Economic & Revenue Update

2019 has been a year of changes

Summary

The U.S. labor market added 136,000 net new jobs in September.

The U.S. unemployment rate fell to its lowest level since December 1969.

The U.S. ISM manufacturing index indicated a contraction in manufacturing activity for a second consecutive month.

Seattle area home prices increased in July but were down over the year.

Washington personal income growth was the highest in the U.S. in 2018.

Major General Fund-State (GF-S) revenue collections for the September 11 – October 10, 2019 collection period came in $44.8 million (2.8%) above the September forecast.

Revenue Act collections were $44.3 million (3.0%) higher than forecasted and non-Revenue Act collections were $0.6 million (0.3%) higher than forecasted.

United States

National data were largely positive this month with a few notable exceptions. Although job growth is slower than last year, the labor market remains strong. Residential construction and home sales both improved, and consumer confidence remains at high levels. However, a gauge of manufacturing activity weakened for a second straight month and light vehicle sales declined.

The U.S. economy added 136,000 net new jobs in September, of which 1,000 were temporary workers hired to prepare for the 2020 Census. Employment data for July and August were revised up by 45,000 jobs. Sectors with notable employment gains in September included health care (+39,000), arts, entertainment and recreation (+20,000), transportation and warehousing (+16,000) and administrative and support services (+14,000).

Sectors with net employment declines in September included retail trade (-11,000), membership associations and organizations (-5,000), durable goods manufacturing (-4,000) and real estate (-3,000).

Initial claims for unemployment insurance decreased 10,000 to 210,000 (SA) in the week ending October 5th. The four-week moving average of initial claims increased by 1,000 to 213,750. Layoff announcements in September, as tracked by outplacement firm Challenger, Gray, and Christmas, totaled 41,557 or 22.3% lower than in August. Despite the drop, year-to-date layoff announcements total 464,869 or 26.9% higher than for the same period in 2018.

Average hourly earnings decreased by one cent in September and are 2.9% above their year-ago level.

The average workweek in September was unchanged at 34.4 hours.

The unemployment rate in September decreased from 3.7% to 3.5%, its lowest level since December 1969

U.S. unemployment rate lowest in 50 years

The third estimate of real U.S. GDP growth for the second quarter of 2019 was unchanged at 2.0% (SAAR). In the first quarter, real GDP grew by 3.1%.

Manufacturing activity contracted in September for a second consecutive month. The Institute for Supply Management’s Purchasing Managers Index (PMI) decreased by 1.3 points to 47.8 (50 or higher indicates growth). The non-manufacturing PMI for September decreased from August by 3.8 points to 52.6. The non-manufacturing index has remained above 50 for 116 consecutive months.

Industrial production in August increased by 0.6% (SA) compared to July. Over the year, industrial production is up by 0.4% (SA). New orders for core capital goods (i.e., durables excluding aircraft and military), which is a proxy for business investment, decreased by 0.4% (SA) in August following an unchanged reading in July according to U.S. Census Bureau data.

Light motor vehicle (autos and light trucks) sales in September decreased by 1.1% (SA) over August. Light motor vehicle sales decreased by 0.7% over the year.

Residential construction and sales data were all stronger this month. Housing units authorized by building permits in August were 7.7% (SA) above their July level and 12.0% above their year-ago level. August housing starts increased by 12.3% (SA) compared to July and were 6.6% above their August 2018 level. New home sales in August increased by 7.1% (SA) compared to July and were 18.0% above their year-ago level. Existing home sales in August increased by 1.3% (SA) compared to July and were up 2.6% compared to August 2018. The seasonally adjusted Case-Shiller national home price index for July was 0.1% above its June level and 3.2% above its year-ago level.

By any criteria, the landscape of Seattle is unrecognizable from just a few years ago. Photo: Morf Morford

By any criteria, the landscape of Seattle is unrecognizable from just a few years ago. Photo: Morf Morford

Two key measures of consumer confidence diverged this month. The University of Michigan (UM) consumer sentiment survey increased by 3.4 points to 93.2 in September after a 10.3 point decline in August. Despite the high levels of confidence, consumers in the UM survey have also expressed rising levels of economic uncertainty. The Conference Board index of consumer confidence declined by 9.1 points in September. Survey respondents were less confident in both current conditions and the outlook over the next six months.

Petroleum spot prices decreased over the last month. For the week ending October 4th, U.S. benchmark West Texas Intermediate decreased by $3 per barrel from early September to $53 per barrel. Over the same period, European benchmark Brent decreased by $1 to $59 per barrel. Gasoline prices increased by eight cents between September 16th and October 14th to $2.63 per gallon (regular, all formulations).

The American Trucking Association’s truck tonnage index decreased 3.2% (SA) in August following a 6.2% (SA) increase in July. The index is now 4.1% above its year-ago level.

Rail carloads for September were 3.2% (SA) below their August level and 6.9% below their year-ago level. Intermodal rail units (shipping containers or truck trailers) were 0.5% (SA) below their August level and 5.9% below their September 2018 level.

Washington

We have just one month of new Washington employment data since the September forecast was released. Total nonfarm payroll employment rose just 1,700 (seasonally adjusted) in September, which was 3,200 less than expected in the September forecast. However, the difference was mostly due to government employment which declined by 1,900.

This was 2,800 worse than the 1,000 increase expected in the forecast. We believe the drop in government was due to a seasonal adjustment problem with state government education which artificially increased the level of employment the month before. Without the swing in state education employment, total government employment growth and total payroll employment growth would both have been very close to the forecast. Private services-providing sectors added 2,900 jobs in September. The manufacturing sector added  400 jobs of which 200 were aerospace jobs. The construction sector added 300 jobs in September.

Washington’s unemployment rate remained at 4.6% in September for a fifth consecutive month. The state’s unemployment rate remains near its all-time low of 4.4% last reached in October 2018.

Washington housing construction got off to a very strong start in the third quarter of 2019. In July and August, 48,200 units (SAAR) were permitted consisting of 23,800 single -family units and 24,400 multi-family units. The September forecast assumed an average rate of 45,400 (SAAR) units for the third quarter as a whole, consisting of 22,600 single family units and 22,800 multi-family units.

Seattle area home prices increased in July but were down over the year. According to the S&P/Case-Shiller Home Price Indices, seasonally adjusted Seattle area home prices increased 0.5% from June to July while the composite-20 index was unchanged. Monthly Seattle home prices have, on average, been trending down since June 2018. As of July 2019, Seattle home prices were down 0.7% over the year compared to a 2.0% increase in the composite-20 index. Seattle home prices are still up 89% since the December 2011 trough and exceed the May 2007 peak by 32%.

In September, after the forecast was complete, the U.S. Department of Commerce, Bureau of Economic Analysis (BEA) released state personal income estimates for the second quarter of 2019. According to these estimates, Washington personal income rose from $485.9 billion (SAAR) in the first quarter to $494.2 billion in the second quarter. The reported 7.0% growth rate (SAAR) in Washington personal income was the 3rd largest among the states and District of Columbia and exceeded the 5.4% growth rate for the U.S. as a whole.

The September state personal income release also incorporated the results of the BEA’s annual update of state personal income. The update revised annual estimates of state personal income for 1998 to 2018.

The BEA revised its 2018 personal income estimate up $9.9 billion (2.1%). Our revision was less, $8.6 billion (1.8%) because we had already benchmarked our estimate for wages and salaries to the Quarterly Census of Employment and Wages (QCEW). We use the published BEA estimates for all other components of personal income. The $8.6 billion revision in our estimate was mostly due to a $7.8 billion revision to property income (dividends, interest, and rent). Washington personal income growth was the fastest among the states and District of Columbia in 2018 and has exceeded the national average growth rate for the last seven years.

The Institute of Supply Management – Western Washington Index (ISM-WW) declined in September but remained in positive territory. The index, which measures conditions in the manufacturing sector, decreased from 56.0 in August to 54.0 in September (index values above 50 indicate growth while values below 50 indicate contraction). The index has exceeded 50 in each of the last 26 months. The production and orders components indicated expansion in September while the inventory and deliveries components indicated contraction. The employment component was neutral at 50 in September.

ECONOMIC & REVENUE UPDATE

Washington leads the nation in income growth

Major General Fund-State (GF-S) revenue collections for the September 11 – October 10, 2019 collection period came in $44.8 million (2.8%) above the September forecast. Revenue Act collections were $44.3 million (3.0%) higher than forecasted and non-Revenue Act collections were $0.6 million (0.3%) higher than forecasted.

Revenue Act

Revenue taxes consist of the sales, use, business and occupation (B&O), utility, and tobacco products taxes along with associated penalty and interest payments. The revenue collections reported here are for the September 11 – October 10, 2019 collection period. Collections correspond primarily to the August economic activity of monthly filers.

Revenue Act collections for the current period came in $44.3 million (3.0%) above the September forecast. During the period, large one-time payments for past due taxes, net of large one-time refunds, totaled $8.2 million. Without these payments, which were not included in the forecast, collections would have been $36.1 million (2.5%) higher than forecasted. Adjusted for large one-time payments and refunds, collections grew 6.7% year over year. The 12-month moving average of year-over-year growth decreased to 6.8%. Seasonally adjusted collections increased from last month’s level.

Revenue Act collections increased 7.0% year over year. Retail sales tax collections grew 7.3% year over year and B&O tax collections grew 5.3% year over year.

Total tax payments as of September 30 from electronic filers who also filed returns in the September 11 – October 10 period of 2018 were up 3.6% year over year (payments are mainly Revenue Act taxes but include some non-Revenue Act taxes as well). Last month payments were up 6.6% year over year. Some details of payments from electronic filers:

Total payments in the retail trade sector were up 3.7% year over year. Last month, payments were up 5.2% year over year.

Seasonally adjusted Revenue Act receipts

Washington car and truck sales declined in September. Seasonally adjusted new vehicle registrations decreased 1.5% in September after a 3.2% uptick in August. Sales were down 5.4% over the year and 16.9% since the November 2017 post-recession peak.

Monthly sales are erratic but have been trending down since mid-2016.

- Washington State Economic and Revenue Forecast Council      www.erfc.wa.gov