ROBERT CARREIRA: A quick review of the rest of the economy

Published/Last Modified on Monday, Oct 20, 2008 - 05:17:36 am MST

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Commentary by Robert Carreira

With all the talk of frozen credit markets, Wall Street bailouts, and the stock market rollercoaster, it’s easy to lose track of what’s going on with the rest of the economy.

So let’s take a quick look. Despite the national government’s intervention in financial markets to buy up bad debt and inject liquidity, it’ll likely be some time before the housing and real estate markets get moving again; and recessionary fears remain.

As of the second quarter of 2008, the nation’s real Gross Domestic Product hadn’t yet shown signs of recession. Real GDP grew by 2.8 percent in the second quarter, which is likely attributable to the economic stimulus plan, which sent tax rebate checks to millions of households to stimulate spending. The second quarter growth was a jump from only 0.9 percent in the first quarter of the year and -0.2 percent in the fourth quarter of last year. Declines in retail sales nationally, combined with rising unemployment and a continued tightening of credit markets suggest GDP growth may go negative in the third and fourth quarters.

In August, the national unemployment rate increased to 6.1 percent — its highest level in 5 years. This rate held steady in September. In the first 9 months of 2008, the national economy lost 308,000 jobs. Also in the first 9 months of the year, consumer prices were up an average of 4.6 percent compared with the same period last year, much higher than most economists are comfortable with. In September, prices were 4.9 percent higher than September last year.

At the state level in 2007, Arizona’s GDP rose only 1.8 percent, placing Arizona’s economy 28th in the nation when ranked according to economic growth. This follows two consecutive years of being one of the top 3 fastest growing states economically. In the first 8 months of 2008, Arizona’s unemployment rate rose to 4.5 percent, up from 3.8 percent in 2007. In August, the rate hit 5.6 percent — its highest level in five years.

Currently, one of the biggest challenges facing the state economy is the state government’s budget deficit. Estimates of the deficit range from $700 million to $1.5 billion for fiscal year 2008-2009.

The state’s constitutional requirement to balance the annual budget has broad economic consequences. During times of economic slowdown, the government is often forced to make fiscal policy decisions, such as cutting spending, that tend to make recessionary conditions worse.

In Cochise County, the unemployment rate averaged 4.6 percent for the first 8 months of 2008, up from 4.1 percent in 2007. The rate hit 5.6 percent in August — its highest level since 2003. In August, the number of nonfarm jobs in the county was down by 1,175 compared with August last year, for a 12-month job growth rate of -3.1 percent.

From January through July, inflation-adjusted retail sales in Cochise County were down 3.5 percent compared with the same period of 2007. The county’s restaurant and bar sales saw real growth of 2.0 percent and accommodation receipts (hotel, motel, and other temporary lodging stays) were down 3.7 percent.

New home permits in Cochise County fell from a housing boom peak of 1,108 in 2005 to 900 in 2006 and 472 in 2007. In the first 5 months of 2008, permits were down by 8 percent compared with the same period last year. We’ve seen a partial recovery in some areas of the county, with new residential construction up in both Benson and Sierra Vista.

The number of existing homes sold in Cochise County fell 10.7 percent in 2007, following a 20.6 percent decline in 2006. The decline continued into the first 9 months of 2008, with sales down 20.3 percent from the same period last year.

The slowdown in home sales has brought home prices down slightly at the county level. Although the median price of a home sold in Cochise County was up 0.6 percent in 2007, from $205,250 to $206,579, the average price per square foot was down 3.7 percent from $127.11 to $122.44. In the first 9 months of 2008, the median price was down 3.9 percent to $199,972 and the average price per square foot was down 4.3 percent to $117.79, compared with the first 9 months of 2007.

Robert Carreira is director of the Center for Economic Research at Cochise College. E-mail at cer@cochise.edu. The center’s Web site is www.cochise.edu/cer.

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Robert Carreira wrote on Nov 26, 2008 1:21 PM:

" To Skeptical: I'm sorry you were disappointed by the show -- the feedback I've received on it from other listerners has been overwhelmingly positive. Feel free to give me a call or send an email and we can discuss. -- Robert "

Skeptical wrote on Oct 25, 2008 3:22 PM:

" I tuned into Dan Abrams interview with Robert Carriera on Saturday, 24 October, hoping to hear him speak clearly about the impact of the current national financial crisis. Unfortunately, his answers to some of Abrams' excellent questions were evasive, vague, and off-point--just as unsatisfying as his column in the SV Herald. For the life of me, if a trained economist can't think and speak truths about his field of endeavor, there's little to justify his existence. I wish someone in his field would critique his writings with a view to determine if he knows what he's talking about. "

Winston Smith wrote on Oct 21, 2008 3:18 PM:

" An economy that depends on New Home Construction is doomed, as many parts of California and parts of Phoenix are finding out. Housing starts should be restricted to the existing footprint. "