The Economy -- October 2010

Page updated on Dec 30, 2010 at 9:32 AM

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National, State and Regional Economy

The national economy grew faster during the 3rd quarter.  The rate of growth increased to a 2.5 percent annualized rate from a 1.7 percent annualized rate in the 2nd quarter.  This is below the long-term average growth rate since 1946, though well above the average growth rate of 1.7 percent since 2000.

GDP -- Oct. 2010

The increase reflected positive contributions from consumption and federal government spending that were partially offset by a decrease in residential housing construction. 

The graph below shows a three-month trailing average of the savings rate since 1991.  The graph shows that the savings rate has plateaued at least temporarily at a level above its long-term average, but it is no longer increasing.   Since there’s a tradeoff between spending and saving, the fact that the savings rate is no longer increasing is healthy for short-term economic growth.  Americans may be poised to start spending again.

Personal Savings -- Oct. 2010

The economy added 151,000 jobs in October, the biggest monthly increase since early this year.  The national unemployment rate of 9.6 percent has remained unchanged since August, while Virginia’s unemployment rate of 6.8 percent was the same as that of one year earlier.  Alexandria’s unemployment rate of 4.5 percent is less than its rate of 4.8 percent one year ago. 

Unemployment Rate -- October 2010

Source: U.S. Department of Labor, Bureau of Labor Statistics

The Federal Reserve announced a program to purchase $600 billion in treasury debt, enough to purchase all newly issued United States treasury debt for the next six months.  Ideally, this will reduce interest rates and stimulate economic growth.  Policy makers are worried about the potential for decreasing prices, which makes it harder to pay off debt and may cause consumers to defer consumption.  The core Consumer Price Index, excluding food and energy, increased by just 0.6 percent last month, well below the 2 percent level of inflation targeted by the Fed.   Most of the top line increase in the consumer price index came from energy and food costs.  Motor fuel costs increased by 9.7 percent year-over-year in October, while food costs increased 1.4 percent.  Housing costs, which make up over 40 percent of the index, declined 0.2 percent year-over-year.

Consumer Price Index -- Oct. 2010

Source: U.S. Department of Labor, Bureau of Labor Statistics

Virginia has announced its first quarter revenue results.  Through September, individual tax withholding, a good proxy for employment and wages, is up 4.4 percent compared to last year.  Overall revenues growth is up 3.6 percent compared to last year, less than the forecasted increase of 4.2 percent. However, the State is optimistic it will reach its overall revenues target.  For all of 2010, General Fund Revenue collections barely exceeded FY 2005 collections and were substantially less than FY 2006 collections.

Local Economy

Based on City revenues, the local economy continues to expand.  The year-over-year change in sales tax revenues has nearly turned positive. Attachment 4 includes an analysis of retail sales in the City over the last few years.  The analysis shows that since 2006, the restaurant, lodging, and food and beverage stores sectors have performed relatively well, while the home furnishings, and building and garden store sectors have fared relatively poorly.  Overall, sales in categories we normally think of as retail sales have decreased in Alexandria by approximately 8.7 percent from the first half of 2006 to the first half of 2010.  There are at least four primary reasons for the decline.  Some of the decrease relates to the recession, which has had a major impact on retail sales, particularly in sectors related to housing and construction.   Some of the decline relates to the fact that until two years ago, the State was annually allocating hundreds of thousands of dollars in sales tax that should have gone to Fairfax County.  The decline may also be caused by the migration of retail sales to the Internet, which is not subject to sales tax.  Also, some of the decrease can be traced to the decline of Landmark Mall. 

For more detailed information regarding sales tax revenues, see Attachment 4 of this month's report. 

Retail Sales -- Oct. 2010

Source: Finance Department

Transient lodging receipts have moved strongly higher compared to last year.  The fact that the 6.5 percent lodging tax has increased more than the $1 room tax is an indication that room rates have risen.

Transient Lodging Tax -- Oct. 2010

Source: Finance Department

Real Estate

The hangover from the expiration of the homebuyers’ tax credit continues.  The graph below shows the volume of sales is around 20 percent below last year's pace.  Last year’s sales volume was artificially high due to the perceived expiration of the tax credit at the end of November.  Still, the number of homes sold in October was at the lowest level of any October in the last decade. 

Residential Sales -- Oct. 2010

Source: Department of Real Estate Assessments

The average sales price of a home in Alexandria in October rose by 5.5 percent over last year on a three month trailing average.  That’s at least partially due to a change in the sales mix; the expiration of the homebuyers’ tax credit had a greater dampening effect on sales in the lower end of the market, increasing the overall average sales price.

Average Sales -- Oct. 2010

Source: Department of Real Estate Assessments

The number of months’ worth of inventory in October continued to be well above the long-term averages.  The graph below shows the long-term average for single family homes is around 4.9 months, while the long-term average for condos is around 5.9 months.  Many real estate analysts consider a balanced market to be 4-6 months; anything above that level tends to favor buyers over sellers and may put downward pressure on prices.

Housing Inventory -- Oct. 2010

Source: Metropolitan Regional Information Systems

The number of foreclosures in the City increased on a three month moving average for the third month in a row to their highest level in over two years.  Attachment 5 includes an analysis of City foreclosures.  The analysis concluded that with all the uncertainty in the real estate market, it is difficult to estimate the seriousness of the foreclosure problem in Alexandria.  For the last several years, the government has created a variety of programs to help homeowners facing foreclosure to modify their loans and keep their homes.  The programs have helped some homeowners, but in other cases, have only delayed foreclosures.  Many banks have held back distressed properties, fearing to create a glut of homes for sale which would depress real estate values further.  However, it is likely that Alexandria’s economic advantages such as its low unemployment, proximity to Washington, DC, and relatively prosperous economy will make it immune to the worst of the problems facing the national real estate market.  The predominance of foreclosures in Alexandria are in condominiums, and of those, most are lower value properties.  A large number of the City’s foreclosures are centered in several condo complexes, primarily in the West End of the City, which have seen significant value declines.  However, the fact that Alexandria’s real estate market has performed relatively well to date may insulate the City from the worst of any foreclosure problems.  Clearly that has been the case to date, as the City’s current foreclosure rate is about 1/3 the national average and better than all but Arlington’s in the Northern Virginia region. 

For more information regarding the City’s foreclosure situation, see Attachment 5.

Foreclosures -- Oct. 2010

Source: Department of Real Estate Assessments

There are some green shoots in the City’s multi-family real estate market. The November 19 issue of the Washington Business Journal contained an article entitled “Multi-family market in boom mode as money flows in for top projects.”   The article’s sidebar detailed several projects that recently have announced financing or groundbreaking including two in Alexandria.  The first is The Asher, a 206-unit building near the Braddock Road Metro station, and the second is the second phase of the Carlyle Square apartment project, a 344-unit building at 601 Holland Lane.