Editor's note: Tatiana Bailey is executive director of Data-Driven Economic Strategies, a nonprofit with the mission "to enhance economic opportunities with data-driven strategies that inform community and workforce development initiatives."
The Gazette is publishing her monthly economic progress reports. This is January's report:
In the fourth quarter of 2022, the U.S. economy grew 1.0% compared to the same quarter the year before. This is a bit lower than the third quarter of last year, which grew 1.9%. If we annualize the fourth-quarter growth, gross domestic product, or GDP, would grow 2.9%. This is the more common “headline” metric you’ll see in the media.
I look at both the quarterly and annualized values, although I pay more attention to the quarterly changes because a) I can see the change between the two most recent quarters and that tells me the direction of the change, and b) one-quarter that’s annualized doesn’t necessarily mean the rest of the year will follow suit to that one quarter.
With the 2022 Q4 data now in, we know that for all of 2022, U.S. GDP grew by 2.1% and that’s quite a bit lower than 2021’s GDP growth rate of 5.9% (which was largely fueled by monetary and fiscal stimulus spurred by the pandemic).
The modest growth we did have in the fourth quarter of 2022 reflected increases in private inventory investment, consumer spending, federal, state and local government spending, and nonresidential fixed investment. It’s worth mentioning that some of the increase in nonresidential investment is for the building out of manufacturing plants in the subsector of computer/electronics (up 16.3% in December).
What’s fascinating is that this increase is for new facilities that make electric vehicles and also semiconductors. This represents both a relatively new innovation that’s taken off (EVs) and the re-shoring of existing technologies (semiconductors). This is very positive for a plethora of reasons, including more opportunities for manufacturing jobs.
One of the reasons the male labor participation rate has fallen so much over the past few decades is the closing of 70,000 factories in the U.S. during the 1960s and 1970s. Those factories had livable-wage jobs that did not require bachelor’s degrees. We still need those opportunities as 65% of the U.S. population ages 25-plus does not have a bachelor’s degree or higher.
Overall, construction for U.S. manufacturing facilities is up 43.2% year over year, and I love that.
There were also components of GDP that negatively impacted the headline number. These included residential fixed investment and exports. I don’t think anyone is surprised by the fall in residential fixed investment, which has declined for six straight months, as home construction has significantly slowed. The details are important, however. It is primarily single-family construction that has seen sharper declines while multifamily is still holding up.
For the entire construction industry (residential and nonresidential), however, most experts are forecasting further declines due to high financing costs. The decrease we are seeing in building permits today certainly validates that.
• Consumer sentiment improved quite a bit in January (64.9) compared to December (59.7). This is mostly due to what consumers are seeing and hearing about inflation or CPI coming down alongside the wage increases many people have experienced. Inflation came down to 6.5% in December from 7.1% in November, year over year. This, of course, improves prospects for their “real,” or inflation-adjusted, earnings. If, indeed, inflation continues to cool and consumers have locked in any wage increases they’ve received, they are indeed better off.
In 2022, despite some of the headline double-digit wage increases, real earnings over the past year have declined 1.7% because of inflation. Wages are “sticky,” so past increases aren’t likely to be taken away, and workers/consumers know that.
I’ve been showing in a lot of presentations lately that revolving credit has been increasing in the U.S., which tells me that some households are paying for higher prices with credit cards or personal or home equity loans. This isn’t surprising given that savings rates are now down to 3.4% versus 9.1% in January of 2020. Although delinquencies have only edged up a bit, it’s still concerning to me because savings represent the cushion people have when we have an economic downturn and some layoffs.
It’s also concerning because the prime interest rate was up to 7.27% in December versus 6.95% in November (and 3.25% in April 2022). This means consumers are paying more in interest payments.
• U.S. job openings came down slightly in November to 10.46 million (from 10.51 million in October). But even with some of the decreases we’ve had in job openings over the past few months, openings are still historically very high. In November, job openings increased in professional and business services (+212,000) and nondurable goods manufacturing (+39,000). The number of openings decreased in finance and insurance (-75,000) and in federal government (-44,000). In this current economic slowdown, the two industries that are seeing more layoffs are both finance and insurance, which is a large industry in terms of employment, and tech, which is a small industry in terms of employment even though it’s in the headlines a lot.
Many of those tech layoffs are a boon for tech companies that are still growing as they have had extreme difficulty in finding talent. In other words, most tech workers are getting “snatched up” pretty quickly. By contrast, the finance portion of the finance and insurance industry often suffers during times of increased interest rates. That’s a cyclical thing.
Across all industries in the U.S., there is still roughly 0.6 of a worker available for each open position.
• Overall, unemployment rates fell for all regions from November to December of last year: U.S. from 3.4% to 3.3%, Colorado from 3.3% to 2.8%, and El Paso County from 3.6% to 3.0%. All those unemployment rates are incredibly low if you recall that the “natural rate” of unemployment is around 4.0%-4.5%. The U.S. rate of 3.3% is the lowest we have seen since 1969.
• Home sales in the Pikes Peak region fell in December to 851 from 936 in November. Residential building permits for single-family homes also declined significantly in December (to 91) from 144 the previous month. Multifamily permits declined to 420 in December from 517 in November.
If we compare 2021 total single-family and multifamily permits to 2022 levels, there has been a 5.4% decline. I don’t think anyone will argue that 2023 is going to have a sharper decline in local, residential construction. It is worth noting, however, that both architecture and construction surveys are showing some more recent upticks in confidence in their outlook for 2023. It’s mostly due to 30-year mortgage rates coming down from a high of roughly 7.0%. Also, residential builders have seen more foot traffic in models because of the moderation in mortgage rates.
The simple fact that prospective buyers surface when rates come down a little bit tells me that there is still very healthy home buying demand. When interest rates do come back down, builders and agents will be quite busy again.
• Commercial real estate did not have major changes in prices, but vacancy rates fell across all categories. In 2022, Q4 office vacancy rates declined to 9.1% compared to 9.8% in Q3. Medical Office vacancies fell to 8.4% versus 9.5% in Q3.
Retail vacancies fell to 4.4% in Q4 from 4.6% in Q3, and industrial vacancies fell to 6.3% from 6.5%. The data represents all classes of properties (from lower quality to downright swank) so lease rates may appear a bit off. I am currently investigating whether there is another data source that I can use with reliable detail that perhaps I can rotate in and out of the monthly reports.
• Enplanements were up over 27% at our local airport comparing all of 2019 to 2022, which is amazing. In fact, the Colorado Springs Airport had the highest amount of traffic in 22 years with more than a million passengers. Similarly, although local tourism is lower in the winter months, overall, hotel profitability was up 21.4% in December 2022 compared to December 2019 — more good news.
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