Economic. The U.S. Economy: Are Green Chutes Emerging?

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www.csb.uncw.edu/swaincenter Economic CAMERON SCHOOL OF BUSINESS H. DAVID AND DIANE Barometer SWAIN CENTER FOR BUSINESS AND ECONOMIC SERVICES Volume V, Issue 1 April 2013 Inside this issue: The U.S. Economy: Are Green Chutes Emerging?

1 Economic CAMERON SCHOOL OF BUSINESS H. DAVID AND DIANE Barometer SWAIN CENTER FOR BUSINESS AND ECONOMIC SERVICES Volume V, Issue 1 April 2013 Inside this issue: The U.S. Economy: Are Green Chutes Emerging? The US Economy 1 Readings on the Labor Market More Upbeat Consumption Looking Firmer Ditto Residential Construction Halting Advances in Business Investment Stock Prices Could be Higher The Outlook Calls for some Pickup in Growth Unemployment Rates News on the economy in recent months has on balance been upbeat, suggesting that growth may have shifted up from the sluggish pace of This seems to have happened even as taxes were increased as a result of the January 1 agreement to avoid the worst of the fiscal cliff, and as sequester cuts in federal spending kicked in on March 1. Does this mean that the economy may finally be emerging from the doldrums? The chart below illustrates growth in real GDP through the end of last year. While growth was sluggish over the year, it ended on an especially weak note. This weakness was compounded by the disruption from Hurricane Sandy and some other oneoff factors. Clearly, more economic vigor is long overdue. Growth in Real GDP (Percent change at an annual rate) Wilmington MSA Unemployment 7 Employment and Wages 8 New Incorporations 8 Retail Sales Growth Rates 9 Airport Passenger Traffic 9 Port Container Tonnage Growth 2011 Travelers Expenditures Housing 11 Learn about our benefactors, H. David and Diane Swain at swaincenter Readings on the Labor Market More Upbeat Overall, readings on the labor market have been more favorable over recent months. Even with a pause in March, private sector payrolls have grown an average of 200 thousand per month since last fall, well above the pace required to absorb labor force entrants. Beyond this, employers have been upping the hours of work for their em-

Index of Labor Input Cutting through the monthly wiggles, total hours worked have turned up since the fall of last year.

2 Page 2 Economic Barometer ployees and, as a result, total use of labor input has picked up a bit. This can be seen in the chart below which is an index of total hours worked, the product of the number of employees on payrolls and their average hours of work. Index of Labor Input Cutting through the monthly wiggles, total hours worked have turned up since the fall of last year. This has been accompanied by greater use of temporary workers, often a prelude to more permanent hires. With labor input rising more quickly, we can expect a pickup in growth in aggregate output. Consumption Looking Firmer Turning to key components of aggregate demand, the chart below illustrates that, after a period of erratic month-to-month movements, consumption outlays registered solid gains over late 2012 and early 2013, though preliminary news suggests that consumers took a breather in March. Giving a lift to consumption Growth in Real Consumption Outlays (Percent change at an annual rate) outlays over this period have been strong purchases of big-ticket durable items. Supporting consumer spending have been gains to household wealth. As shown in the chart below, net worth of households showed sizable gains over the latter part of 2012, which owed to a recovery in home prices and rising stock prices. Note that household wealth has nearly retraced all of the losses during the Great Recession.

Volume V, Issue 1 Page 3 Household Net Worth Ditto Residential Construction Permits for New Single-Family Homes The recovery in home prices has reflected stronger demands for homes, which also are

The chart to the left illustrates that permits for new single-family homes, which tend to lead actual construction, have been steadily marching upward and finally helping to undergird the economic

3 Volume V, Issue 1 Page 3 Household Net Worth Ditto Residential Construction Permits for New Single-Family Homes The recovery in home prices has reflected stronger demands for homes, which also are acting to boost new construction. The chart to the left illustrates that permits for new single-family homes, which tend to lead actual construction, have been steadily marching upward and finally helping to undergird the economic expansion. Halting Advances in Business Investment Business purchases of equipment and software finished last year on a positive note. This came on the heels of orders for capital goods, shown in the chart on the next page, rebounding after mid-year. However, orders have registered mixed changes thus far in 2013, suggesting that brisk late-2012 growth in this important component of aggregate demand may not be sustained.

Page 4 Economic Barometer Orders for Capital Goods Larger businesses have access to attractive financing and are holding unprecedented amounts of liquid assets, but remain reluctant to embark on

Businesses both large and small have frequently mentioned heightened uncertainty about economic and regulatory policies as a major reason for holding back on investment projects that would otherwise

4 Page 4 Economic Barometer Orders for Capital Goods Larger businesses have access to attractive financing and are holding unprecedented amounts of liquid assets, but remain reluctant to embark on seemingly worthwhile investment projects even as the economy has moved onto firmer ground. Businesses both large and small have frequently mentioned heightened uncertainty about economic and regulatory policies as a major reason for holding back on investment projects that would otherwise have attractive returns. They specifically mention concerns about the federal fiscal outlook, the implementation of health care Index of Economic Policy Uncertainty legislation, and Fed policy as reasons for their reluctance. The chart to the left captures such uncertainty about economic policy. It shows that uncertainty has moderated in early 2013 from elevated year-end levels as the worst fears of a fiscal train wreck have eased with some signs of agreement on the budget front. However, uncertainty is still very high.

However, stock valuations are on the low side, especially given the very low level of interest rates.

5 Volume V, Issue 1 Page 5 Stock Prices Could be Higher Economic policy uncertainty likely is also holding down share prices. As shown in the next chart, corporate profits measured on an economic basis have been at record levels and the profit share of GDP not shown is close to an all-time high. However, stock valuations are on the low side, especially given the very low level of interest rates. The chart below shows the total market value of shares in relation to total economic profits an economywide price-earnings ratio. The most recent reading for this measure the fourth quarter of last year is to the low end of historical experience, especially noteworthy in view of near-record low yields on bonds. This implies that there is upward scope for share prices--even as they have touched new highs recently--if the unusual forces holding them down should abate. Market Valuation of Stocks Relative to Profits

Page 6 Economic Barometer The Outlook Calls for Some Pickup in Growth Growth in real GDP this year is expected to strengthen from the anemic sub-2 percent rate of 2012 and to strengthen further in

6 Page 6 Economic Barometer The Outlook Calls for Some Pickup in Growth Growth in real GDP this year is expected to strengthen from the anemic sub-2 percent rate of 2012 and to strengthen further in However, headwinds in the form of policy uncertainty and strains in Europe are likely to continue to limit this upturn. Improving employment conditions and gains in wealth will propel consumption growth above the sluggish 1-3/4 percent rate of last year and pent-up demands and favorable financing conditions will push business outlays on equipment and software above the 5 percent advance of last year. However, the strong dollar and ongoing problems in Europe will hold down net export expansion, and spending cuts at the federal level will result in overall declines in government purchases. With considerable slack in the economy persisting, inflation will remain in check. The next chart illustrates that the core PCE measure of inflation has been running well below the Fed s target of 2 percent (shown by the arrow). This along with unemployment expected to stay above the Fed s announced trigger point of 6-1/2 percent implies that the current stance of Fed policy will remain in place for a while. Core PCE Inflation Unemployment Rates Average monthly unemployment rates in southeast North Car9lina fell slightly between 2011 and Compared to 2007, the last year before the start of the national recession, area unemployment rates were more than twice their 2007 levels. Source: Division of Employment Security, NC Department of Commerce.

Volume V, Issue 1 Page 7 Wilmington MSA Employment The accompanying chart shows Wilmington MSA (Brunswick, New Hanover, and Pender Counties) average monthly employment for the 14 quarters (two and

7 Volume V, Issue 1 Page 7 Wilmington MSA Employment The accompanying chart shows Wilmington MSA (Brunswick, New Hanover, and Pender Counties) average monthly employment for the 14 quarters (two and one-half years) surrounding the end of the three most recent national recessions. As can be seen, average monthly MSA employment gains 14 quarters after the end of the July 1990/March 1991 and January 2008/June 2009 recessions were dramatically below those following the April 2001/December 2001 recession. Source: Division of Employment Security, NC Department of Commerce. 125% 120% % of End -of- Recession Level 115% 110% 105% 100% 95% 90% 85% 80% Quarters Before and After End of Recession July 1990 / March 1991 April 2001 / December 2002 January 2008 / June 2009

, health care and social assistance, professional and technical services, and public administration, show employment gains. Source: Division of Employment Security, NC Department of Commerce.

8 Page 8 Economic Barometer Employment and Wages All but two of the ten largest employment sectors in the MSA, viz., construction and manufacturing, saw employment gains between the third quarter of 2011 and the third quarter of However, compared to the third quarter of 2007, only three sectors, viz., health care and social assistance, professional and technical services, and public administration, show employment gains. Source: Division of Employment Security, NC Department of Commerce. New Incorporations New incorporations in area counties show mixed trends since They have risen every year in Brunswick County. Following growth in 2009 and 2010, incorporations were virtually unchanged in New Hanover County between 2010 and 2011, only to fall by more than a third over Following growth in 2009, incorporations fell in both 2010 and 2011 in Pender County but rose over Source: NC Secretary of State.

Volume V, Issue 1 Page 9 Retail Sales Growth Rates Following rather dramatic declines in 2008 and 2009, retail sales in area counties rose in both 2010 and 2011.

9 Volume V, Issue 1 Page 9 Retail Sales Growth Rates Following rather dramatic declines in 2008 and 2009, retail sales in area counties rose in both 2010 and They rose again in 2012 but by lower rates. Retail sales have rebounded to their levels prior to the beginning of the most recent national recession. Source: NC Department of Revenue. Airport Passenger Traffic Air passenger traffic at the Wilmington International Airport has been volatile since Traffic has fallen for the past two years. The declines were smaller in 2012 than they were in Source: Wilmington International Airport.

Page 10 Economic Barometer Container tonnage traveling through the

5% over 2012. Source: NC State Ports Authority.

Brunswick and New Hanover Counties ranked in the top ten statewide

10 Page 10 Economic Barometer Container tonnage traveling through the Port of Wilmington rose over Tonnage fell by almost 7.5% over Source: NC State Ports Authority. Port Container Tonnage Growth 2011 Travelers' Expenditures In 2011 Brunswick and New Hanover Counties ranked in the top ten statewide in travelers expenditures. Pender County ranked in the top fifty. Source: NC Department of Commerce.

H. David and Diane Swain Center for Business and Economic Services Housing H.

After falling in 2011, foreclosures rose in Pender County over 2012. Source: NC Administrative Office of the Courts.

edu WWW.UNCW.EDU/CBES Dr. Gary Miller Chancellor, UNCW Larry Clark Dean, Cameron School of Business Dr. William Sackley Director of SCBES Dr. William (Woody) Hall Senior Economist Dr.

11 H. David and Diane Swain Center for Business and Economic Services Housing H. DAVID AND DIANE SWAIN CENTER FOR BUSINESS AND ECONOMIC SERVICES After rising for three consecutive years, residential foreclosures fell in Brunswick and New Hanover Counties in both 2011 and After falling in 2011, foreclosures rose in Pender County over Source: NC Administrative Office of the Courts. Computer Information Systems Building, Suite 1004 University of North Carolina Wilmington 601 South College Road Wilmington, N.C Phone: Fax: Dr. Gary Miller Chancellor, UNCW Larry Clark Dean, Cameron School of Business Dr. William Sackley Director of SCBES Dr. William (Woody) Hall Senior Economist Dr. Thomas Simpson Executive in Residence Barb Biehner Program Director Allison Rankin Program Director Jennifer Mackethan Administrative Assistant Livingston Sheats Graduate Research Assistant The H. David and Diane Swain Center for Business and Economic Services at UNC Wilmington is the business research and outreach division for the Cameron School of Business. Center staff collect and analyze local, state, and national economic data that impact our region and its growth. The H. David and Diane Swain Center for Business and Economic Services also provides professional and executive educational opportunities for organizations and professionals with major emphasis on business training, entrepreneurship and real estate. For more information about The H. David and Diane Swain Center for Business and Economic Services, visit our Web site, or contact Jennifer Mackethan at

Economic Barometer. Mixed Signals. Labor Market Improvement Household Demand Household Demand Continued Business Demand

Economic Barometer. Mixed Signals. Labor Market Improvement Household Demand Household Demand Continued Business Demand www.csb.uncw.edu/cbes Economic Barometer CAMERON SCHOOL OF BUSINESS H. DAVID AND DIANE SWAIN CENTER FOR BUSINESS AND ECONOMIC SERVICES Volume IV, Issue 2 April 2012 Inside this issue: Labor Market Improvement