Austin's MSA jumped to 35th largest GMP in the U.S for 2010, same rank as the Metro's 2010 Census population. Dallas, Houston, and San Antonio ranked 5th, 6th, and 38th, respectively.

Austin was the fastest growing Metro in Texas year-over-year growing 7% to about $86 billion in GMP. The only other larger Metro in the U.S. to even come close to that growth was San Jose (17th) at a whopping 13.3% increase or nearly $20 billion. 

San Antonio was second in growth at 3.6%, followed by Dallas at 2.5%, then Houston at 1.6%.Austin and Houston each increased in GMP by roughly $6 billion.

GDP percent change in 2010 was 3.0% per the BEA.

http://www.bizjournals.com/buffalo/datacenter/gross-metropolitan-products-for-366.html

Dallas Beige Book Update

Here are the real estate related highlights from the updated Dallas Beige Book as of September 8, 2010.

"The Eleventh District economy expanded modestly over the past six weeks. The energy sector remained a source of strength, and agriculture, transportation services and staffing firms reported solid growth. Retailers said sales rose, but the pace of growth was slower. Reports from the manufacturing sector were mixed, but overall suggest a slowdown. In particular, construction-related manufacturers said demand was very weak as housing demand has retrenched and private nonresidential activity is almost nonexistent. Most respondents expect economic conditions to remain positive, although many expect slower growth through year-end. Uncertainty was prevalent in most outlooks.

Construction and Real Estate
Home sales continued to slide since the last report. Contacts noted demand was especially weak in the lower-priced segment of the market which had benefitted most from the homebuyer tax credits. Construction of new homes fell as large public builders scaled back. Outlooks are guarded for the rest of the year. Sales and construction are expected to remain weak, as the tax credit affected the timing of purchase decisions.

Contacts in the office and industrial real estate sectors said leasing activity remained subdued. Investor interest in nonresidential properties remains high however, and contacts say sales continue to edge up.

Nonresidential construction remains weak. Contacts reported a notable lack of private nonresidential projects. Public construction is the main source of activity for most contacts, but some expressed concern that such projects would subside due to budget constraints.

Financial Services
Financial firms said loan demand continued to trail off. Business lending was especially weak, and contacts said businesses lacked confidence and were unwilling to make financial commitments. Deposit growth was strong, and credit quality on outstanding loans was stable. Several respondents reported concerns over financial reform legislation and other political uncertainties. Earnings projections are flat for 2011, and some contacts were building up loan loss reserves in preparation for the coming year."

Austin gained 2,000 jobs in May

According to the Texas Workforce Commission, the Austin-Round Rock-San Marcos MSA gained 2,000 jobs last month lowering the unemployment rate to 6.9%, down from its peak of 7.6% in January 2010.  This is well below the 5,000 job growth projection made in last month’s Job Growth update blog.  The total number of non-agricultural employment in the MSA grew to 767,700 indicating an annual growth rate of 0.5%.  Out of the total jobs gained, Leisure and Hospitality significantly beat other industries adding 2,600 jobs.  Financial Activities also saw a modest gain of 600 jobs.  Conversely, the Government sector lost 1,100 jobs and the Professional and Business services lost 800 jobs.  All other industries increased or decreased by no more than 300 jobs.  While the overall gains may seem positive, they are in line with seasonal patterns.  Next month, we should expect to see a loss of around 500 jobs based on the last few years’ figures.  Finally, Austin's unemployment rate of 6.9% is still below the state (8.0%) and the national (9.3%) unemployment rates.

Austin Regional Outlook

The Austin MSA is part of to the Federal Reserve’s Eleventh District.  On March 3, 2010, the Federal Reserve released its current report (one of eight per year) on the national and district economy. Known as the Federal Reserve Beige Report, the Eleventh District’s overall assessment of the economy indicated “Economic activity improved further in the Eleventh District over the past six weeks. Firms across a wide range of industries continued to report slight increases in demand.  However, conditions in a few sectors, notably commercial real estate, financial services and construction-related manufacturing remained weak. Outlooks were generally more upbeat than last time.” 

Real Estate observations included, “new home construction picked up recently in response to relatively tight inventories and the first-time homebuyer tax credit.  In both new and existing home markets, sales of lower priced homes remained the strongest.  Sales of higher priced homes were weak, reflecting difficulties in obtaining financing for larger loans.  Builder outlooks were slightly more optimistic for 2010.  Commercial real estate activity remains depressed.  There is continued downward pressure on rents.  Office leasing activity is still falling, albeit at a slower pace. Demand for industrial space declined further in Dallas, but improved slightly in Houston.  Investment sales transactions remain low due to the tight lending environment, but contacts report that investors are watching closely for bargains.  Commercial construction activity is still weak and outlooks remain grim, with most contacts expecting no improvement until 2011.”

Financial comments included “Real estate lending remained scarce due to stringent regulatory requirements, and contacts at community banks expressed concern about the possible effects of these regulatory requirements on their ability to expand.  Some contacts said they were beginning to see an improvement in loan quality, with falling delinquencies and declining charge-offs.  The outlook remained cautious but some contacts were hopeful that they may see a pickup in loan demand by year end.” 

 

Labor Market noted “stable employment levels.” Manufacturing Market concerns were “outlook is still bleak, especially for manufacturers tied to commercial construction.”

 

This overall assessment of the economy indicates recovery has begun to occur in many sectors and outlooks are becoming more positive.  However, most experts expect a slow and modest Metro-wide recovery. 

4th Quarter GDP Release (Final Estimate)

The final GDP growth estimate for the 4^th Quarter 2009 declined from 5.9% to 5.6%.  Below are graphs and a link to the full story.

GDP figures are in billions of dollars

For the full story: BEA - GDP News Release

GDP is now 5.9% for 4Q09

The second estimate of GDP released by the BEA this morning increased from 5.7% to 5.9%.  “The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment.  Imports, which are a subtraction in the calculation of GDP, increased. The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private inventory investment, an upturn in nonresidential fixed investment, a deceleration in imports, and an acceleration in exports that were partly offset by decelerations in PCE and in federal government spending.”

For the full story: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Consumer Confidence Drops to 46

Consumer Confidence fell to 46 in February, down from 56.5 in January (1985 = 100).  

 
One indicator of a recessionary economy is when the consumer confidence index falls below 50.  This drop can be contributed to many things, but I think it’s just a normal reaction to all the uncertainty surrounding federal budget deficits and health-care reform as well as the commotion being caused by the “Tea Party movement”.  A recent poll by The Economist shows that nearly one in five Americans, or about half of the Republicans, think of themselves as part of the tea-party movement.  As Bill Maher reported last Sunday night on his show, “A poll showed 90% of Teabaggers thought that taxes had gone up or stayed the same under Obama.  Only two percent thought they went down.  The simple reality is:  for 95% of working families, taxes went down. Only 2 percent of the people in a movement about taxes and named for a tax revolt, have the slightest idea about what is going on – with taxes.”  The poll below also hints to why Consumer Confidence plummeted. 

 The moral of the story is, don’t be too preoccupied on this bad news, as it seems most Americans are just scared because they just don’t know what is going on and what will happen.  Nothing wrong with that, it happens to us all.

For the full story: http://www.conference-board.org/economics/ConsumerConfidence.cfm

The New Norm

“Note that returns from 1985 to 2009 were above the historical norm despite the fact that the premium on equities was negative during the last ten years. That suggests the return above Treasuries from 1985 to 1999 was extraordinarily high. Indeed, stocks rose some 800% over the period, in nominal terms. During the 15 years from 1970 to 1985, stocks rose about 80%. Very peculiar.” - The Economist FreeExchange.

The data above suggests that investors will start looking elsewhere to invest their money with real estate likely being a favored option.

To All You Nay-Saying Republicans

I’m neither Republican nor Democrat; I just thought it was a nifty title to give this graph.  This was released February 12, 2010.

Senate Budget Committee

This past Tuesday, the Senate Budget Committee met with three highly reputable economists that are also professors at U of M, MIT, and Georgetown, respectively, to discuss the problems with the deficit.  Head of the committee, Senator Kent Conrad, clearly labeled what Congress is doing to the American Public.   The goal of the committee is to bring the budget to 3% of GDP in five years and to balance it in 10 years starting from the day the budget is finalized.  The challenges facing the government could and well be the most important challenges we have faced to date.  Senate Conrad also defined the differences between the different terms thrown around for national debt.  See below. 

Public debt, money borrowed from public (includes anyone who purchases U.S. bonds and treasury notes), is currently at 60% of GDP.  Gross debt is at 90%.  Difference between the two is that gross debt also includes what’s owed from trust funds, Medicare, social security.  The budget focuses on gross debt, as all debts must be paid.  So, from a budgetary standpoint, debt can only be paid by current income.  There is a real budget consequence when entitlement programs were producing more money they needed, then the process reversed, and now are spending more money than the trust accounts are taking in.  This has happened to Social Security and Medicare, which are both cash-negative, TODAY. 

Economists start with public debt because gross debt understates the situation.  From a budgetary standpoint, future commitments have covered by a trust fund (secured income).  So they add up all future explicit commitments to some large number that doesn’t apply to today’s debt (it isn’t a debt until the commitment is due).  Furthermore, public debt numbers are readily available and fairly easy to quantify.  As Dr. Johnson put it “The great thing about being the United States is that we are the only reserve currency particularly given the situation with the Euro zone”.  This means that the market will allow us to run up more debt at low interest rates as we are the only safe option out there.  This is also extremely risky because that means the fate of the world’s economy lies in American’s hands.  The committee goes further into detail on how there are many implicit liabilities from internal debt (exchange of funds between government accounts) that haven’t been quantified, which is on the list of things-to-do for the experts.

The methodology used by the economists is to start with public debt, find out what is owed and what the market will pay for issuing new debt, forecast the budgetary repercussions contingent upon future liabilities and different scenarios around that model.  If we have a few more crisis, the model will need to be changed to reflect Gross debt, but for the current time, the country should focus on the public debt.  By establishing a fiscal commission now to begin creating medium-term fiscal framework, the financial industry can begin clearing the clouds of uncertainty.  A part of why we get what we get is because we don’t address the issues immediately and allow for uncertainty to remain in the marketplace. 

Texas is Top Exporter in U.S.

Courtesy of ABJ:

For the eighth consecutive year, Texas ranks No. 1 nationally in exports, according to a statement from Gov. Rick Perry. Texas exports totaled $163 million in 2009.  The top recipients of those exports included Mexico, Canada, China, the Netherlands and Korea.

The Scariest Employment Graph of the Great Recession

Courtesy of The Economist:

 

But according to the economist Edmund Phelps, the innovative potential of the U.S. economy looks limited today. In a recent Harvard Business Review article , he and his co-author, Leo Tilman, argue that dynamism in the U.S. has actually been in decline for a decade; with the housing bubble fueling easy (but unsustainable) growth for much of that time, we just didn’t notice. Phelps and Tilman finger several culprits: a patent system that’s become stifling; an increasingly myopic focus among public companies on quarterly results, rather than long-term value creation; and, not least, a financial industry that for a generation has focused its talent and resources not on funding business innovation, but on proprietary trading, regulatory arbitrage, and arcane financial engineering. None of these problems is likely to disappear quickly. Phelps, who won a Nobel Prize for his work on the “natural” rate of unemployment, believes that until they do disappear, the new floor for unemployment is likely to be between 6.5 percent and 7.5 percent, even once “recovery” is complete.

U.S. international trade deficit climes 10% in December

The BEA released data this morning on America's trade deficit, as of December: 


“December exports of $142.7 billion and imports of $182.9 billion resulted in a goods and services deficit of $40.2 billion, up from $36.4 billion in November, revised. December exports were $4.6 billion more than November exports of $138.1 billion. December imports were $8.4 billion more than November imports of $174.5 billion.”

The Economist had this to offer:

As the economy recovers, both imports and exports are growing. But imports are growing faster, and America's trade deficit is therefore widening out from its low recession levels. Where current account deficits are concerned, public hand-wringing has overwhelmingly focused on China, and particularly on the effect its currency policy has on the relative price of its exports. But China is not driving rapid growth in the trade deficit. Imports to America from China returned to more-or-less normal levels as of December, but exports to China hit their highest level ever in that month. What is pushing up the trade deficit is petroleum imports.

 For much of the previous decade, the petroleum deficit hovered at a level around a third of the total trade deficit. It's now over half of the total trade gap.  American demand for petroleum is relatively inelastic, so rising oil prices will tend to push up oil imports and the deficit. And recession aside, oil prices have trended upward for most of the past decade. But for that America's current account would look a lot more balanced.

For the full press release from the BEA, visit: http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

Civilian Employment During Recession Since WWII

Courtesy of the Dallas Fed and Economist FreeExchange:

This is why people have been panicking.  As you can see, we grew in population but only gained a handful of jobs.  By comparing the two graphs below provided by the U.S. Census Bureau, you can see why some are calling it the  “Bubble Decade”.

 

 

                               

The deficit isn't so bad...

This was too good of an article from the FreeExchange today:
HOW much should we worry about the budget deficit? Paul Krugman is not terribly concerned, he claims economists and markets aren’t either: 
Yet they aren’t facts. Many economists take a much calmer view of budget deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe. 
Like Mr Krugman, I don’t worry so much about short-term, discretionary spending. We are still in a very fragile recovery period. Cutting spending now could indeed prolong the recession and result in an even worse fiscal position. The sudden hysteria is perplexing, but serious concern is long overdue.  
The long-run budget issues are very worrying. Economists tend to take a more nuanced view about debt. Many agree that running a deficit is not necessarily a huge problem; so long as the size of national debt stays low enough that interest payments do not exceed GDP growth, things are manageable. When that is the case you can keep issuing debt and making interest payments without raising taxes or cutting spending. Then, in principle, you can run deficits indefinitely. But if investors worry that the debt will become unmanageable, or outpace economic growth, they will become less inclined to buy a country’s debt. The government then must offer higher interest rates for its debt, and interest payments then do become a burden on taxpayers. That lowers growth even further. It then becomes tempting to inflate the debt away (which becomes a non-trivial concern if Fed independence is further undermined) and interest rates rise further.  
Granted, suggestions that America’s economic policy is on the fast track to resembling Argentina are hysterical. But a problem still exists; the amount of debt projected to come from Medicare and Social Security in thirty years is unsustainable, for reasonable levels of GDP growth and likely interest rates. Mr Krugman points out that America must address health care spending. I’d also add entitlements to the list. Leaving it to the next decade, as Mr Krugman suggests, would be a mistake. The sooner health care and entitlement spending are fixed the less expensive the solution will be. Also, Social Security’s long term solvency issues add to uncertainty. I’ve heard people of all ages say, “Well, I can’t count on what I’ll get from Social Security.”  
So long as Social Security finances remain a concern, making appropriate retirement planning and saving decisions is very difficult. I’ve heard it argued that because Medicare is a bigger threat than Social Security we can ignore the latter. But, that’s like saying don’t bother to fix a broken leg if your patient has cancer. That broken leg can still cause an infection and kill you.  
Cutting current spending would be a terrible idea, but thoughtfully addressing entitlements addresses the long-term problems now. It need not even affect benefits to current retirees or impinge on the recovery. It does send a clear, credible message to markets that America can keep its debt under control. Alan Greenspan remarked on Meet the Press this weekend: 
I think the thing that disturbed me most in the last week or two was when the discussion was involved in, I believe, in the Senate on the issue of forming a commission--a congressionally-authorized commission, as I read it, there was a 97-to-nothing vote to exclude Social Security from the deliberations of that commission.  That said to me that we have gotten to the point in this country where spending is untouchable.  I have no doubts that we have to raise taxes in order to close this huge deficit.  But we cannot do it wholly on the tax side because that would significantly erode the rate of growth in the economy and the tax base, and the revenues that would be achieved would be far less than anybody'd expect.  We have to recognize the fact that one of the things that we have to do, as tough as it's going to be, is that benefits are going to have to be paired in conjunction with tax increases to resolve this very serious long-term budget problem.  
What sort of message does that send to markets about America’s commitment to fiscal responsibility? 
The next time America finds itself in a recession it may not be able to issue debt so easily to boost its economy. Also, America’s domestic saving rate is very low. It does not provide itself with enough capital to fund growth and expansion. America relies on foreign capital to feed growth. If that dries up, Americans will either have to seriously cut back on consumption or concede that the America economy will not grow at the pace it once did.  
So why then, as Mr Krugman asks, are investors still willing to purchase American debt at such low interest rates? Does this mean markets are not worried about America’s long-run fiscal outlook? Maybe, but I doubt it. Some investors always crave “risk-free” assets. American debt still, to a large degree, is the best “risk-free” option. What else is there? Eurobonds don’t look so good at the moment. But the current lack of better alternatives can not be the justification to not get your financial house in order.

National Unemployment Rate falls to 9.7%

The unemployment rate fell from 10.0 to 9.7% in January, and non-farm payroll employment was essentially unchanged (-20,000 jobs), the U.S. Bureau of Labor Statistics reported today.  Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs.

Source: BLS

This significant decline in the unemployment rate is a potential sign that the job market has bottomed out and is now on the path towards recovery.  However, many experts have argued that unemployment only decreased because a portion of the unemployed have become discouraged and left the workforce.  This deems this economic cycle "The Jobless Recovery".

Global real GDP growth and %share per country

I'll let you make your own conclusions about this data.

NAR's GDP Forecast update

By Arun Barman, Research Economist

Daily Forecast Update

• NAR's monthly official forecast as of January 5th
• GDP 2010 Q1: +2.2% (Was 2.7% just last week)
• GDP 2010 Q2: +2.1% (Was 2.4% just last week)
• GDP 2010 Q3: +2.5% (new forecast added)
• Unemployment rate by the mid-2010: 10.0% (Was 10.1% just last week)
• Average 30-year fixed mortgage rate by mid-2010 2009: 5.6% (Remained the same from the previous post)

 

OMB's GDP estimates for 2010 is 3.0%, a slightly more aggressive estimate.  I'll readdress this next quarter and see who is the winner.  I'll get a competition going and keep tabs on the public sector or the private sector to see who is better at predicting future.

Personal Income and Outlays for December 2009

The following charts shows the percentage change in personal income, personal disposable income, and personal consumption expenditures for the past five months.  Consumer spending rose 0.2% last month, which shadows the 0.3% change anticipated from Reuters' analysts.

Private wage and salary disbursements also increased by $6.3 billion in December, a 75% decrease from the $25.1 billion figure reported in November.  The personal savings rate increased to 4.8% in December from 4.5% in November.  The following graph shows the monthly personal savings rate as a percentage of disposable income.

This chart suggests that the personal savings rate is stabilizing within the 4.6% to 5.0% range, well above the trend in the last decade as shown by the following chart.  

During the last recovery from the tech-bust in early 2000s, personal savings rate averaged around 3.5%.  Since World War II, consumer spending has been the backbone to our past economic growth.  Consumer expenditures rate appears to be stabilizing at a rate below historical trends.  If the personal savings rate does not retreat back to historical norms, which majority of experts believe it will not, further pressure will be put on businesses to get the economy back on track.  The effects of the “Great Recession” are still becoming apparent, but one thing is for sure, Americans’ consumer behavior has changed to a more frugal buyer, at least for the short term. 

4Q09 GDP (Advanced Release) - 5.7%

Experts were predicting that the economy would grow 5.5% in the 4^th Quarter 2009.  It actually grew to 5.7% primarily due to positive contributions from private inventory investment, exports, and personal consumption expenditures.   In the 3^rd Quarter 2009, GDP grew 2.2%.  Below are two graphs showing GDP change since the 1^st Quarter 2008 to the 4^th Quarter 2009. 

The last advanced estimate was 3.5%, a whole 1.3 percentage points higher than the actual figure of 2.2%.  That goes to show that you should be careful relying on advanced estimates for your investment decisions. 

For the full story, visit http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm