v.18 n. 37 – Released September 15, 2014
This Week’s Headlines:
SoCal Home Sales and Median Prices in August
California Financial Report for August
Retail Sales Heat Up in August
Non-Revolving Credit Expands at Fastest Rate in Three Years
Changes in U.S. Family Finances 2010 to 2013
Events of Interest
October 8, 2014: LAEDC Economic Forecast
October 9-10, 2014: Southern California Energy Summit
October 30, 2014: 26th Annual Southern California Visitor Industry Outlook Conference
November 13, 2014: 19th Annual Eddy Awards Gala
SoCal Home Sales and Median Prices in August
Southern California home sales in August totaled 18,796 units (new and resale houses and condominiums), a decline of 18.5% compared with the same period last year. Sales throughout the six-county region have now fallen on a year-over-year basis for 11 consecutive months. The pace of home sales last month was the slowest for the month of August in four years and was 28.2% below the average level of sales for August. Since 1988 (when this data series began), sales between July and August have tended to rise – 3.7% is the average increase.
The median price across Southern California increased by 9.1% to $420,000 over the year and was the highest recorded for any month since December 2007 when it was $425,000. August was also the third consecutive month to post a single-digit price increase after 22 months of double-digit year-over-year gains reaching as high as 28.3%.
Southern California’s housing market is gradually getting better, but the pace of improvement has been too slow to provide much of a boost to sales or new home construction. The foreclosure resale rate is currently the lowest since 2007, stronger job and income growth have increased the number of potential qualified buyers, and inventories are gradually improving. On the finance side, mortgage interest rates have dropped back to near historic lows after a brief spike last year and bank lending standards are starting to ease a bit. On the other hand, the rebound in prices has outpaced improvements in the labor market, particularly wage growth. Affordability is still good compared with historic norms, but many potential buyers have already been priced out of the market. It is also not unreasonable to assume that given the housing crash and protracted recovery, many people simply remain leery of making the commitment to buy a home. (Kimberly Ritter-Martinez)
Source: DQ News
California Financial Report for August
The State Controller’s office recently released the August financial report for the California General Fund. Two months into the new fiscal year (2014-15), total receipts were up by 4.0% to $12.3 billion compared with the same period last year. Total disbursements ($22.7 billion) increased by 4.4% over the same period, exceeding receipts by $10.4 billion. As of August 31, the state’s cash balance stood at -$8.5 billion.
In spite of the wide gap between disbursements and receipts, the state’s budget has largely met expectations based on cash flow estimates prepared by the Department of Finance. Total disbursements were actually below expectations by 6.4%, while total receipts were running a bit higher than projected (0.2%).
Total revenues (receipts from taxes, licenses, fees or investment earnings) were up by 3.0% to $12.1 billion compared with the first two months of the previous fiscal year. The largest contributions to the state’s General Fund come from personal income taxes, retail sales and use taxes, and corporate income taxes.
In August (fiscal year-to-date), personal income taxes increased by 8.7% to $8.0 billion, and beat expectations by 3.7%.
Corporate income taxes blew past projections by 133% rising by 57.1% to $446 million compared with the same period last year.
Revenue from sales and use taxes, plunged by 8.0% to $3.2 billion, falling short of projections by 17.1%. However, that figure included a $343.3 million one-time adjustment for an under-allocation of sales and use tax to local government in prior fiscal years for Public Safety and local revenue realignment.
The schedule of cash disbursements in the Controller’s report showed that expenditures on Local K-12 Education were $8.8 billion during the first two months of the fiscal year, which was down by 13.5% compared with the previous year. Disbursements to community colleges also declined, falling by 13.1% to $1.1 billion. Funds received by the UC and CSU systems shot up by 88.0% to $992 million. Contributions to CalSTRS (the state teachers’ pension fund) increased by 23.7% to $226 million.
Spending for the Department of Corrections rose by 11.8% to $1.7 billion, while outlays for Health and Human services surged by 108.7% to $1.0 billion. The amount the state paid to service its debt obligations declined by 18.8% to $300 million.
As of August 31, the General Fund had $26.8 billion in borrowable resources against $8.5 billion in outstanding loans. Since the General Fund ended the previous fiscal year with a positive cash balance, the current loan balance consists of an increase in temporary loans since July 1, 2014. It is typical for the General Fund to experience a shortfall of revenues versus disbursements at this time of year. Since the state does not pay its bills or take in revenues at an even pace over the course of the year, year-to-date comparisons so early in the fiscal year can make for some confusing headlines, but based on current budget projections, this was a pretty good report card for the state. (Kimberly Ritter-Martinez)
Source: California State Controller’s Office
Retail Sales Heat Up in August
Total U.S. retail and food services sales rebounded in August, climbing by 0.6% following an upwardly revised gain of 0.3% in July. The increase in August was the largest in four months.
Core retail sales were up by 0.4%. Core retail sales exclude automobiles, gasoline stations, and building and garden supply centers. Core retail sales are in important indicator of consumer activity because they more closely with the measure of personal consumption expenditures the government uses to calculate GDP.
Eleven of the 13 major sales categories recorded increases in August. The largest was miscellaneous store retailers with a 2.5% gain. This sector includes florists, office supplies, pet supplies and art dealers among others. Motor vehicles (up by 1.5%) and building supply centers (1.4%) posted sizable gains as well. Consumers also spent more sprucing up the interiors of their homes in August. Sales at furniture and home furnishing stores were up by 0.7%. Sales of electronics and appliances also increased by 0.7%. Sales at food and beverage stores rose by 0.3%, while restaurants and bars saw sales rise 0.6%. Elsewhere, sales were up at sporting goods, hobby, book and music stores (0.9%); health and personal care stores (0.6%); clothing and accessories (0.3%) and non-store retailers (0.1%).
The only two categories to post a decline in sales over the month were gasoline stations (-0.8%, mostly due to lower prices) and general merchandize stores (0.1%). This category has been struggling mainly because of declining sales at department stores (down by 0.4% in August).
On a year-over-year basis, total retail sales in August were up by 5.0%. The best performing sectors were motor vehicles and parts (8.9%); health and personal care stores (8.1%); and non-store retailers, which along with restaurants and bars, increased by 7.1%. The only major sector to post a year-over-year decline in sales was gasoline stations (-0.8%), while at department stores sales fell by 1.2% over the year.
Although August is only one data point, this report helps to allay some of the fears that consumer spending has downshifted. The key to increasing consumption expenditures going forward continues to be job and income growth. (Kimberly Ritter-Martinez)
Source: U.S. Census Bureau
Non-revolving Credit Expands at Fastest Rate in Three Years
Total consumer credit outstanding (all non-mortgage debt) increased by 9.7% ($26.0 billion) over the month in July to $3.24 trillion (seasonally adjusted annualized rate). Over the 12 months ending in July, total consumer credit was up by 7.0%.
Non-revolving debt, which is mostly borrowing for new automobiles and student loans, swelled by 10.6% last month, or $20.6 billion. This was biggest gain in three years and was higher than expected even with the robust pace of auto sales in July. There may be an even stronger surge in August — new vehicle sales climbed to 17.4 million last month, the highest monthly sales rate since January 2006. Non-revolving debt makes up about three quarters of all non-mortgage consumer debt.
In July, revolving debt (mainly credit cards) increased sharply, rising by 7.4% ($5.3 billion). The June figure was also revised up from 1.3% to 2.5%. Revolving credit has now increased five months in a row. The rise in credit card usage in July was somewhat surprising. It does seem at odds with the weak consumer spending and retail sales figures reported for that month.
The ratio of household debt to disposable income has been trending up since the end of the recession and ticked up two tenths of a percentage point in July to 24.8%. There are two possible explanations for this. Either consumers are more comfortable taking on additional debt, or slow income growth is prompting consumers to borrow to maintain their standard of living. The long-run ratio (since 1995) of household debt to disposable income is 22.8%.
Looking ahead, improving labor market conditions and easier credit terms should make consumers increasingly comfortable with taking on debt. The expansion of consumer credit is expected to continue in upcoming months – a reflection of expectations for strong car and truck sales. (Kimberly Ritter-Martinez)
Source: Federal Reserve
Changes in U.S. Family Finances 2010 to 2013
The Federal Reserve recently released a report that describes changes in U.S. family finances from 2010 to 2013. The triennial Survey of Consumer Finances collects information about family income, net worth, balance sheet components and credit use. Among other things, the current survey revealed substantial disparities in the progress of family income and net worth during the three year period covered by the survey.
During the three years between 2010 and 2013, real GDP grew at an annual rate of 2.1% and the unemployment rate fell from 9.9% to 7.5%. Inflation averaged 2.3%. But while the economy growing and the labor markets were improving, the effects on American families were uneven.
During the recession, mean family income actually fell further than median income because the plunge in asset values during the financial crisis had a disproportionate impact on families with the highest incomes. However, between 2010 and 2013, mean (or average) family income adjusted for inflation rose by 4% while median income fell by 5%. Over that time period, asset values grew sharply compared to recession-era levels and contributed to large gains in mean family income among those at the top of the income distribution. But wage stagnation over the same period contributed to declines in incomes among low and middle income families.
In 2013, mean income for the bottom 50% of American families was $27,000, for the next 40% it was $84,700 and for the top 10% it was $397,500. During the recession years, mean income declined for all three groups, but the top 10% experienced the steepest decline. Post-recession (2010-2013) mean income continued to fall for the lowest income group, was flat for the middle group and increased substantially for the top group. In 2013, however, all three income groups were still below their 2007 level.
Wealth is another important measure of economic wellbeing. Median wealth rose between 1992 and 2007, fell during the recession (2007-2010) and was nearly unchanged during the years 2010 to 2013. Mean wealth, on the other hand, has consistently grown at a much faster pace than median wealth, again reflecting the concentration of wealth at the top of the income distribution. In 1989, the gap between median and mean wealth was 400%. By 2013, that gap had expanded to 660%.
In 2013, mean wealth was $99,200 for the lowest income group, $380,600 for the middle income group and $3.3 million for the top income group. Although all three groups experienced a decline in wealth during the recession, the lowest income group had the largest decline. From 2010 to 2013, mean family wealth continued to decline for the lowest income group, but increased modestly for the middle and top groups.
There was also a change in the composition of debt held by families during this period. Although still the most common type of debt held by families, fewer held debt secured by a home, and those that did owed less. This change parallels the drop in homeownership rates. The percentage of families with mortgages and other home-secured debt fell from 47.0% in 2010 to 42.9% in 2013. Interestingly, this decline is larger than the 3.3% decline in homeownership during these years.
On the other hand, more families held education loans in 2013 than they did in 2010. In this case, families tended to owe larger amounts. In 2010, 19.2% of families had an education loan. This share rose to 20.0% in 2013. The average real value of education debt increased from $27,500 to $29,900.
Will many American households have experienced a discernable improvement in their financial situation since the end of the recession, many others continue to struggle. More people are finding jobs, the stock market is booming and home prices are on the rise. Yet only a relatively small percentage of families have benefited from the rebound in equities and home values. The lower income group (50% of American families) have disproportionately hurt by stagnant real wages and the rising cost of education. (Kimberly Ritter-Martinez)
Source: Federal Reserve
Events of Interest
REGISTER NOW!
October 8, 2014: LAEDC Economic Forecast
L.A. Hotel Downtown; 333 S. Figueroa St., Los Angeles 90071
Introducing a long-term look at the regional economy and innovation in education. Featured guest speakers: Timothy White, Chancellor California State University system and Dr. Robert A. Kleinhenz, Chief Economist, LAEDC.
October 9-10, 2014: Southern California Energy Summit
Palm Springs, CA (see event website for locations)
Join regional leaders from the Counties of Riverside, San Bernardino, Imperial, Inyo, Mono, Kern and Los Angeles to discuss the opportunities, challenges and solutions facing the various energy industries of Southern California. Learn from private and public sector leaders about how new programs, policy and trends that will affect your business and community. Explore interactive exhibits and discover new energy efficient and sustainable technologies.
October 30, 2014: 26th Annual Southern California Visitor Industry Outlook Conference
Hilton Anaheim; 778 W. Convention Way, Anaheim CA 92802 | 8:00 am to 4:00 pm
Please join us for the 26th Annual Southern California Visitor Industry Outlook Conference to be held at The Hilton Anaheim. Hear from noted experts, representing a range of travel sectors, offer their best assessment of the southern California economic situation and how it may affect your business.
All attendees receive an electronic copy of PKF Consulting’s 2015 Lodging Forecast. Parking is complimentary and attendees will be able to enjoy a continental breakfast buffet before the conference begins.
Attendees will also hear from our keynote speaker, Mr. Ed Fuller, the President and CEO of Orange County Visitors Association (OCVA) who will discuss the major industry changes in the world today focusing on the new Global market and why it is valuable. He will also offer insight on strategies for increasing Global Visitors and the challenges in this segment.
SAVE THE DATE!
November 13, 2014: 19th Annual Eddy Awards Gala
The Beverly Hilton; 9876 Wilshire Blvd., Beverly Hills, CA 90210| 6:00 pm to 9:30 pm
The Eddy Awards® is one of the most prestigious awards programs to recognize leadership in economic development in business and government throughout Los Angeles County. The Eddy Awards®, a cocktail, dinner, and awards gala, also supports fulfillment of the Los Angeles County Economic Development Corporation’s mission to attract, retain, and grow businesses and jobs for the regions of Los Angeles County.
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