Director's Blog
Monday, July 26, 2010
In memory of Rick Idar
Scott Stroud wrote an excellent story in today's paper on Rick Idar, and while I can't honor Rick Idar any better than Scott, I would like to share my thoughts.
Rick Idar was one of the founders of the University Park Neighborhood Association and served as its president for at least six years, so as director of the St. Mary's Revitalization Project and as a member of the Revitalization Task Force before that, I had the good fortune to work with Rick on the revitalization of the area over the past four years.
He was a very kind man who was very, very passionate about the neighborhood in which he lived and its redevelopment. Much of what has been accomplished in the area over the past few years, and before that, was due to Rick's effort. His passion and drive to make sure the area would thrive going into the future made him a force to be reckoned with. It was a great honor to have been able to work with him. He has left very big shoes to fill, and it will take all of us involved in the revitalization effort to fill them, but if we can follow the example he has left us, we can build upon the solid foundation he built. It was a great honor to know and work with Rick, and he will be sorely missed, but because of him, the neighborhood will thrive well into the future. Rick, may the neighborhoods of heaven now benefit from your presence.
Friday, June 11, 2010
Express News highlights SABÉR's analysis
The lead story in the Express-News this morning was on the InCube Labs' incubator and venture capital fund coming to San Antonio, which was the subject of our recent potential impact analysis.
Read the story in the San Antonio-Express News, including a summary of SABÉR's findings in the tan box towards the bottom of the article.
Stay tuned for a download of the entire report.
Thursday, June 10, 2010
Time to plan for the post-Keynesian era?
Jeffrey Sachs, a very prominent economist and director of The Earth Institute at Columbia University, authored a great article in the Financial Times yesterday. If you are interested in how governments and public policy should react to the current economic situation, as well as his thoughts as to what the response should have been to the recession, it is worth your time to read this article. Click here to read the article. (You may have to register to get it but registration is free).
He makes many interesting points, but I would like to highlight a few.
"Mainstream Keynesian economics is facing its last hurrah." Sachs is not a big fan of the stimulus package, and I understand his argument, but I think given the massive amount of uncertainty in the financial markets and the economy at the time, it was justified. On a more nitpicky point, I do disagree with the aforementioned quoted statement. I have a hard time with the argument that Keynesianism, monetarism, or any of the other macroeconomic theories fully explains the economy at all times. In my mind, parts of particular theories are appropriate at certain times of the business cycle or under certain conditions. I guess the "whirling vortex theory of macroeconomics," as a friend and colleague of mine calls it, makes most sense to me. That is, "a macroeconomy is a whirling vortex of models always in collision with one another." Thus, we may move from one theory to another, but I don't think any of them are going away for good anytime soon.
"We should avoid a simplistic austerity to follow the simplistic stimulus of last year." This is not an argument that the deficits and debt do not matter and we can just ignore them. In fact, he argues quite the opposite in the article. He states that "deficit cutting should start now," but he argues that it just can't be done by slashing government spending. This is a particularly important argument given what is now happening in the EU.
I am very concerned about this situation and the possibility of contagion of the sovereign debt crisis in the EU. To this point, I think Germany's response to their deficits with rather drastic spending cuts may seriously hinder the effort to keep the crisis from spreading. It is not going to help at all if the EU's largest economy takes a turn for the worse. As Sachs states as one of his guidelines, "governments should work within a medium-term budget framework of five years, and within a decade-long strategy on economic transformation."
Within another one of his guidelines, he makes the following outstanding point: "Good jobs result from good education, cutting-edge technology, reliable infrastructure and adequate outlays of private capital, and thus are the outcome of years of sustained public and private investments. Governments need actively to promote post-secondary education." Exactly! It's very difficult to build a strong economic house if the foundation is weak. This applies to local, regional, state, and national economies.
Thursday, June 10, 2010
Creative firepower could be big spark for San Antonio’s economy
I encourage you all to read this article from the San Antonio Business Journal called "Creative firepower could be big spark for San Antonio’s economy"about the creative economy in San Antonio by W. Scott Bailey.
Wednesday, May 5, 2010
How might the Gulf oil spill affect the San Antonio economy?
The oil spill in the Gulf of Mexico is a calamitous environmental disaster. It has the potential to devastate wildlife populations; the marsh lands along the Gulf Coast; the livelihoods of those working in the tourism, fishing and shipping industries; and the economies of Louisiana, Alabama, Mississippi, and Florida that are still struggling to recover from Hurricane Katrina. These are the oil spill's costs and impacts at the forefront of most people's minds, as they should be.
But the impacts of this oil spill extends beyond the regions directly impacted by the oil, and one of this blog's purposes is to discuss the potential impacts of national and global events on the San Antonio economy.
Impacts Felt at Home
First, it appears that Texas is going to be spared much direct damage from the oil spill according to what I have read, so we will experience nothing like the people and wildlife living on the Gulf Coast will experience. So, what will be the impact on San Antonio?
At first glance, it seems logical that the effect of the oil spill on San Antonio might be felt through higher gas prices. I am not so sure that is the case, though. Gas prices have increased by about a nickel over the past week covering the period when the severity of the oil spill was first announced. While the oil spill may have had some effect on the increase in gas prices over this short time period, I think it was more likely a response to good economic news (e.g., the announcement of GDP growth of 3.2%) and the natural increase in gas prices starting about this time as we head into summer and the Memorial Day holiday. It is estimated that 5,000 barrels of oil are leaking into the Gulf each day. From what I have read, it will be a couple more weeks at least before they can plug the leak, so if we assume twenty days of oil leaking into the Gulf, that amounts to about 100,000 barrels.
According to the U.S. Energy Information Administration, U.S. crude oil production in 2008 was 9,783,000 barrels per day. Even considering only U.S. production, the overall amount being spewed into the Gulf is a very small amount of the market. Based on these numbers, it is difficult to see how this will affect gas prices very much, unless it keeps the crude from getting to the refineries, which brings me to the where we might see the impacts in San Antonio.
Where Will We Pay?
While we may not pay more at the gas station, it is likely we will pay more at the grocery store. Most obviously, we will see seafood prices increase and probably for some time into the foreseeable future, but we are also likely to see price increases in a variety of other goods. This is due to the distribution problems that the oil spill may cause.
For example, according to data provided in a report on blog.al.com, covering news on the state of Alabama, "the Port of New Orleans handled 73 million tons of cargo in 2008," with 245,000 tons of coffee and 260,000 tons of rubber coming through the port. "Upriver is the Port of South Louisiana, the nation's busiest port with 224 million tons of cargo a year - mostly grain, other agricultural commodities and chemicals. Farther east lies the Mississippi's Port of Gulfport, the nation's second-largest importer of green fruit." If this cargo is slowed getting through the ports or has to be redirected through other ports, there is a chance some of the agricultural commodities might spoil reducing the supplies of some fruits and vegetables, grains, and other foodstuffs. Redirection of the cargo will increase costs which may also be passed through to the consumer. The ultimate result will be higher prices for a variety of goods from fruits and vegetables, breads, coffee, and other agricultural commodities to tires and other rubber-based products, among many others.
Tourism Takes a Hit
Additionally, I am sure there are people who have vacations planned in the areas along the Gulf Coast that will be polluted by the oil who will not be able to take those vacations. There is also the psychic cost to many San Antonions of the environmental damage and the death of wildlife caused by the spill. This may be shunned by some but can be quite a substantial cost to those it does affect.
I have no idea of the actual dollar value of the overall cost to San Antonio. It is safe to say, though, that it will be nowhere near the magnitude of the costs borne by the communities directly damaged by the oil.
Friday, April 9, 2010
An Economy in Transition: A Summary of the Economic Trends Monthly April 2010
As I wrote this summary last Friday evening, I was sitting in front of the television tuned into the Masters replays while drinking a glass of wine and analyzing the current plight of the economy on a Friday night. It was a good night!
And the economy is starting to generate more good nights. According to the gross domestic product measure the U.S. economy grew at an annualized rate of 5.6% in the fourth quarter of last year. While I do not believe this rate is sustainable this year, I think it is reasonable to expect that the economy will show some signs of growth this year of around 2-2.5%. The housing market nationally is at least reaching its bottom it appears, but that said, I am not too optimistic about the consumer being ready yet to start purchasing houses at a rate that will spur a terribly strong recovery. For instance, delinquencies on single-family mortgages, and while the credit markets are starting to at least loosening up a bit, the mortgage market is not there, yet, and with all of the regulatory changes (albeit reasonable for the most part) in this market, I think there will be a bit of an adjustment period. The big negative in the economy is still the labor market with unemployment coming down slightly but remaining at 9.7% over the past three months. Employment levels are starting to pick-up, but initial claims for unemployment are still at levels that will not pull down the unemployment rate. While I think unemployment will come down some this year as the economy continues to grow, profits continue to grow, and businesses gain confidence in the recovery, we might actually see it tick up a bit as those who are not in the labor market at this moment due to their discouragement begin to enter the labor market and look for jobs.
Locally, the picture continues to be somewhat brighter in San Antonio. The Texas economy appears to be turning the corner, if it has not already done so. The leading index for Texas indicates that the economy should be heading upward in the near future, and the business cycle index increased in January for the first time since July 2008. The business cycle index for San Antonio and the other major metropolitan economies also indicates they are starting to turn the corner. The unemployment rate in San Antonio in February was at 7.2% and had been fluctuating around that level for the past few months. While the employment levels declined 1.3% in February, the trend indicates that the labor market has reached its bottom and is starting (or will start) to turn the corner soon. I am projecting that employment will grow around 2.0% this year. The local housing market also appears to be turning around with home sales increasing and growth in listings nearing positive territory. However, home prices did fall 3.20% and inventories increased to 7.8 months in February. Overall, I think the San Antonio economy will at least grow simultaneously with the U.S. economy, if not lead the way out of the recession this year.
Friday, February 12, 2010
San Antonio Hispanic Chamber of Commerce partners with HEB in Paella Cook-Off
I hope you'll come out to the Pearl Brewery on Sunday, March 14, for an Iron Chef-style competition among celebrity chefs!
Friday, December 11, 2009
Retail sales gain in November: Is it sustainable?
The U.S. Census Bureau reported today that retail and food services sales in November increased 1.3% from October and 1.9% from November of last year. This is apparently higher than what was expected. It was also a fairly broad gain with only furniture and home furnishing stores, electronics and appliance stores, building material and garden equipment suppliers, miscellaneous store retailers, and food services and drinking places showing declines compared to November 2008.
Nonstore retailers (i.e., electronic shopping and mail order houses) showed strong gains probably indicating that many people were doing some of their holiday shopping online. Motor vehicles and part dealers and gas stations also showed strong gains.
This is all very good news, and it is a strong start to the holiday shopping season. It is going to be vital for the economic recovery that consumers get re-engaged in the economy at some level beyond where they are now. However, the key question remains to be answered:
Is this pace of holiday spending sustainable? Based on the reports I have read from various retailers, I am not so sure that it is. The reports I read indicated that the crowds of shoppers were larger than last year, but they were really focused on the bargain items. This makes me wonder if many consumers went out right after Thanksgiving to get the bargains and are now mostly done with their shopping. If this is the case, it certainly does not bode well for a strong holiday shopping season, but I do think that we will see stronger sales throughout the season relative to next year. I am just not that confident that they will be at the level of gains we saw in November.
Tuesday, December 8, 2009
It's all about the churn
I recently saw a blog post by Tom Peters, the management guru, on his website www.tompeters.com titled, "The Mess Will Save Us. Eventually." "The Mess" he is talking about is the churn in the economy, specifically the churn of jobs - the destruction of jobs and the creation of new ones. Economies churn businesses as well. This business churn is derived from the creation of new businesses and the dying of existing businesses. It is the churn of businesses that Joseph Schumpeter called "creative destruction." Even during good times, economies are constantly churning. In fact, one could argue that it is this churn that creates downturns and growth in economies.
Without it, economies become stagnant like a pool of water with no movement or flow in it. As Tom Peters states:
We tend to think of the jobs economy in terms of jobs lost at the likes of GM and jobs added at the likes of Google. And thinking in such a manner is misleading, and downright dangerous. The fact is that the American economy in particular is an economy of churn--always adding and subtracting jobs at an incredible rate. Forbes (16 November) presents some stunning statistics:My own research, as well as that of others, has shown that this churn is vital to having a healthy economy. During all of the dismal news of job losses at large companies, we need to be remember that it is small businesses that drive the economy, and it will certainly be small businesses that will drive us out of this recession.
Between September 2008 and September 2009 we lost about 6 million jobs. That's a crushing blow no matter how you look at it. But if you think that the likes of propping up staggering giants such as GM is the answer, think again.
Question: How do you (we!) arrive at a loss of 6 million jobs?
We added--yes, I said ADDED--51 million jobs. And we lost 57 million jobs.
That is, bizarre as it may seem, in the space of a year there was a churn of over ONE HUNDRED MILLION jobs.
Put simply, we "do" churn, painful though the constant dislocations may be, better than anybody else--i.e., our labor markets are the least sticky outside the likes of India or China. I lived with astoundingly productive mega-churn for over three decades in Silicon Valley. It isn't pretty--but over the long haul it works...
Wednesday, November 11, 2009
Economic Trends Monthly - October 2009 Summary
I think you will find some interesting (and positive) information in this report. Of course, the big news is that U.S. GDP grew by 3.5% in the third quarter with both personal consumption expenditures and residential investment showing increases of 3.35% and 23.28%, respectively, over the previous quarter. Given this one quarter of growth, many have proclaimed that the recession is now over. This is obviously great news. But, is it really over? Sorry to be pessimistic, but I am struck by the fact that we seem to have a much higher standard for determining when we are in a recession compared to determining when a recession is over. The “old” definition of being in a recession is two consecutive quarters of decline in GDP. However, those who actually date when recessions begin and end look at a much broader definition of recession and consider a broad range of economic indicators. We have one quarter of increase in GDP, and we are out of recession. So, by the old definition, we have to have two quarters of decline but apparently, only one quarter of increase in GDP means the recession is over. This does not make sense to me, especially in the current economic climate. Looking at a broader range of indicators, it is hard for me, anyway, to make the call that the recession is over.Even if the recession is “officially” over, how can we say it is really over when unemployment was just reported to increase to 10.2% in October – a big jump from 9.8% in September – and the economy is still in a rather tenuous position, in my opinion. Please don’t get me wrong, it is good that GDP grew in the third quarter and that we are seeing some other positive signs in the economy like a rising stock market, some good earnings reports, and better indicators in the housing market. I am just not ready to breathe a sigh of relief, since I don’t think the economy is on solid footing, yet, and might take a while to get there. But, it is starting to move in the right direction.
There are several reasons why I am not in the quick recovery camp. First, I have no forecast about where the stock market is going, but I do have to wonder about how solid the increase is given that it has risen so rapidly in such a short period of time. Is it really rising because of solid economic fundamentals? I am not an expert in the stock market, but I have my doubts. In a recent article in the Financial Times, Nouriel Roubini, one of the few economists who predicted the current economic crisis, argued that the availability of cheap dollars has created another bubble in risky assets through the carry trade. The carry trade is a method by which investors borrow funds in dollars (already cheap for foreign investors) and pay the low interest rates. They then use this money to buy other assets with higher yields making profits on the interest rate spreads and the potential gains from shifts in the currency they borrowed. These investors have to sell these dollars to buy foreign assets, which explains, in part, the decline in the dollar recently. As interest rates increase sometime in the near future, this carry trade could unwind causing a popping of the bubble. This may not happen over the next few months, but it can happen very quickly.
Second, while the housing market has given us some better news over the past few months (especially in San Antonio – see below), there are still a very large number of adjustable rate mortgages that are due to adjust in the very near future. This will cause more foreclosures and put even more pressure on home prices.
Third, the huge banks that have been reporting the large positive earnings recently are able to do so because of their investment banking and trading activities. However, the banking side of their business still has some issues to work through, especially as commercial loans are starting to become a bigger problem.
Fourth, the Federal Reserve has pushed over a trillion dollars of liquidity into the economy in response to the crisis, and unwinding all of this may be a more difficult task than responding to the crisis in the first place. As the economy begins to recover and this liquidity starts to actually flow, it could create some strong inflationary pressures. This will cause the Fed to have to pull this liquidity out of the market, but they will have to do it in such a way and with the proper timing so as to not slow the growth of the economy too much.
Fifth, while the weak dollar does help increase U.S. exports, it will compound the inflationary pressures when those arise, assuming the dollar is still weak. Sixth and arguably the most important issue is how engaged the consumer is going to get in the economy once their confidence begins to come back. I would not be surprised if it takes a year or so before consumers start showing some really strong consumption patterns. This is not to say that consumer spending won’t increase in the near term, but given the debt loads consumer’s are still working through, the high unemployment rates and the time that it will take for the labor market to recover, and the increased savings rate, it is just difficult for me to make a case for strong consumer spending over the first half of next year or even longer. Again, that is not to say that it won’t be increasing, I just don’t see a return to more “normal” spending levels for a good while. All of this just argues that we will most likely see a more U-shaped recovery rather than a quick bounce resembling a V-shaped recovery.
Some have also made the prognostication that San Antonio’s economy is also no longer in recession. I certainly hope so, but I think the same arguments about the U.S. economy apply to the San Antonio economy, as well, especially with the unemployment rate climbing to 7.1% in September and most likely going higher. Relatively speaking, though, our economy certainly has not seen as deep a recession as other local economies, and we are even starting to see nice improvements in some areas of the economy, including the housing market. For example, home sales actually increased in San Antonio by 0.50% in August compared to August of last year, and even better, home prices also increased in both July and August (on a four-month moving average basis) compared to prices last year after 19 consecutive months of decline.
However you define the end of the recession, it does seem that the economy is beginning to turn the corner, albeit somewhat lethargically. As I have mentioned before, I think this will be a slow recovery before the economy approaches more normal rates of growth. That said, it is likely that 2010 will be a year of recovery, which is much more than we could say as we moved into 2008 and 2009.
Wednesday, July 29, 2009
Economic Trends Monthly - July 2009 Summary
Well, let’s begin with some good news...from the housing market, no less.
- Housing starts increased in both May and June from the previous month.
- The house price index published by the Federal Housing Finance Agency showed an increase in house prices in both California and Florida in the first quarter of this year.
- Months in inventory in the U.S. declined in both May and June to 9.8 and 9.4, respectively, compared to a rate of 11.1 months in June 2008.
- From May to June, sales prices of existing home increased across the country (data not seasonally adjusted), but compared to June 2008, they are still down 15.4%.
- Houston actually experienced an increase in the median sales price of existing homes in June compared to June of last year (i.e., that market is actually showing some appreciation by this measure), and the other major metro areas, while still experiencing lower home prices compared to last year, are seeing those differences get smaller for the most part.
- According to the S&P Case-Shiller home-price indices, without seasonal adjustments, U.S. home prices increased from month-to-month in May for the first time in about three years. With seasonal adjustments, the home prices declined. However, this is another data point showing that the collapse in prices compared to last year seems to be slowing. As they report, “after 16 consecutive months of record annual declines, beginning in October 2007 and ending in January 2009, the indices have now shown four consecutive months of improvement in annual returns.”
- According to the U.S. Commerce Department, new home sales increased 11% in June compared to May, the third consecutive month-to-month increase. However, compared to June of last year, sales were down 21.3%.
- Existing home sales were also up across the country in June relative to May. They were down in San Antonio. Compared to June of last year, they were down, and in San Antonio they were down 14.24%, which is actually a good number. Sales of existing homes have been declining at a rate in the neighborhood of 20% or greater for the past several months in San Antonio.
The earnings reports from many companies added some good news, as well, especially in the banking industry. While I certainly hope the banks continue to report strong profits in future quarters, I still have some concerns. It seems to me that much of their profits were derived from mortgage refinancings, increased investment banking activity, and sales of some assets. For the most part, loan portfolios are still shrinking and delinquencies are still rising. I am not a banking expert, but it seems the two may be related as the banks hoard cash in order to manage the delinquencies. In fact, credit card loan delinquencies are over a percentage point higher in the first quarter of this year than their previous high point going back to 1991 (as far back as I can get data). I have been beating the drum of concern about the credit card debt and possible defaults with other types of debt for quite a while, but it is important because, as previously mentioned, it seems that the banks may not resume expanding their loan portfolios until they are comfortable that this potential wave of trouble has passed. This lack of new lending activity is a bottleneck to the recovery (see the quote in the Economic Tidbits section).
The gains in the stock market, somewhat driven by these strong earnings reports, have also been positive news. The severe declines in wealth caused by the collapse of the housing market and large fall in the stock market are a big reason why consumers have reduced their spending and in large part, why we are in this recession. Thus, solid improvements in these two markets are necessary to fuel the economic recovery.
I wish I could just stop there with the good news, but unfortunately, while the economy is showing some relatively positive signs, it is still in a recession. Unemployment increased to 9.5% in June, and I expect it to continue to increase in the near future. It is almost a certainty at this point that it will breach the 10% level. Even if we do see a technical end to the recession defined by positive growth in GDP, we are most likely going to see unemployment continue to increase. I am not ready to say that this will be a jobless recovery, but I do believe that it is not going to lead to big gains in employment as we technically come out of the recession. Poor employment prospects are also feeding a decline in consumer confidence as reported today by The Conference Board. This does not bode well for consumer spending.
The San Antonio economy, along with the Texas and other major metropolitan economies, continue on the same track of wrestling with the recession but faring much better than the national economy and other metropolitan economies throughout the nation. The unemployment rate in San Antonio jumped to 6.9% not seasonally adjusted, but much of this increase was due to seasonal factors, as evidenced by the seasonally adjusted unemployment rate only increasing to 6.3% in June. Compared to the 9.5% national unemployment rate, our economy is doing pretty well. Additionally, the San Antonio compares very favorably to the other major metro economies in the state, as well as the rate for Texas at 7.5%. However, our employment levels shrank by 1.7% in May, while Austin and Dallas were the only major metros to show growth in May. As already indicated, the San Antonio housing market continues to weaken, but like the national market, it appears to be weakening at a less rapid clip.
Overall, I still think we will not begin to see an economic recovery nationally until the beginning of 2010 (maybe the end of this year), and I don’t mean a technical end to the recession. I am talking about a sincere recovery. I also still see no reason why San Antonio’s economic recovery won’t coincide with the national recovery.
Tuesdsay, July 14, 2009
Is another economic stimulus necessary?
The Wall Street Journal recently reported the results of their survey of economists. Of the 51 economists who responded, 43 were against another round of economic stimulus. I would agree for a few reasons.
First, most of the initial Obama stimulus hasn't even been injected into the economy, yet. I have not run the numbers, but from what I've read, only about 10% has "hit the streets." In fact, a large portion is not scheduled to be released into the economy until next year - a bit slow in my opinion. We need to give this stimulus a chance to work. Second, the economy has at least hit a stage where the sheer panic has disappeared for the most part. This does not mean it has hit bottom, yet, but I think we are at least starting to see the plummet to the bottom slow. Thus, we need to give the economy time to work on its own. Its own efforts, so to speak, combined with the planned stimulus, looks like it might be enough to get us around the dark corner.
Third, I agree, for the most part, with the actions that have been taken to address the economic ills, but I am very concerned about the swelling of the debt. This needs to be at top of mind if another stimulus is even considered. As I have written before, there are still some potential major problems that could hit the economy, but more stimulus spending should only occur if absolutely necessary.
Tuesday, June 10, 2009
In the latest issue of Economic Trends Monthly, you'll find a couple of slides on the new employment numbers for May since they were just released. There are many, many indicators of the state of the economy, of which a small portion is captured in this report. Every now and then, I come across an indicator that is a bit out of the ordinary in that it is one that I, anyway, would not think to monitor. And, there are those that are out of the ordinary because they are just odd. Rob Chrisman, who publishes the Daily Mortgage News and Commentary online at www.robchrisman.com discussed an indicator that falls in the former type of out of the ordinary. The quote from his newsletter follows.
“I guess when people become tired of Ben Bernanke, they look back at Alan Greenspan. The former Federal Reserve chief’s favorite economic indicator is men's underwear sales. Supposedly, Greenspan often said one of the first things men stop buying when the economy is doing poorly is underwear, because it's something no one really sees. You can reason that when men start buying new boxers and briefs, it means the economy is turning around. Interestingly, after a 12-month, 12 percent decline through the end of January, men's underpants sales leveled off during February and March, according to NPD (a group which tracks clothing trends). That suggests the economy is stabilizing, right? Usually it goes up two to three percent annually – don’t ask me why, as I would think it would hover around population growth – so a return to that would be a good sign.”Well, I don’t know that I would put too much stock in this as a predictor of the economy, but there seems to be some logic to it. Is the economy stabilizing? I can’t bring myself to say it is stabilizing because to me that indicates that there is a leveling off (i.e., the economy is hitting some inflection point whereby it is about to move from decline to growth in this case). Wow, that statement in the parentheses was quite nerdy; sorry, I got a new pocket protector today, so the nerd juices are flowing. Anyway, there are indications that the decline in the national economy is starting to slow, but I don’t think it has quite hit bottom, yet. This can be seen a little bit in the employment numbers that were released last Friday, as I am sure you have heard.
A couple of data points are present in this report. The key statistics reported are that employment fell by 345,000 in May and the unemployment rate increased to 9.4 percent from 8.9 percent in April for the U.S. The good news (to the extent any of this can be called "good") is that the level of job losses was the lowest sincebounce back fairly quickly, but at some point, the Fed will have to increase interest rates to slow inflation causing another slow-down but not nearly as deep as this one. The other possible scenario is that the economy will stagnate at bottom for a while before beginning a solid recovery. It is likely that the San Antonio economy will follow the pattern of the U.S. economy, although not as dramatically.
In conclusion, let me take a little space for some self-promotion. In the three years I have been doing this report, I have never done this, and I pledge that it will not be a regular occurrence. I am now blogging on the mysanantonio.com Web site. As you might expect, I am writing about the economy, but I also occasionally mix in a few unrelated items of interest. So, if you want to catch my thoughts or even comments in between issues of the Economy Trends Monthly, please visit my blog.
Wednesday, May 26, 2009
Economic impact of buying from local businesses
I am currently reading Animal, Vegetable, Miracle by Barbara Kingsolver. In her chapter on "Eating Neighborly," she makes an interesting statement about the economic impact of buying local.
"Buying your goods from local businesses rather than national chains generates about three times as much money for your local economy. Studies from all over the country agree on that, even while consumers keep buying at chain stores, and fretting that the downtown blocks of cute mom-and-pop venues are turning into a ghost town. Today's bargain always seems to matter more."
While she does not cite any specific articles of research to backup her claim, there is a bibliography in the back of the book with articles that appear to be her support for this claim of the impact of buying local. Either way, she raises an interesting question or questions: Does buying local really "generate about three times as much money for your local economy" relative to buying from national or international chains? It is the claim of the large chains that they are able to charge lower prices, and thus, they improve the standard of living of the community. This begs the question: Does buying local improve the overall welfare of the community more than buying from large, non-local chains?
The romantic notion of buying local that appeals to me so much (although I spend my share of money at large, non-local chain stores) makes me hope the answer to the latter question is a resounding "yes," but I am not so sure if that is the case.
Also featured on mySA blogs: 
Wednesday, May 26, 2009
The unemployment rate in San Antonio - Seasonally vs. Not Seasonally Adjusted
Late last week, the Texas Workforce Commission announced that the unemployment rate in San Antonio had plunged to 5.4 percent in April. Before getting too excited about this, we have to realize that this is without any seasonal adjustments. When the seasonal adjustments are made to this data, the unemployment rate in San Antonio actually stands at 6.0 percent - only a 0.1 percentage point decline from April.
This is still very good relative to the national unemployment rate of 8.9 percent, and it is nice that the unemployment rate declined in April by any amount. While I can't put my finger on the reasons for the large discrepancy between the non-seasonally adjusted and the seasonally adjusted figures, I have always argued that the seasonally adjusted number is the one to watch. Furthermore, I still expect that the unemployment rate in San Antonio will restart its upward climb over the next several months, as it pushes toward 7 percent. Sorry to be so dismal, but I really do not think we are out of the recessionary woods just yet. We have a ways to go.
Also featured on mySA blogs:
Wednesday, April 29, 2009
Economic Trends Monthly Summary, Covering Data Through March 2009
The cover story in the April 27, 2009, issue of Business Week was titled, “What Good are Economists, Anyway?” It is a good question, and one the profession is asking itself, if not in such a direct manner. I hope we are good for something, but if nothing else, I hope the Economic Trends Monthly report continues to be useful.
The U.S. economy, as I am sure you are well aware, is still not showing signs of recovery. However, for the first time in a long while, there has been some good news reported about the economy since the last report, especially with respect to some of the corporate profits. Most surprisingly to me is the profits being reported by some of the large banks, but while I am no expert in reading the financials of a company, it seems that some of the profits being reported by the banks may be somewhat buoyed by the federal monies they have received. A couple of other indicators of the health of the economy (e.g., retail spending) have shown slight improvements, but they are more an indication that the precipitous fall of the economy over the past six months may be slowing. Unfortunately, I have not seen any numbers, yet, that indicate to me the economy has hit bottom and is on the rebound. Even the rather large rise in the stock market recently does not mean, in my opinion, we have hit bottom, but it is a positive leading indicator.
Employment continues to fall at a record pace and consequently, unemployment continues its rapid rise to 8.5 percent in March. Delinquency rates on mortgages, consumer loans, and credit cards continue to increase, and there are reports that the default rates on commercial loans are increasing. As I have mentioned before, we have to be aware of the potential of a couple of more waves of bad debt hitting the banking industry from any or all (hopefully not) of these areas. I don’t mean to be alarmist, but given that many of the adjustable rate mortgage loans are about to come up for adjustment combined with the intense financial pressure that consumers and businesses are feeling as the recession continues to deepen, I think it is worth watching. I hope I am wrong.
Prices fell 0.47 percent in March of this year relative to the same period last year, allowing some to maintain their concerns about deflation. I am still not of the mind that we are going to see a period of deflation. In fact, as odd it may sound, I am somewhat concerned about the exact opposite – an ignition of relatively high inflation as the economy starts to recover toward the end of this year.
This is a nice segue into a brief discussion of the shape of this current business cycle. There is much discussion as to what the recovery will look like. In other words, will the economy bounce back quickly (V-shaped)? Will it be L-shaped where the economy hits bottom and basically stagnates as Japan did in the 1990s? Will the economy hit bottom and take some time to start its recovery creating a U-shaped cycle? Or, will we have a double-dip recession forming a W-shaped cycle? (Economists are really just mathematician wannabes, so maybe this is our homage to those who study geometry. You may have heard the old joke that economists are just people who are good at numbers but who do not have the personality to be accountants. Maybe this means we are not good enough at numbers to be mathematicians, but we have better personalities. Sorry for the digression, but these tough economic times caused much inward reflection amongst us economists.)
Anyway, I think there is a decent chance that we will experience a W-shaped cycle. The reason being is that the Federal Reserve has pumped so much money into the economy that once it is finally released into the economy, as the economy recovers or causing the economy to recover, it could cause prices to rise rather rapidly. This may force the Fed to raise interest rates to slow the inflation causing the recovery to slow. If we do face this sort of double-dipped recession, I do not think the second downturn will be nearly as deep as the current downturn leading to more of an odd-shaped W than one that looks like the W on this page. Hey, I never said economists were good at geometry.
So, what does this all mean for the San Antonio economy? As I believe I mentioned in the previous report, Texas and the major metropolitan areas, including San Antonio, are experiencing the full force of the global recession. This is illustrated in the statistics across the board. The unemployment rate in San Antonio increased to 6.1 percent on a seasonally adjusted basis in March (the lowest among the major metropolitan economies), and our demeaned unemployment rate increased to 1.27 percent. Our employment growth declined in March at an annualized rate of 0.3 percent. The employment growth numbers is very volatile but I expect it to fluctuate between slightly negative and barely positive over the next several months. I also expect that our unemployment rate will continue to increase towards 7 percent. The business cycle index published by the Federal Reserve Bank of Dallas has fallen for nine consecutive months in San Antonio and fell 4.04 percent on an annualized basis over the six months from September 2008 to March 2009.
Most of the other major metropolitan areas are experiencing similar declines with Austin seeing the largest decline. Houston’s economy has also softened considerably over the past few months since oil prices have fallen. The Business Leaders Confidence Index® published by BBVA Compass and the IC2 Institute shows the composite index of 34.8 for San Antonio in the first quarter. While this is the highest index among the other major metropolitan economies, it still indicates a weakening economy (an index over 50 indicates an expanding economy). The story in the housing market remains the same as it has been for several months, now. Home sales in San Antonio fell 25.33 percent in March compared to March of last year, and inventories increased to 8.4 months. Even with all of this weakness, we are still seeing home prices hold up relatively well with only a decline 1.14 percent in March over the prices in the same time period of 2008.
Thus, it seems clear to me that San Antonio, Dallas, Fort Worth, Houston, Austin, and the entire state of Texas are all in recession. It took our economy about a year after the national economy went into recession before it started dragging our local economy into recession. Does that mean it is going to be a year after the national economy begins to recover that San Antonio will begin its recovery? No, I do not think so. In fact, I think it will be the case that we will pull out of our recession pretty much simultaneously with the recovery of the U.S. economy. On the other hand, if the U.S. economy does experience a W-shaped recovery, I think San Antonio and Texas will have a somewhat similar experience. I still think we will start seeing a recovery toward the end of this year, but as I previously mentioned, there is still much uncertainty in the economy. The big caveat in the forecast of the recovery beginning at the end of this year is the condition of the financial industry. If some of this other debt goes bad, as previously mentioned, or they are still working their way through the initial subprime wave, the recovery will be postponed.
As always, I appreciate your continued interest in the report, and I hope you find it useful, even if your answer to the question posed by Business Week is, “I don’t know.”
The Alphabet of the Business Cycle - Friday, April 17, 2009
There is much speculation about which letter of the alphabet our economy will follow as it continues into its recession and begins its recovery. Will it be L-shaped indicating an economy stagnating at the bottom of the cycle similar to Japan in the 1990s? Will it be V-shaped indicating a quick rebound from the depths of the recession? Will it be U-shaped indicating the economy will recover slowly once it hits bottom? Will it be W-shaped indicating a double-dip recession?
I am thinking there is a real chance that it will be W-shaped. Here’s why. The Fed has pumped a huge amount of money into the economy and continues to do so. The problem is that this money is not making it into the economy. It’s like running water through a hose that is kinked. It runs until it hits the kink and then stops. The money is being pumped into the banking system, but it is kinked. Eventually, though, the kink will be removed and the economy will start to recover in earnest as this money floods through the economy.
The catch is that it could cause the economy to overheat (as hard as that is to think about right now) and fuel inflation, which may cause the Fed to slam on the brakes, so to speak, by raising interest rates. This will be a delicate balance for Ben Bernanke and his gang at the Fed, and the raising of interest rates that will be necessary to slow the rise of inflation could cause the economy to experience a dip after its initial recovery.
I do not think this will be a dip that is severe as the one we are experiencing now, but I do think the economy could experience some slow growth after the initial spike. Thus, this may be an odd-shaped W with the right-hand side of the W not so V-shaped but rather, shaped more like a U without the dip all the way to the bottom.
Monday, March 9, 2009
The Texas Workforce Commission issued their employment report for January today (available at the Texas Labor Market Review). It indicates a pretty dramatic jump in unemployment in San Antonio from 5.3 percent to 6.3 percent (not seasonally adjusted). As you can see in the graphics, the decline in employment is broad based with all industries showing a decline in employment. Overall, employment declined 2.22 percent in San Antonio from December 2008 to January 2009 with retail experiencing the largest decline at 3.83 percent.
It is worth noting that on a seasonally adjusted basis, unemployment increased from 5.6 percent in December to 5.9 percent in January. The decrease from 6.3 percent to 5.9 percent with the seasonal adjustment is probably due to a downward adjustment of the retail decline. Either way, these are some pretty sizable increases, but it is interesting that San Antonio now has the lowest unemployment rate among the 4 major metro economies. On a seasonally adjusted basis, the unemployment rates in these economies are as follows:
San Antonio = 5.9 percent
Houston = 6.1 percent
Austin = 5.9 percent
Dallas/Ft. Worth = 6.7 percent
Given the broad-based decline and the size of the increase, it seems to me that these numbers indicate that San Antonio is now feeling the full force of the global recession and will continue to do so for the next few months at least.
Click images for a larger view.
NewPresentation from the 2010 Mid-Year Economic Update |
Contact
|
For more information about the SABÉR Research Institute, or to contract a research report, please contact: Steve Nivin, Ph.D., Director and Chief Economist (210) 431-2058 |
|
