Read the original article from ArizonaEconomy.com, a product of Elliott D. Pollack & Company, here.
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
We’re still learning. Fighting COVID-19 remains a work in progress. But we have learned a lot. We have learned that masks, social distancing and staying away from crowds are important. We have learned that masks not only protect others but also protects the wearer. We have learned that being exposed to someone who might have COVID-19 for a length of 10 minutes or more of time is a bad idea. We have learned that for most under 55 without compromised immune systems, death risks exist but are very low. And we have learned that it is unhealthy to turn off an economy, not only because of the financial, physical and psychological damage it causes, but, because economies are much more difficult to restart than to stop.
But, we have also learned that it is tough for many in the Gen X, Millennial, and Gen Z generations to take seriously fighting an enemy that is not only invisible but seems to not cause serious consequences to them personally. We have also learned that being sequestered for any length time is not what people want to do. We have learned that too many people think that since they are no longer sequestered that the party is on almost regardless of consequences. It’s tough to fight an invisible enemy. It’s tough when you read about it but don’t see any serious damage to your friends. But it is time for those under 55 who have not yet been doing so to act responsibly. It’s also time to learn. And if there are those who won’t learn, it is time to enforce.
For Boomers and the Greatest Generation, the lessons are easier to take to heart. The consequences are much more evident and more severe. You also don’t have a lot of 75-year-olds hanging around bars or graduation parties.
Arizona, in my opinion, is lucky. It’s a great place to live, to work, and to raise a family. It has wide open spaces and lots to do. It had a thriving economy prior to COVID-19 (and in relative terms still does). So far, politicians have learned and acted. Whether the actions are strong enough to get those who ignore reality to take note remains to be seen.
We do know this. When it was evident that it was time to reopen, the state reopened in phases, but, it was a start. It was done in a manner that basically gave the individual the choice on whether to act responsibly or not. When it became evident that there were too many who thought the war was over (even though it clearly wasn’t) and that something was wrong because the number of cases of COVID-19 started to grow rapidly, additional actions were taken. Let’s see if last week’s actions related to masks, social distancing and crowds will work. If not, enforcement will have to become a lot stricter. It just depends on how responsible individuals become. Hopefully, this is all that’s needed to enforce the social contract that is implicit in current events. If not, then more actions will need to be taken and quickly. If we don’t do that, the damage to the economy and to the emotional, physical and financial well-being of virtually everyone in the State will be at issue.
Arizona shot itself in the foot in the 1988-1992 economic period. There was a real estate debacle, the Martin Luther King fiasco, the impeachment of a Governor, the loss of a Super Bowl, and the loss of our Savings and Loan system. Then we did again in 2006-2009 with SB 1070 and a real estate depression. We went from a top two economy to a bottom two economy. But, the state showed its resilience and underlying strength by recovering strongly.
This time around we are in better shape politically and economically. But, to avoid shooting ourselves in the foot again with all the attendant bad publicity (this lengthens the time it takes to recover) we need to make good choices. And, as stated above, the choices are obvious. It’s time to get serious!
As we have said since day one, this pandemic doesn’t end until there is a vaccine or a pill that mutes the physical impact of this virus. Humans have an almost unlimited capacity to learn. They might not want to. They might not like what it means. But, they do learn. That is what is going on now. I’m optimistic about Arizona’s chances.
A look at the most recent short-term data shows that we are still making slow progress. U.S. hotel occupancy increased to 43.9% last week. That’s down about 40% from last year and compares to the previous weeks number of 41.7%. In Arizona, the hotel occupancy rate was 37.5% in May. That’s better than the U.S. 33.6% average for May but is down from the state’s May, 2019 figure of 68.9%. TSA weekly traveler throughput at airports nationally was up to 3,609,878. While that’s a vast improvement over the 1,839,139 figure of a month ago, it’s still down 79.9% from last year.
Seated diners were down 65.7% from a year ago nationally. But, a month ago it was down 90.8% from year earlier levels. This number might slide a little given current events. In Arizona, seated diners are down 53.4% from a year ago. This compares to down 68.0% a month ago Greater Phoenix is down 68.3% from a year ago. The Google mobility index shows that movement to the workplace was down 29.3% (nationally) from a year ago. A month ago, it was down 35.7%. In Arizona, it was down 29.3% and in Greater Phoenix and Greater Tucson it was down 31.7% and 29.3% respectfully. Again, these are minor improvements.
As you can see from the three attached charts, the number of COVID-19 cases reported in the state increased dramatically since the state opened. The number of COVID-19 deaths, despite changes in methodology that changed some of the history, is still moving in the right direction. The same is true for the number of COVID-19 cases that are hospitalized by date of hospitalization. So, some progress is being made. As far as the number of daily cases, it will probably take two weeks or so to see how much the new rules helped.
- Almost 1.5 million Americans are still applying for initial unemployment benefits every week. For the week of June 20th, 1,480,000 applied. This was down only 60,000 from the previous week and was 560% above year earlier levels. So, the good news was that there was a minor decline. But the bad news was that the level of claims was very high and declined very little. Consumers will remain cautious until the employment picture improves even more than it has. Since mid-March, 47,250,000 have applied for initial unemployment claims. This is a staggering number.
- After April’s increase due to the CARES Act distributions, nominal personal income fell 4.2% in May. The decline was smaller than the consensus expected. The change over the month can be attributed to the decline in Economic Impact Payments. Overall, while down 4.2% from last month, it was still up 7.0% from a year ago. Disposable personal income was down 4.9% for the month but was up 8.8% from a year ago. On the other hand, personal consumption expenditures were up 8.2% from April in May but were down 9.3% from a year ago. As a result, the personal savings rate fell from a transfer payment induced 32.2% in April to a still very high 23.2% in May.
- The University of Michigan’s consumer sentiment index rose to 78.1 in June from 72.3 in May. A year ago, it was 98.2. While most consumers believe that economic conditions could hardly worsen from here, perspective growth in the economy is more closely tied to progress against the Coronavirus. Confidence in government economic policies has fallen in the June survey to the lowest level since President Trump entered office. The need for new relief programs is urgent.
- Manufacturers’ new orders for durable goods were up 15.8% in May when compared to April but were down 17.9% from a year ago. Non-defense goods excluding aircraft were hp 2.3% from April but were down 3.6% from a year ago. Thus, the decline in aircraft orders over the past year has been a major drag on the economy.
- Mortgage loan applications fell in the week of June 19th by 8.7%. They had risen 8.0% in the previous week. After weeks of volatility at the start of the Covid-19 pandemic, activity has been normalizing and the index is now above where it was before the start of the pandemic in the U.S. Two negatives persist. 8.48% of Fanny and Freddy mortgages are in forbearance. This is just below record levels set the previous week. And, while there is forbearance for borrowers, yet lenders are still on the line to make payments on money they borrowed. This puts many of them in a bind and creates an unstable financial situation for them.
- New home sales in May were at a seasonally adjusted annual rate of 676,000. This compares to 580,000 (seasonally adjusted annual rate) in April and 600,000 (SAAR) a year ago. That’s up 12.7% over the year.
- Existing single home sales fell 24.8% from year earlier levels in May to 3,570,000. A year ago, the level was 4,750,000.
- Initial claims for unemployment in the state increased last week to 25,686 from 22,419 the previous week. A normal pre-COVID week was around 3,300. Last week’s number was 520% above year earlier levels. The data on what industries were impacted seems to indicate that the claims are being made in a broad spectrum of industries. Thus, it appears instead of a few major industries suffering the bulk of the layoffs, it is now the entire economy as the ripple effects of the initial industries impacted (restaurants, bars, travel, hotels, retail, sports, concerts, etc.) are being impacted. Overall, since the middle of March, 702,387 Arizonans have filed initial claims for unemployment insurance. That’s 23.6% of the then existing number of employed in the state.