Headline Downer

I’m not trying to be a Wednesday Debbie Downer, but is anyone else getting depressed when checking the national headlines? Seriously take a look at the headlines throughout the Wall Street Journal this morning…

I had to stop scanning after these four headlines…The question is how does this financial crisis (are we officially calling this a recession now?) affect city halls across the state of Utah? This perpetual bad news for the market can definitely impact a number of local government revenue sources — especially sales tax. The question becomes what degree is this impacting local revenue and what can we do (or when will this stop).

Joining us at our 101st Annual Convention will be Geoffrey Colvin, a senior editor for Fortune Magazine. Mr. Colvin will offer key insights to what is happening with the economy right now, what is cause for concern, and what may be cause for optimism. In fact in one of Colvin’s recent columns for Fortune he writes:

The trouble with gloom is that when you’re surrounded by it, that’s all you can see. A sunny tomorrow could be on its way, but the present darkness is definite. Obviously I’m talking about the economy, not the weather, and I’d like to propose the radical thought that, contrary to the evidence that surrounds us right now, just possibly the apocalypse is not at hand.

It is comforting to know that at least apocalypse is not at hand…You can read the full column here: The anti-doomsday scenario

Whether Mr. Colvin delivers good news or bad news I don’t think you’ll want to miss him as our Thursday lunch (September 11th) keynote speaker. (you can see the full conference agenda here: ULCT Convention)

 

Gas Prices Contributing to Bursting the Housing Bubble?

Are increasing gas prices to blame for the bubble bursting in the housing market? According to a recent report conducted by the Ceos for Cities organization there is some relationship between gas prices and the housing market. Or more specifically, they claim that the price of homes in the suburbs is being forced to come down because people can’t afford the increase gas costs…so they either need cheaper suburban homes or live closer to work.

The collapse of the housing bubble, punctured by the gas price spike, marks a watershed point for the nation’s suburbs. When gas was cheap, buying a house in a distant suburb where housing prices were cheaper seemed like an affordable housing choice for many families. But as the more severe decline in housing prices on the urban fringe over the past year illustrates, $3 a gallon gas has made low density development a false economy across the nation.

I don’t know if I buy into the complete conclusions of this report, but I think it does raise some important housing accessibility and affordability questions for policy makers. Is demand going to increase for more urban homes? But what about the argument that more affordable homes are in the suburbs? You can read the full study here: Driven to the Brink

Oh and another article in the Deseret News today about gas prices in Utah have hit another all-time high…$3.47 a gallon. Read the article here.

 

Job losses worst in 5 years…

The Labor Department today has announced a net loss of 63,000 jobs in February. The job losses are not just limited to the construction industury either. Retailers cut 34,000 jobs and manufacturing employment also took a big hit. This is the largest employment loss in five years.

“Based on today’s Employment Report, if we are not in a recession, it is a darned good imitation of one,” said Kevin Giddis, managing director of fixed income at Morgan Keegan.

“I haven’t seen a job report this recessionary since the last recession,” said Jared Bernstein, an economist at the Economic Policy Institute in Washington. “This is a picture of a labor market becoming clearly infected by the contagion from the rest of the economy.”

Utah’s employment is still relatively strong, but there are some areas weakening. According to the recent Economic Report to the Governor Utah has 105,000 jobs statewide in construction. Construction jobs increased by 11% from 2006 (10,000 new jobs), however the previous year construction jobs increased by nearly 17%. Utah job growth in construction and mining is definitely slowing, but many other industries continue to remain strong.

This map represents a nice national illustration to where job growth, by county, is above or below the national average.

 

Recession Looms…or not

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson both stated today that the federal cut in rates and the economic stimulus plan could keep the economy out of a recession. Esentially Bernanke and Paulson predict that the economy could be “sluggish” for the first couple months of the year, but then pick up speed later in the year. You can read the CNNMoney article here.

Of course what is the cost of this economic package to stimulate the economy? In Utah it looks like the stimulus package will take $65 million from the state education fund. Some of this loss should be offset by increased sales tax revenue (to the tune of $30 million…seems a bit optimistic to me, but maybe not). A recent SL Trib article addresses this issue here.

Bernanke’s testimony to the Committe on Banking, Housing, and Urban Affairs

 

Utah’s Economy for 2008

January has been full of speculation about Utah’s economy and the economy throughout the rest of the nation. There is no question that the housing market has cooled, but there are other economic indicators in Utah that still appear optimistic. In an effort to better understand the strength of Utah’s economy Doug Macdonald prepared this handout, an assessment of a number of salient economic indicators, for Monday’s LPC meeting. The factors reviewed are:

• Wages and salaries
• Unemployment claims
• Construction employment
• Residential construction value
• Nonresidential construction value
• Long/short term yield spread
• “Misery index“
• Local sales tax

Each of these indicators is reviewed with either a red, yellow, or green light (green meaning things still look positive). You can view the pdf here: utah-eco-indicators.pdf

 

Best City in America for a job…Salt Lake City

According to a recent article by Forbes magazine the best city in America for a job is right here in Salt Lake City. Forbes utilized five data points to create their city ranking: unemployment rate, job growth, income growth, median household income and cost of living for full-year 2006. Forbes then measured the largest 100 metropolitan areas. Salt Lake City’s ranking was strengthened by a low unemployment rating and a high income growth ranking.

Forbes writes, “Topping the latest ranking of out Best Cities for Jobs list is Salt Lake City. The Crossroads to the West, an economy that has been predominantly driven by the mining and steel industries, has developed into a service-based city and has become a tech sector hub for digerati migrating from Silicon Valley.”

 

Best Cities for Employment

1. Salt Lake City

2. Raleigh, NC

3. Phoenix, AZ

4. Jacksonville, FL

5. Orlando, FL

You can read the full article here: Best Cities for Jobs       Interestingly there are also articles in the paper today about Proctor and Gamble building a manufacturing plant in Box Elder Co. and Ogden city is noted as one of two finalists for the relocation of the U.S. Olympic Cycling Agency.

 

Subprime Mortgages and the Housing Market

Harvard Avenue–not Salt Lake, but Cleveland– once was a vibrant area of Cleveland before numerous foreclosures.

 

The mortgage meltdown is continuing and taking the stock market with it. Countrywide Financial, the nation’s No. 1 writer of mortgage loans, was forced to tap an $11.5 billion line of credit today to address its looming liquidity crunch, and as a response Countrywide is tightening their lending standards.

So what does this mean for cities and towns? Well for some cities the rate of single family home foreclosures are alarming. The number of foreclosures in Cuyahoga County, Ohio (Cleveland metropolitan area) has spiked from 2,500 in 1995 to 15,000 last year. For example, the mayor of Cleveland estimates that 10,000 of the city’s 84,000 homes are now empty. As a result many of the suburbs around Cleveland are spending millions of dollars trying to contain blight.

So what about here in Utah? There are still a lot of reasons to be optimistic about the housing situation here in Utah—or are there? It is becoming a confusing issue, not only is the issue complex due to the nature of subprime lending (I’m still not entirely clear of the mortgage maze of who is exactly backing all the debt…this NY Times graph helps “Mortgage Fault Line”), but the issue is also complex because Utah is always a bit behind the national trend. Utah still has a low unemployment rate and the growth projections are good for the housing industry. However, the costs of homes are now out pacing income levels (which becomes an even bigger concern when mortgage lenders tighten their financing standards). Some local economists are optimistic, others are already starting to notice the housing downturn. For example just take a look at two articles in the SL Tribune and Deseret News today (August 16th):

• Real estate still looks rosy in Utah, local experts say (Deseret News) –The headline for this article doesn’t exactly indicate the content of the article, by the way

• Sales slow for new, ritzy Utah homes glutting real estate market (SL Tribune)

And if you have been a little confused or more curious about the subprime discussion the Urban Institute just hosted a great forum a couple of weeks ago that is podcasted here: The Future of Subprime Mortgages

 

“Comeback of all things local”

I keep hearing about America shipping more and more manufacturing jobs overseas (to China), and the American economy becoming more dependent on foreign countries. I agree with some of this, but not to the extent as the sky-is-falling-critics (you know who you are).

Anyhow, it appears in the midst of this global economy there is a growing demand for local products. Trendwatching, a great independent firm that seeks to forecast consumer trends (through their 8,000 “trendspotters”), has an interesting analysis called (STILL) MADE HERE. They define the (Still) Made Here trend as a comeback of all things local, all things with a sense of place, and how they’re surfacing in a world dominated by globalization. Or to quote Trendwatching, “a growing number of consumers are seeking out the local, and thereby the authentic, the storied, the eco-friendly and the obscure.”

Obviously this doesn’t signal the end of globalization, but it does create an interesting discussion regarding the future economy and the role of municipal economic development. Cities play a vital role in assisting local businesses; the health and development of locally owned stores are definitely an area of economic development where municipal governments have significant influence.

 

Dow Takes a Huge Hit

By now I’m sure you are all aware of the Dow dropping over 400 points today, the largest drop since September of 2001. But the question is what does this mean? Are we headed to a recession? Is the economy as strong as we think? Well the way I understand it there were three factors that really contributed to this huge loss:

• Bomb going off near Vice-President Cheney in Afghanistan (psychological effect)
• Econ number for durable goods released this week lower than expected, down over 7% (appliances, computers, and large goods like airplanes)
• 9% drop in the Shanghai Stock Exchange (huge drop…largest in a decade), some analysts are suggesting that maybe this drop is just equalizing the 130% growth the Shanghai market has experienced the past year…others suggesting it is a response to fears of the government is trying to slow down the economy.

Most seem unsure if this massive sell off will continue tomorrow or not (I watched Cramer describe this as a great buy opportunity). I’m not sure if this indicates a looming recession, but two points are interesting here: 1)This shows how closely we are now tied to the Chinese market (at least an appearance of what it might mean for the global economy), and 2)It is ironic this occurs a day after Alan Greenspan talks about a possible recession by the end of 2007. Click here to read this article.

 

2007 Economic Report to the Governor

The Council of Economic Advisors to Governor Huntsman recently released the 2007 Economic Report to the Governor. We all know the economy in Utah has been good in 2006…but just how good? This report provides important data and details regarding demographic changes, tourism, jobs and wages, and overall growth in Utah. If you don’t have time to read the full 226 page report I at least recommend a review of the 4 page Executive Summary. Here are a few highlights.

• 5.2% — job growth in 2006 (compared to 1.4% nationally)
• 2.7% — population growth (67,714 new residents = a city the size of St. George)
• 18.1% — construction job growth led all other sectors in 2006
• 5.4% — non agricultural wages increase exceeded inflation for the 3rd consecutive year
• 5.4 million residents are expected to live in Utah by 2050…doubling our population in the next 44 years.