By: Elliott D. Pollack - The Monday Morning Quarterback
PHOENIX, ARIZONA -- All eyes were on the latest Fed meeting that was held last week. The overall message was optimism for the ongoing recovery with steady and substantial progress but keeping a watchful eye on the labor market and inflation. The Fed also voted to continue their course in encouraging economic growth by keeping interest rates near zero and continuing government-backed bond purchases at the current level of about $120 billion per month.
If the economy continues its pace of recovery, expect the Fed to first start to taper the bond buying program over time. Despite recent inflation being higher than desired, interest rates are most likely to stay at their current level for quite some time. The Fed would like the U.S. to reach full employment before touching interest rates, which is currently expected in 2023.
Locally, the Phoenix Metro area continues to lead all metropolitan areas in terms of home price increases according to Case-Shiller. Also, air traffic continues to trend toward full recovery. June’s performance was 230% above last year but still 5% below June 2019 levels. Year-to-date performance also still lags 2019 performance.
U.S. Snapshot:
- Real GDP annual benchmark revisions and estimates for the second quarter were released last week. In the second quarter, Real GDP grew at a 6.5% annualized rate (well below expectations) and has finally surpassed its pre-pandemic level. 2018 annual growth was downwardly revised to 2.9% from 3.0%, but both 2019 and 2020 were upwardly revised by one-tenth of percentage to 2.3% and -3.4%, respectively.
- Consumer expenditures increased with purchases of services fueling the growth. June’s 1.0% growth followed a 0.1% decline in May. Personal income had a small decline of 0.1% for the month. It is uncertain how consumer spending behaviors will change due to the rise of new COVID-19 cases.
- The savings rate declined to 9.4% in June, dipping below 10% for the first time since the start of the pandemic.
- Consumer confidence reached a 17-month high in July. There was little change between June’s (128.9) and July’s (129.1) level, suggesting consumers believe in the current strength of the economy.
- June’s new home sales reached the lowest level since the start of the recovery. The seasonally adjusted annual rate declined to 676,000 sales, down 6.6% for the month and 19.4% from a year ago. Sales prices softened month-over-month with a decline of 5.0% but are still 6.1% higher than a year ago.
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- The Case-Shiller 20-City Composite posted an annual increase of 17% in May. That was the heist level since mid-2004. Greater Phoenix led the way (24th consecutive month) with 25.9%, followed by San Diego (24.7%) and Seattle (23.4%).
- Traffic at Sky Harbor continued to improve in June. Total air traffic reached 3.6 million. June’s level was up 230.2% over a year ago but remains 5% below June’s 2019 pre-pandemic level. Year-to-date, total traffic is up 40.5% from 2020 but remains 28.5% below the 2019 level.
Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.