Wednesday, April 30, 2014

First Quarter GDP

The economy barely grew in the first quarter of 2014 (+0.1%).  Though this was below the consensus estimate, many of the reasons for the slowdown were not a surprise.  The inventory buildup in 2013 was pared down somewhat resulting in inventories subtracting almost 0.6% from economic growth.  Exports rose at an unsustainable rate in late 2013, given the state of the global economy.  Some of this gain was given back as exports fell in early 2014.  As a result, net exports subtracted 0.8% from economic growth.  Of course everyone is aware of the severe winter and how that hurt economic growth (though that is difficult to quantify).  Let's look at some of the details.

At first glance, what stood out to me was the growth in consumption led by a significant increase in spending on consumer services - the largest since 2000.  One of the main reasons was a surge in spending on health care (+9.9%), the largest quarterly increase since 1980.  Health care spending rarely increases by more than 5% (just over 10% of the time since 1980), so an increase of nearly10% is extremely high.  In fact, spending on healthcare services added 1.1% to economic growth, the largest contribution since records started to be kept in 1959 (it only exceeded 0.6% one other time).  Why would healthcare spending increase so much?  The Affordable Care Act or Obamacare.  Also, due to the harsh winter, spending on housing and utitities increased by the second highest rate in the last 25 years, adding 0.7% to economic growth.  On the flip side, business purchases of computers and peripheral equipment declined at the fastest rate since 1982, contributing to a decline in overall business investment.

What are the key takeaways from the report?  There were a lot of temporary factors affecting the data, so interpretation needs to be careful.  The biggest disappointment was the weakness in business spending, particularly on equipment.  Watch to see how this performs in the coming months to see whether the economy continues to grow at a modest pace or begins to accelerate.

Friday, April 18, 2014

March Job Market Report: Florida and Orlando

The latest report regarding the status of the labor market for Florida and its metro areas was released this morning and it confirmed the recent strengthening taking place in the local job market.  Though the unemployment rate for Florida rose slightly, it was due to an increase in the number of people looking for jobs rather than fewer jobs available.  After declining since the start of the recession and falling to slightly less than 60% a few months ago, the participation rate is now 60.5%.  Payrolls rose by nearly 23,000 in March, with private payrolls up 3.5% over the last 12 months (one of the highest rates in the nation).  Leading sectors included accommodation and food services (up 6200 for the month) and construction/real estate. Construction has now added over 40,000 jobs (+11.5%) since last March and is up nearly 20% since reaching a low in the summer of 2011 while real estate, rental and leasing finance has added 7700 jobs over the last 12 months (+4.7%).  The good news in construction and related sectors should be tempered by recognizing that construction employment is back up to where it was in July 2009, at the end of the recession.

Central Florida added 3000 jobs in March (not seasonally adjusted), 2600 of which were in leisure/hospitality.  As with the state, construction had the largest employment growth rate over the last year, up 8.6%.  Other areas of growth included leisure/hospitality (up 9500 or 4.3%), retail trade (up 5600 or 4.3%) and professional/business services (up 5500 or 3.2%).

 After modest job growth in recent years that struggled to keep up with population growth, both the local and state job markets have strengthened recently, achieving both stronger and broader employment gains which have begun to attract those on the sidelines to re-enter the job market.

Friday, April 4, 2014

March Employment Report

The government released its latest snapshot of the job market this morning.  The headline figures showed no change in the unemployment rate (remained at 6.7%) while the economy added 192,000 jobs.  However, once one digs into the details, the report was stronger than the headlines indicate (based on recent standards).

The employment-population ratio rose to 58.9%, the highest rate since August 2009.  The year-over-year increase (0.4%) was the largest since January 2007.  In addition, the labor force participation rose to 63.2%, the highest since September 2013.  The year-over-year decline (-0.1%) was tied for the smallest since October 2008 (the last time it increased over a 12-month period).  OK, this isn't great news, but it suggests that the participation rate may be stabilizing and employment growth is finally outpacing population growth (both are indications of a strengthening job market).

Private employment is at its highest level ever (finally exceeding its pre-recession level), though total employment is still 437,000 below its January 2008 high (due to a decline in government employment).  In addition to the gains in employment, hours worked also increased.  Total hours worked for all employees (not the average work week) is now slightly higher than right before the recession (up 0.1% since November 2007, though slightly lower than early 2008).  New highs for total hours worked were achieved in education/health (up 10% from Nov 2007), professional/business services (up 8.5%) and leisure/hospitality (up 8%).  Lagging industries include construction, which is down 20% since the start of the recession, but reaching the highest level since March 2009, and manufacturing, which is down 10% from the start of the recession but at its highest level since December 2008.

What are the key takeaways?  The labor market is showing signs of real improvement, though still not as much as most would like.  The job market has recovered most of the ground lost during the recession, but population has increased quite a bit since then, so it is still far from being a strong job market.