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2008-06-22 BACK
Thoughts on the Texarkana Economy
Thoughts on the Texarkana Economy This article originally appeared in the Texarkana Gazette on June 22, 2008 Business Matters By Dr. Ed Bashaw, Dean, College of Business Texas A&M University-Texarkana As I pen these words, there is plenty of bad news regarding the national economy. Crude oil at record high prices, average pump prices for gasoline at $4 per gallon, federal unemployment rate that unexpectedly jumped ½% to 5.5%, consumer confidence indexes at record lows, home values decreasing in value, housing markets suffering from fewer transactions and more restrictive lending, and the Dow-Jones Industrial Average that continues to drop. How have the national factors played out in Texarkana? In this column, I'll review some of these factors and the economic conditions for Texarkana. Nationally, the economy's current struggle is due to factors not altogether applicable to Texarkana. In the first quarter of 2008, 93% of the national economy was doing fairly well. GDP was up 3% for the quarter. The drag on the economy has come from two sectors, automobiles and housing, where combined annual real GDP was down 12%. U.S. automakers have had troubles for several years and they have been made worse by the run-up in gas prices. Two problems that caused national housing numbers to be negatively affected, as I see them, were the highly publicized sub-prime mortgage problems and the accompanying ?talking down? Of home prices by negative news accounts. The real problems were concentrated mainly on the west coast, northeast, and in Miami, not in Texarkana. Unfortunately, the bad news for these real estate markets led to problems in other areas that didn't share the same underlying factors. These two sectors (automakers and housing/real estate) have negatively impacted the U.S. consumer confidence levels reported by The Conference Board and the University of Michigan. Both organizations measure consumers? Perceptions of economic conditions and their willingness to make current discretionary purchases. Consumer spending is arguably the most important factor in a given economy. Confidence levels were initially driven down by the consumer's loss of home value and equity or their increase in monthly mortgage payments from upwardly adjusting rates (or both). Recently, high food and gas prices have caused confidence to sink to 1992 and 1980 levels. These consumer sentiment measures are important predictors of how the economy will perform in the future and are important indicators to continually monitor. What do the economic numbers look like in Texarkana? Unfortunately, we have no consumer confidence numbers for the Texarkana MSA (defined as Bowie and Miller counties). To understand today's local economic conditions (and future conditions) I think that we should look at the real estate market (number of home sales, average home price for Texarkana, and number of new single-family home starts), population growth, and the local unemployment rates. Doing so will give us a better understanding of where the Texarkana economy may be headed. In terms of the number of home sales, transactions intuitively track closely with population growth. 2006 was a relatively good year for home sales with 1130 transactions. This correlates well with the population growth in 2006 of 1,506 (for MSA population of 133,903 in 2006). 2007 was the start of the national housing decline. Texarkana reflects this decline. 2007 saw a 15% reduction in home sales versus 2006. What about 2008? Year to date (through April) we are down 25.6% transactions. April 2008 was a bit better at 92.8% of April 2007. Part of the reason was that the Texarkana MSA grew by only 312 in 2007 to 134,215. What about home prices? In 2007, the average price paid for a home was $120,057, up from 2006 at $109,726. So far in 2008 we are tracking pretty closely with the first four months of 2007 ($111,074 in 2008 versus $112,025 in 2007). New single-family building permits, I contend, may be a good substitute for consumer confidence. The demand for building permits is a function of two factors: population growth (new to market) and a buyer's or builder's perception of the purchasers' ability to handle the increased financial obligation (same market upgrades). These ?same market upgrades correlate well with consumer confidence. In Texarkana, there were 232 new building permits issued in 2007. A review of monthly permits issued in 2007 shows a drop in monthly building permits beginning in September (15 in September versus 37 in August) that continues through April 2008. The number of permits was down over 37% for the first four months of 2008 compared to the same time period in 2007. These numbers track consistently with declining national consumer confidence levels. There is good news for Texarkana. Local unemployment rates were 3.9% in April. The national unemployment rate was 5.0% for the same time period. This is Texarkana's lowest monthly unemployment rate recorded in the database going back to January 1995. The next lowest monthly unemployment rate was a 4.0% rate in December 2000. Because of Texarkana's employment strength, if consumers can weather today's record gas prices, I would expect consumer spending (and new home building permits) to increase. We'll see. I'd love to hear your comments. Feel free to email me at edward.bashaw@tamut.edu.
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Thoughts on the Texarkana Economy
Thoughts on the Texarkana Economy This article originally appeared in the Texarkana Gazette on June 22, 2008 Business Matters By Dr. Ed Bashaw, Dean, College of Business Texas A&M University-Texarkana As I pen these words, there is plenty of bad news regarding the national economy. Crude oil at record high prices, average pump prices for gasoline at $4 per gallon, federal unemployment rate that unexpectedly jumped ½% to 5.5%, consumer confidence indexes at record lows, home values decreasing in value, housing markets suffering from fewer transactions and more restrictive lending, and the Dow-Jones Industrial Average that continues to drop. How have the national factors played out in Texarkana? In this column, I'll review some of these factors and the economic conditions for Texarkana. Nationally, the economy's current struggle is due to factors not altogether applicable to Texarkana. In the first quarter of 2008, 93% of the national economy was doing fairly well. GDP was up 3% for the quarter. The drag on the economy has come from two sectors, automobiles and housing, where combined annual real GDP was down 12%. U.S. automakers have had troubles for several years and they have been made worse by the run-up in gas prices. Two problems that caused national housing numbers to be negatively affected, as I see them, were the highly publicized sub-prime mortgage problems and the accompanying ?talking down? Of home prices by negative news accounts. The real problems were concentrated mainly on the west coast, northeast, and in Miami, not in Texarkana. Unfortunately, the bad news for these real estate markets led to problems in other areas that didn't share the same underlying factors. These two sectors (automakers and housing/real estate) have negatively impacted the U.S. consumer confidence levels reported by The Conference Board and the University of Michigan. Both organizations measure consumers? Perceptions of economic conditions and their willingness to make current discretionary purchases. Consumer spending is arguably the most important factor in a given economy. Confidence levels were initially driven down by the consumer's loss of home value and equity or their increase in monthly mortgage payments from upwardly adjusting rates (or both). Recently, high food and gas prices have caused confidence to sink to 1992 and 1980 levels. These consumer sentiment measures are important predictors of how the economy will perform in the future and are important indicators to continually monitor. What do the economic numbers look like in Texarkana? Unfortunately, we have no consumer confidence numbers for the Texarkana MSA (defined as Bowie and Miller counties). To understand today's local economic conditions (and future conditions) I think that we should look at the real estate market (number of home sales, average home price for Texarkana, and number of new single-family home starts), population growth, and the local unemployment rates. Doing so will give us a better understanding of where the Texarkana economy may be headed. In terms of the number of home sales, transactions intuitively track closely with population growth. 2006 was a relatively good year for home sales with 1130 transactions. This correlates well with the population growth in 2006 of 1,506 (for MSA population of 133,903 in 2006). 2007 was the start of the national housing decline. Texarkana reflects this decline. 2007 saw a 15% reduction in home sales versus 2006. What about 2008? Year to date (through April) we are down 25.6% transactions. April 2008 was a bit better at 92.8% of April 2007. Part of the reason was that the Texarkana MSA grew by only 312 in 2007 to 134,215. What about home prices? In 2007, the average price paid for a home was $120,057, up from 2006 at $109,726. So far in 2008 we are tracking pretty closely with the first four months of 2007 ($111,074 in 2008 versus $112,025 in 2007). New single-family building permits, I contend, may be a good substitute for consumer confidence. The demand for building permits is a function of two factors: population growth (new to market) and a buyer's or builder's perception of the purchasers' ability to handle the increased financial obligation (same market upgrades). These ?same market upgrades correlate well with consumer confidence. In Texarkana, there were 232 new building permits issued in 2007. A review of monthly permits issued in 2007 shows a drop in monthly building permits beginning in September (15 in September versus 37 in August) that continues through April 2008. The number of permits was down over 37% for the first four months of 2008 compared to the same time period in 2007. These numbers track consistently with declining national consumer confidence levels. There is good news for Texarkana. Local unemployment rates were 3.9% in April. The national unemployment rate was 5.0% for the same time period. This is Texarkana's lowest monthly unemployment rate recorded in the database going back to January 1995. The next lowest monthly unemployment rate was a 4.0% rate in December 2000. Because of Texarkana's employment strength, if consumers can weather today's record gas prices, I would expect consumer spending (and new home building permits) to increase. We'll see. I'd love to hear your comments. Feel free to email me at edward.bashaw@tamut.edu.
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