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Current Economic Conditions FirstBank Brentwood Country Club David A. Penn Director, Business and Economic Research Center Jennings A. Jones College of Business Middle Tennessee State University dpenn@mtsu.edu 615-904-8571 September 13, 2007 Economic Indicators Unemployment Job growth

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current economic conditions firstbank brentwood country club

Current Economic ConditionsFirstBankBrentwood Country Club

David A. Penn

Director, Business and Economic Research Center

Jennings A. Jones College of Business

Middle Tennessee State University

dpenn@mtsu.edu

615-904-8571

September 13, 2007

Business and Economic Research Center

economic indicators
Economic Indicators
  • Unemployment
  • Job growth
  • Taxable sales
  • Housing construction

Business and Economic Research Center

unemployment july 2007
Unemployment July 2007
  • U. S.: 4.6% (steady)
  • Tennessee: 4.1% (falling)
  • Nashville MSA: 3.4 % (falling)

Business and Economic Research Center

nashville msa unemployment rate
Nashville MSA Unemployment Rate

Business and Economic Research Center

nonfarm job growth is slowing yty percent change
Nonfarm job growth is slowing (yty percent change)
  • U. S.: 1.3% (drifting lower)
  • Tennessee: 0.8% (steady)
  • Nashville MSA: 1.2% (slowing)

Business and Economic Research Center

job growth in tennessee yty percent change
Job growth in Tennessee(yty percent change)

Business and Economic Research Center

nashville msa job growth yty percent change
Nashville MSA Job Growth (yty percent change)

Business and Economic Research Center

manufacturing employment growth nashville msa
Manufacturing employment growthNashville MSA

Business and Economic Research Center

construction employment growth nashville msa
Construction employment growthNashville MSA

Business and Economic Research Center

nashville msa labor market conditions
Nashville MSA labor market conditions
  • Recap:
    • Unemployment rate very low.
    • Overall payroll employment growth tepid.
    • Manufacturing job losses are a drag on overall employment.
    • Construction employment still robust.

Business and Economic Research Center

taxable sales nashville msa showing some weakness
Taxable sales Nashville MSA – showing some weakness

Business and Economic Research Center

housing construction and real estate
Housing construction and real estate
  • Home sales and construction down from last year.
  • Boom spurred by low mortgage rates, rapidly rising home prices.

Business and Economic Research Center

permits issued for new houses u s
Permits issued for new houses U.S.

Business and Economic Research Center

housing construction and real estate14
Housing construction and real estate
  • Rising home prices were a major source of retail spending since the 2001 recession.
  • Households cashed out $1 trillion in home equity during the boom.
  • How much was spent for consumption? Analysts don’t agree on this.
  • A reduction in housing wealth will cause spending to slow to some degree.

Business and Economic Research Center

housing construction and real estate15
Housing construction and real estate
  • Housing construction decline cut 1 point from GDP growth second half 2006.
  • Decline of this magnitude usually precedes a recession.
  • But not this time?

Business and Economic Research Center

nashville home building permits
Nashville home building permits

Business and Economic Research Center

building permits growth 2nd quarter
Building permits growth 2nd Quarter

Business and Economic Research Center

single family permits by county second quarter growth
Single-family permits by countySecond Quarter Growth

Business and Economic Research Center

unsold inventory of homes rising in the nashville area august
Unsold inventory of homes rising in the Nashville area (August)

Business and Economic Research Center

home prices and growing inventory in the nashville area august
Home prices and growing inventory in the Nashville area (August)

Business and Economic Research Center

existing homes price index ofheo
Existing homes price index - OFHEO
  • U.S. and Nashville homes price trends.

Business and Economic Research Center

ofheo existing homes price index yty growth rate
OFHEO existing homes price index – yty growth rate

Business and Economic Research Center

housing and real estate
Housing and Real Estate
  • What factors determine the demand for new housing?
    • Household formation,
    • Mortgage rates,
    • Income growth,
    • Investor and vacation home demand,
    • Household confidence,
    • Prices of new homes, and
    • Availability of credit.

Business and Economic Research Center

nashville msa population growth
Nashville MSA population growth

Business and Economic Research Center

supply of new housing
Supply of new housing
  • Building permits is our measure of new housing supply.
  • A permit typically precedes construction completion by about 8 months.
  • 15,700 new housing units expected for 2007.
  • Down 3% from 2006.

Business and Economic Research Center

other sources of demand
Other sources of demand
  • Household formation is the primary, but not the only, source of demand for new houses.
  • Other sources of demand include:
    • Demand for second homes and vacation homes.
    • Demand for investment homes and speculative investment.
  • Investment and vacation homes were 36% of demand in 2005 for the U.S.
  • Share dropped to 29% in 2006.

Business and Economic Research Center

mortgage rates
Mortgage rates
  • Mortgage rates are very low.
  • Rate is 6.6% for August, near a 37 year low.

Business and Economic Research Center

mortgage rates and capital flows
Mortgage rates and capital flows
  • World savings glut: foreign capital inflow keeps our mortgage rates low.
  • Capital inflow is a direct result of our large trade deficits, largely with China.
  • As China’s consumer sector grows, they will absorb more savings in capital investment.
  • This will cause smaller trade deficits for the U.S., but also less savings inflow and higher interest rates in the long term.

Business and Economic Research Center

mortgage rates29
Mortgage rates
  • Housing construction slumps tend to be preceded by climbing mortgage rates.
  • But not this time. Fed tightening has had little effect on mortgage rates until very recently.

Business and Economic Research Center

housing affordability
Housing affordability
  • Affordability suffering in the U.S. housing market compared with Nashville.

Business and Economic Research Center

income growth
Income growth
  • Nashville MSA: Family incomes not keeping up with home prices.
    • Median family income rose 6.6% 2004-06
    • Median price of home up 13.7%

Business and Economic Research Center

comparative affordability
Comparative affordability
  • Affordability has slipped in Nashville, but much more in the U.S.

Business and Economic Research Center

housing construction
Housing Construction
  • Important factors:
    • Household formation,
    • Mortgage rates,
    • Income growth,
    • Investor and vacation home demand,
    • Consumer confidence,
    • Prices of new homes, and
    • Availability of credit.

Business and Economic Research Center

subprime mortgages tennessee
Subprime mortgages - Tennessee

Business and Economic Research Center

conclusions
Conclusions
  • Payroll employment growth may soften more, with some recovery by the end of the year.
  • Some time will be needed for the economy to digest the job losses in manufacturing and finance.
  • Unemployment rates still very low.
  • Taxable sales sputtering, but may firm.
  • My view: recession is unlikely in the near future.

Business and Economic Research Center

business and economic research center www mtsu edu berc
Business and Economic Research Centerwww.mtsu.edu/~berc
  • Annual Outlook Conference Sept. 28
  • Publications
    • Tennessee’s Business
    • Global Commerce
    • Midstate Economic Indicators

Business and Economic Research Center

business and economic research center
Business and Economic Research Center
  • Studies
    • Economic Impact of Higher Education
    • Economic Impact of the Healthcare Industry
    • Retail and food services trends for Rutherford County
    • Assessment of Needs for the Williamson County United Way

Business and Economic Research Center