Growth – Are the Prospects Good? Consider the Impact on Your Holdings

Categories: Commentary |

February 18, 2014

The economy is strong and recovering…or maybe not. There is a good many folks out there of the view that the recovery is strong – supported by the reality that the Federal Reserve continues its tapering. Indeed, Chair Yellen confirmed the continuation of low rates irrespective of where the unemployment rate is – a nod to the reality that the declining rate has limited relevance when the labor force remains close to historic lows and wages are barely moving. This is the type of data we follow for our users and remind folks of in this weekly.

I am not here to suggest this commentary knows more than the many talented economists at the Fed or in the market at large. I am suggesting, as I have in the past, that the generalizations require one to focus on the detailed data to reach informed conclusions on the States, counties, cities and school districts you care about. Similarly, as the data suggests things may not be so rosy, after all, that one not jump on the bandwagon but, again, focus on the data. Why am I starting my commentary with something I usually don’t harp on until much later in my weekly? Because some of the mainstream media and daily newspapers are starting to warn that “Growth Shows Signs of Slowdown” as evidenced by an article in Friday’s Journal (there were others as well).

The important message I glean from a lot of what I read this past week has to do with growth and the fact that many economists are suggesting growth will be slower than originally thought due to the reality that consumers are not doing as well as hoped. The aforementioned article had some economists subtracting one-third of a percent from their annual GDP growth forecast citing everything from the consumer to weather. First shot across the bow around growth.

Next up, the Congressional Budget Office analysis of the Affordable Care Act (aka Obama Care). I’m going to stay away from the political rhetoric around the ACA and focus on the CBO’s economic and budget outlook for 2014 to 2024 – 3.1% for 2014 rising to 3.4% for 2015 and 2016. All good, right? Well, the CBO projects growth to slow to 2.7% in 2017 and continue to slow “to a pace that is well below the average seen over the past several decades,” due to lower inflation and slower growth (if any – my comment) resulting from an aging population (forget for the moment that the labor force is hovering around historic lows). Thanks to John Mauldin’s Thoughts from the Frontline for pointing us to the above quote.

And now tying growth to income, quoting from John Mauldin’s Thoughts from the Frontline, February 9, 2014, “A Most Dangerous Era”:

Jeremy Grantham in his recent quarterly letter looks at the incremental effect of a lower growth rate. He tells us that the remarkably steady 3.3% US growth rate from 1880 to 1980 multiplied income 26 times over that century, that the 2.8% average growth rate from 1980 to 2000 would compound income 16 times over a period of a century, but that the 1.4% rate experienced over the past 13 years would multiply income by just four times over a century.

So, we have projections for lower GDP growth than anticipated and the reality that slower growth leads to slower income growth. Let’s take a look at GDP Growth at the State level where we see that GDP Growth for 2012, at the State level, ranged from a low of -.13% (Connecticut – in red below) to growth of 13.38% (North Dakota – in blue below) and, the relatively good news is that GDP Growth for 2013 exceeded growth for 2011 in 33 States. While we wait for the 2013 data, take a look at the below map and you get a sense of how many States were below 3% growth before these very recent predictions outlined above.


Turning to income (and, no, I am not going near the income inequality debate). Let’s start with the reality that 30 States – over half – did not have a Median Household Income for 2012 that exceeded the average for all States ($52,007). While the Median Household Income for 2012 exceeded that of 2011 in 36 States, the average Median Household Income for 2012 was only 2.6% higher than 2011 ($50,686). One can also look to Average Weekly Wages through the second quarter of 2013 to get a sense of how things are trending year on year. The good news is that Average Weekly Wages are up across the country. However, when looking at Q2 2013 v Q2 2012 the results speak for themselves:


Which States are exceeding the averages for income growth? Which States are truly growing at a reasonable pace? The focus on these interconnected data sets brings us to the reality of the impact of GDP growth and income on the municipal market. What assumptions are incorporated in the budgets of municipalities for the bonds you hold? What are the revenue assumptions driven by? Will they hold true? Worth revisiting the assumptions and the underlying data.

To assist in this regard, I point you to the Geo Score for States, counties and cities of concern or resident amongst your holdings. The Geo Score is released monthly and is a proprietary scoring/measure of the economic well-being of the referenced geography. Importantly, it is not a rating of the bond or issuer but a dynamic measure of the economy focusing on data from the employment, housing and income categories – all factors relevant to the growth of the economy.

Click here to access current Geo Scores. The link provides you current, one year prior and trend scores for all States and select counties and cities. For a comprehensive listing of scores as well as monthly history please ping the Lumesis team at 203.276.6500 or send a note to

One last bit before signing off this week. In keeping with the theme of don’t believe the hype, I offer a glimpse at some housing data. While the pundits and CBO are suggesting things may not be as rosy as we hope, there is some reasonably positive data around housing (despite some broader housing price measures suggesting a cooling because the hottest locations are seeing a slowdown in price increases – one may consider that healthy v the prospect of another housing bubble).

The Foreclosure Rate for all of 2013 was less in 40 states than the rate was for 2012 (and the Foreclosure Rate was higher in only 744 of about 3,200 counties). Equally positive is that the Delinquency Rate for December 2013 was greater in only two States than December 2012. That is good news. I am looking forward to the housing price data later this month. While I suspect a minor slowdown in price growth (consistent with some of the broader measures), I do expect a level of stability and, so long as rates stay where they are (and the Fed continues to be “accommodative”), continued recovery (yes, recovery – as noted in this commentary, there are a fair number of localities have still not seen housing prices return to pre-recession levels).

Given the holiday week, our travels are somewhat limited with Gregg and Debra hitting NYC on Thursday. Weather permitting, we’ll pick things up again next week.

Gregg L. Bienstock, Esq.

CEO & Co-Founder, Lumesis, Inc.

Data Released Last Week:

  • UPDATED: General Fund Expenditure & Revenue, State, 2013
  • UPDATED: CAFRs Filing Index, State, 2013
  • UPDATED: Debt Outstanding, as % of Personal Income, and Per Capita (CAFR), State, 2010-2013
  • UPDATED: General Fund Balance, State, 2013
  • Foreclosures, State, County, Jan 2014
  • Weekly Initial and Continued Jobless Claims, State, 02/01/2014
  • Households, State, County, 2014
  • UPDATED: Defense Expenditures as % of GDP, State, 2013
  • UPDATED: Default Filings – Issuers, State, County, 2014
  • UPDATED: Bankruptcy Filings – Issuers, State, County, 2014