month.

The rapid economic and demographic growth of Houston is opening up opportunities outside of the energy sector. Mixed-use developments are underway in suburban communities, complimenting the single-family construction. McGuyer Homebuilders is planning a 1,000-acre master-planned community in Manvel. Retail vacancy rates for Houston are at historic lows.  State officials are discussing high-speed rail, possibly running from Oklahoma City to Monterrey, Mexico, through Houston.

Houston 2013Q4

Click here for the complete Houston MSA Regional Economic Update: Houston 2013Q4.

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Austin Continues to Generate Jobs

Austin continues to be one of the strongest job-creating metro areas in the U.S. The area added a net of 23,600 jobs in 2013, most of them coming from services producing sector. Austin is not only the home for many high-tech companies, but wages in the tech sector in Austin rank among the highest. We expect Austin to add thousands of additional jobs in 2014 mostly in the high-tech and services sectors. High-tech giants such as Google, AT&T, and Time Warner Cable are competing to provide superfast internet service in the area and networking is expected to start around mid-2014.

Austin’s unemployment rate declined to 4.9 percent in December matching its August 1989 rate. The unemployment rate is expected to fall continuously as the year progresses, powered by strong job growth. Year-over-year growth of personal income climbed to 4.7 percent in 2013Q3, which is about half a percent higher than the previous quarter.

After consecutive declines in total housing starts in 2013Q2 and Q3, Austin showed strong performance in housing starts in the last quarter of 2013. The improving trend in housing is expected to continue through 2014 as the area attracts more residents drawn by strong job growth and Austin’s favorable business investment climate. Currently, Austin house prices are at a record high. We expect housing equity to appreciate in 2014 with strong local demand.

Austin 2013Q4

Click here for the complete Austin MSA Regional Economic Update: Austin 2013Q4.

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Detroit Set for Modest Growth

The Detroit metro area is adding jobs, but only slowly. As of December, payroll jobs increased in the Detroit metro area by 0.8 percent over the previous year, significantly under the U.S. national average of 1.7 percent. The metro-area unemployment rate, at 8.9 percent in December, stands well above the U.S. average, at 6.7 percent for that month. The good news is that the rate of decline in the Detroit unemployment rate is about on par with the U.S. as a whole. We expect to see only modest job growth for the Detroit metro area over the next year.

The City of Detroit’s financial crisis and bankruptcy continue to dominate headlines. The city submitted its financial restructuring plan to a federal bankruptcy court on February 21. The plan, pending approval, will restructure about $18 billion in long-term obligations. Secured creditors will be paid in full, pension funds will get a haircut and unsecured creditors will receive about 20 cents on the dollar. It could be several months before the court approves Detroit’s plan. We expect to see a spillover effect in bankruptcies in Detroit as a result of the city’s restructuring. It is very difficult to estimate the exact extent of the spillover. We show stable to rising bankruptcies for the Detroit area this year. This pattern is intended to provide a cautionary signal about credit quality for Detroit at this uncertain time.

The Detroit metro area economy remains dominated by the auto industry. Severe winter weather held auto sales to a 15.2 million unit annual rate in January, after reaching a 16.4 million unit rate in November. We expected auto sales to resume their moderate upward track early this year. The early word on February auto sales is positive. The economic push from the rebounding U.S. auto industry will ease as auto sales approach a cyclical high of around 17 million units per year in the second half of 2015.

Detroit 2013Q4

Click here for the complete Detroit MSA Regional Economic Update: Detroit 2013Q4.

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Central West Michigan’s Economy to Improve Moderately

The Central West Michigan (CWM) area created about 29,500 nonfarm payroll jobs in 2013, of which more than 64 percent were in the Grand Rapids metro area. CWM private businesses created more than 3,550 jobs in the manufacturing sector alone in 2013. Nonfarm payroll jobs grew at 2.6 percent year-over-year in 2013Q4, which is 1.3 percent higher than the same quarter of 2012. Moving forward to 2014, we expect job growth to moderate as manufacturing industries add fewer jobs.

The unemployment rate in CWM declined to 6.8 percent in 2013Q4 after a slight increase in Q3. We expect the unemployment rate to fall continuously after 2014Q1 due to declining labor force participation and improving total employment. Both single and multifamily housing starts grew stronger in the second half of 2013. We expect the total housing starts to moderate in early 2014 and then resume their upward trajectory. House prices are expected to grow in the first quarter of 2014, consistent with income growth, before moderating thereafter through 2015.

Expanding private businesses across the country are expected to grow the demand for office furniture through 2014, thereby providing a boost to the region’s furniture manufacturing businesses. As income and job opportunities grow, U.S. auto sales are also expected to increase through 2014. This will continue to energize the auto industry in the area.

CW Michigan 2013Q4

Click here for the complete Central West Michigan Regional Economic Update: CentralWestMI 2013Q4.

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Comerica Economic Weekly

Most U.S. economic data this week shows the adverse impact of much-worse-than-normal winter weather. However, there is a current of momentum beneath the ice. The Conference Board’s Leading Index increased by 0.3 percent in January. Both the coincident and the lagging indexes were positive in January.

January housing starts were weaker than expected, falling by 16.0 percent to an 880,000 unit annual rate. Single-family starts fell to 573,000, the weakest since August 2012. Residential construction permits were down by 5.4 percent in January, to a 937,000 unit rate.

Existing home sales for January fell by 5.1 percent to a 4.62 million unit rate, the weakest since July 2012.  Existing home sales have been hurt by the weather, but the downtrend began last August as mortgage rates increased and institutional buyers cooled their purchases.  Mortgage apps for the first half of February were soft.

The headline CPI increased by 0.1 percent in January despite a larger push from energy. In January, electricity and natural gas prices pushed the consumer energy price index up. The core CPI (all items less food and energy) also gained 0.1 percent in January. The PPI for final demand increased by 0.2 percent in January.

The Philadelphia Fed’s Business Outlook Survey showed that manufacturing conditions in the Mid-Atlantic region cooled in February. Six-month expectations remain positive. The New York Fed’s Empire State Manufacturing Survey dipped in February, but it was still in positive territory.

Initial claims for unemployment insurance fell by 3,000 for the week ending February 15, to hit 336,000. Continuing claims increased by 37,000 for the week ending February 8. We are looking for a decline in continuing claims as extended UI benefits are rolled back.

The Federal Reserve minutes from the January 28/29 FOMC meeting showed that “a few” members raised the possibility that it might be appropriate to increase the federal funds rate relatively soon. Business news media has overplayed that story. We continue to expect that the Fed will keep the fed funds rate near zero for the remainder of this year, while it tapers its asset purchase program down to zero. Further, we expect the Fed to announce another $10 billion reduction in its asset purchase program at the upcoming March 18/19 meeting.

No Spring skips its turn.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly022114.

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January Consumer Prices, Leading Indicators, Feb. UI Claims

Inflation Is Tame, Leading Indicators Are Positive, The Weather Is Here 

  • The January Consumer Price Index increased by 0.1 percent, pushed by energy prices.
  • The January Core CPI also increased by 0.1 percent, and was up 1.6 percent over 12 months.
  • The Conference Board’s Index of Leading Indicators is up 0.3 percent for January.
  • Initial Claims for Unemployment Insurance fell by 3,000 to hit 336,000 for the week ending Feb. 15.

Even price metrics are showing the effect of this winter’s brutal weather. The headline CPI increased by 0.1 percent in January despite a larger push from energy. The energy price index gained 0.6 percent in January as gasoline prices fell by 1.0 percent. Usually, gasoline is the big mover in the energy price index. In January it was electricity and natural gas prices that pushed the consumer energy price index up. The core CPI (all items less food and energy) also gained 0.1 percent in January. Vehicle prices were down, consistent with weak car sales for the month. Over the previous 12 months, the headline CPI is up 1.6 percent as is the core CPI.  We do not expect either index to drift much lower on a year-to-year basis. House prices are increasing across all major markets at a robust clip. This will support the shelter component of CPI. Increased export of U.S. energy products, as well as the potential for crude oil export, suggests support for petroleum prices. Unemployment rates are falling in all major markets, and are already low for some markets and for some specific occupations. An increase in the minimum wage would require pass-throughs for many businesses. Finally, the Federal Reserve is still engaged in asset purchases, which is supportive of equity markets.

The Conference Board’s Leading Index increased by 0.3 percent in January, following a revised 0.0 percent increase for December. Five of the 10 components of the leading index were positive. The biggest positive push came from the interest rate spread, unemployment claims and from improved credit metrics. The biggest drags to the index came from building permits (weather related), manufacturing hours and the ISM new orders index. It would not be a stretch to say that some of the weakness in the manufacturing metrics was also weather related. Both the coincident and the lagging indexes were weakly positive in January. Separately, initial claims for unemployment insurance fell by 3,000 for the week ending February 15, to hit 336,000. Continuing claims increased by 37,000 for the week ending February 8. We are looking for a decline in continuing claims as extended UI benefits are rolled back.

Market Reaction: Equity markets are green. Treasury yields are up. NYMEX crude oil is down to $103.15/barrel. Natural gas futures down to $4.90/mmbtu.

Economic Alert 022014

For a PDF version of this Comerica Economic Alert click here: CPI 022014.

 

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