By Jim Cline
The December report of the Washington State Economic and Revenue Forecast Council,contains some mildly good news. The highlights of the report include:
- Economic impacts of Hurricane Sandy were likely reflected in weak personal consumption data but not Bureau of Labor Statistics employment numbers.
- November U.S. employment grew by 146,000 jobs; September and October employment data were revised down by a total of 49,000 jobs.
- Growth in real GDP for the third quarter was revised up to 2.7% (SAAR) due to faster inventory accumulation.
- Washington employment continues to grow at a moderate rate.
- Housing is looking increasingly positive.
- Regional inflation is cooling on slower rent growth.
- Major General Fund-State revenue collections for the November 11 – December 10, 2012 collection period were $72.7 million (4.3%) higher than the November forecast.
- Revenue Act collections were $39.4 million (4.4%) higher than forecasted and other revenue was $33.4 million (4.1%) higher.
- Some of this month’s positive variance was due to the timing of payments, so the variance will be at least partially reversed next month. The $20 million positive variance in real estate excise tax collections, however, should remain.
On the employment front, the report indicated
The Washington economy added 9,500 jobs in September and October, which translates into a 2.0% annual rate of growth. Manufacturing employment increased 1,500 in September and October, and construction employment rose 1,100. Government employment declined by 700 in the last two months, but private service-providing employment rose 6,900. The State’s unemployment rate declined from 8.6% in August to 8.5% in September and 8.2% in October.
The report suggested a strengthened State housing market:
Washington housing construction continues to strengthen. Total housing units authorized by building permits edged up to 28,400 units (SAAR) in the third quarter, up slightly from 28,100 in the second quarter. Single-family permits totaled 17,700 in the third quarter while multi-family permits came in at a 10,700 annual rate. Fourth quarter housing construction got off to a strong start according to the permit data. Multi-family units totaled 10,700 (SAAR) in October which is slightly weaker than the forecast of 11,100 for the fourth quarter as a whole. However, October’s 19,200 single-family permits were much stronger than 17,200 expected for the quarter and were, in fact, stronger than in any month since February 2008. Total units authorized were 30,000 (SAAR) compared to our forecast of 28,300 for the quarter. Most of the housing recovery to date has been in the multi-family segment which has largely recovered from historic lows. However, we believe the housing recovery will be increasingly led by single-family construction spurred by record affordability and improving consumer confidence.
Coinciding with this improvement in housing construction is a trend toward increasing home prices:
Regional home prices also appear to be on the upswing. According to the S&P/Case-Shiller Home Price Indices through September 2012, seasonally adjusted Seattle area home prices have risen in six of the last seven months and, as of September, are now 4.8% higher than in the previous September.
But the report also noted that:
Prior to the recent upturn, Seattle home prices had not registered a year-over-year gain since December 2007. Foreclosures continue to put downward pressure on home prices but demographics and record affordability are working in the opposite direction. Even with the recent gains, Seattle area home prices are 26.6% lower than their 2007 peak.
As to another subject that we have covered from time to time, the forecast Council is predicting that the Seattle and national inflation indexes will tend to converge in the near term:
Local area inflation is cooling off and moving more in line with the national average after exceeding national rates by a large margin earlier this year. Seattle headline inflation over the twelve months ending in October 2012 was 2.3% compared to 2.7% two months ago and core inflation was 2.4%, down from 3.0%. The corresponding U.S. city average inflation rates in October were 2.2% and 2.0%. Both headline and core inflation in Seattle exceeded the national average by more than a percentage point as recently as August. A major reason for the improvement in local inflation is a slowdown in shelter cost growth in Seattle. Two months ago Seattle shelter costs (mostly rents) were up 3.7% year over year compared to 2.1% for the nation. In October, Seattle shelter costs were up only 2.2% over the year compared to the U.S. rate of 2.3%. The modest improvement in the economic situation is leading to revenue receipts coming in slightly higher than forecast but the council warned that the improvement could be due to “changes in tax payment patterns rather than a sudden increase in economic activity.”
