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National, State and Regional Economy
The slow economic recovery continues. The national unemployment rate remained at 9.7 percent for a second straight month, while Virginia’s unemployment rate rose to 7.2 percent. Inflation remains contained as the Consumer Price Index (CPI) increased 2.1 percent year-over-year, while the core CPI excluding food and energy rose 1.3 percent. However, many Americans continue to doubt the strength of the economic recovery. For example, the Conference Board’s Consumer Confidence Index’s Present Situation Index declined sharply in February to its worst level in 27 years.
Some economists previously expected that as one result of the deep recession and collapse in asset values, Americans would become more frugal. Time magazine, in its issue from April 27, 2009, even did an entire issue on “The New Frugality: How Americans Are Cutting Back.” It turns out that the new frugality may have been a little overstated. The chart below shows a three month trailing average of the personal savings rate from 1991 to the present. During the 1960’s and 1970’s, the savings rate averaged over 7 percent; since 1991, the savings rate has averaged around 4 percent. In April of last year, the month the Time feature was written, the savings rate reached 4.9 percent; in January, 2010, the savings rate decreased to just 3.3 percent, its lowest level since the financial crisis kicked into high gear. In the short-term, at least, savings have settled at around their 20 year average rate, and consumers have begun to tentatively open their wallets again, which in the short run is good news for growth. Personal consumption expenditures are by far the most important single component of the economy.
One of the major causes of the financial crisis was excessive borrowing and spending, and banks are still dealing with the effects. The chart below shows delinquency rates, by quarter, of federally insured commercial banks for residential real estate, commercial real estate, and credit cards through the 4th quarter of 2009.
There’s a clear correlation between the decrease in the personal savings rate earlier this decade and rise in the delinquency rate over the last several years. The graph above shows that credit card delinquencies decreased slightly for the second straight quarter. Commercial real estate delinquencies, while still increasing, have also begun to flatten, but residential real estate delinquencies continued to increase in the 4th quarter, reaching 10.1 percent, their highest level ever, and more than three times their previous peak in the early 1990’s. Many of these delinquencies will eventually become foreclosures. While delinquencies remain elevated banks are unlikely to significantly relax lending standards. The graph shows that the debt-related economic problems that helped trigger and maintain the recession remain with us.
The mixed nature of the economic recovery can be clearly seen in Alexandria’s situation. The City’s economy has fared much better than the national economy, but there are still signs of weakness. The graph below shows the number of jobs in Alexandria in the 3rd quarter 2009 decreased approximately 3.1 percent compared to the 3rd quarter of 2008.
However a closer look at the data reveals an interesting pattern. The table below shows the changes in the top five categories of jobs in the City of Alexandria for the 3rd quarter of 2009 compared to the 3rd quarter of 2008. Collectively, the jobs in these five categories make up 60 percent of the total positions in the City. The categories with the largest year-over-year rates of decline consist of the lowest paying positions in food services and retail trade; the number of higher paying professional and public administration positions in the City increased modestly.
Some of the local economic indicators for the City reflect the difficult time the recovery is having getting going, though there are special factors involved. The graph below shows the year-over-year change in national retail sales and local sales tax collections. At the national level, the comparison is with the depths of the financial crisis and recession in late 2008 and early 2009. However, Alexandria retail sales were skewed upward in January, 2009 by the inaugural effect – it is possible to see the effect in the graph – and downward in late 2009 by a late pre-Christmas snowstorm. This graph incorporates a three month trailing average through January, and the snowstorms will likely make the February numbers worse.
Transient lodging tax collections also reflect an upward bounce from the inaugural in January 2009. The graph below shows year-over-year changes in collections from the transient lodging tax. Alexandria hotels have been selling more rooms than last year, in part because at least one new high-end hotel opened earlier in 2009. However, rooms are being sold at lower rates, reducing revenues from the percentage part of the lodging tax.
The graph below reflects average room rates for the last 24 months. The inaugural effect is readily apparent, as the average room rate reached a high of about $180 in January 2009. The average rate dropped to just over $137 in January, 2010, down by 25 percent compared to January 2009 and 12 percent from January 2008, despite the presence of more high-end hotel space. This reflects continuing weakness in the travel industry. Alexandria hotels have successfully maintained occupancy levels only by adjusting rates downward.
There are signs that the national travel industry may be turning around; occupancy rates and room rates are no longer decreasing compared to a year ago, and some cruise lines are reporting improved business, but that turnaround is not yet apparent in Alexandria.
Real estates sales for February decreased slightly from last year while the average sales price was up slightly. A three month moving average of residential property sales volume shows that the sharp spike in sales resulting from the perceived end of the homebuyers’ tax credit has nearly vanished.
Early 2010 volume of sales and price levels have settled into a range approximately that of a year ago. Regular residential sales (as opposed to foreclosures and short sales) have been settling, on average, at or slightly above appraised values. Foreclosures continue to trend down from last year. However, interest rates are likely to go up, and the homebuyer’s tax credit is scheduled to be discontinued for sales after April, so it may be premature to conclude that the housing market has bottomed.
The commercial real estate market continues to be weak. The graph below shows a year-to-date comparison of new commercial construction projects, by total value.
According to the Department of Real Estate Assessments, the number of major sales of commercial buildings dropped from four last January and February to two this year through February. The credit crunch has not yet eased for commercial property.