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National, State and Regional Economy
The tentative economic recovery continues. The first quarter Gross Domestic Product numbers showed moderate growth, driven by increases in consumption expenditures and business investment. The annualized increase of 3.2 percent is on par with the country’s post-war average of 3.3 percent, though stronger than the average 1.7 percent increase the U.S. economy has registered since 2000.
It now seems unlikely that the national economic recovery will be V-shaped, particularly given the fact that the federal economic stimulus will begin to taper off this spring, and government spending at the state and local level is likely to turn negative when the new fiscal year begins. Another phase of the financial crisis has appeared in Europe as bond investors worry that Greece and other European countries may eventually default on their debt. As a result, investors have shifted to U.S. bonds as a safe haven investment, dropping the interest rates on some treasury notes to their lowest levels since the height of the financial crisis last year and driving up the value of the dollar. A stronger dollar will likely reduce U.S. exports, further dampening GDP growth, but demand for U.S. treasury debt will keep long-term interest rates low in the U.S. until the crisis is resolved.
The graph below shows the annual change in the Consumer Price Index. The core inflation rate that strips out volatile food and energy costs has drifted below 1 percent, due to continuing economic weakness. The Federal Reserve prefers year-over-year increases in the Consumer Price Index of between 2 and 3 percent. However, excluding shelter, which makes up roughly 40 percent of the index, the year-over-year CPI increased by 3.7 percent. There is no consensus among economists as to whether the country is heading into an inflationary or deflationary period.
The economy added almost 300,000 jobs in April, but the national unemployment rate rose to 9.9 percent as the unemployed entered the workforce in larger numbers.
Alexandria's Economy and Revenues
Now that the snow storms are in the past, some improvement is becoming apparent in Alexandria’s economy. The graph below shows a three month trailing average of sales tax receipts.
On a monthly basis, March 2010 sales tax receipts increased 7 percent compared to March 2009’s receipts. (The graph above is a three month moving average and includes the month of February, whose receipts were strongly affected by the snowstorm.) A comparison of year-to-date sales tax revenues, excluding locality transfers, shows that sales tax receipts are down roughly 2 percent compared to FY 2010.
Some improvement is also evident in the City’s travel industry, as is evident from the graph below. The downward trend in the $1 per room tax is mainly due to the fact that the City’s last new hotel space opened in February 2009, so the year-over-year comparisons, which in this graph include January through March, are becoming more difficult. However, in March, there was a sharp increase in tax receipts from the percentage portion of the tax. This signifies an improvement in revenue per hotel room.
The graph below shows that the average hotel room rate in the City has begun to recover from its lows and was about 3 percent higher than it was a year earlier. That’s the first year-over-year increase in room rates since January 2009, which included President Obama’s inauguration.
Real estate sales for the three months ending in April rose by 10.1 percent compared to the three months ending in April 2009. A three month moving average of the average sales price fell by 0.1 percent compared to last year. The year-over-year change has been roughly flat since last summer.
The number of foreclosures has increased for a third straight month, though it is still well below the peak reached in 2008. Most foreclosures are for condominium properties, not single family dwellings. It is likely that as some of the programs to help people avoid foreclosures begin to wind down, the number will continue to rise.
The commercial property market remains in the doldrums. The graph below shows that new commercial construction for 2010 fiscal year-to-date is just a fraction of the two prior fiscal years.