Growth, Income, Pensions and Housing – A Few of My Favorite Things

Categories: Commentary |

March 3, 2014

Lots to cover this week so I will refrain from spending time opining on world affairs, the media, the Fed or our elected lot in Washington. I’m also going to refrain from commenting on Representative Camp’s proposal until I have had more time to review the same. If all of the subjects in our title were directionally right, they truly would be amongst my favorite things.

Growth – Swing and a Miss

In case you missed it, on Friday, the Commerce Department issued a revision to its economic growth figure for the last quarter of 2013 – the estimate now stands at an annual growth rate of 2.4% v. an initial estimate of 3.2% (both of which are down from the pace of growth for the third quarter which was 4.1%). I am not sure anyone can fully blame the weather for the slowdown.

The impact of slow growth (which many describe as the “new normal”) can have an impact on the municipal market. Slow growth in the economy undoubtedly will impact tax receipts. Moreover, with the Fed sticking to its taper plan, absence of or even less stimulus that arguably was supportive of maintenance or growth (depends which economist and politician you ask) will also impact growth (as many of you know, I am not a big believer that the employment picture has improved – more on that next week – and we know wages have shown very little growth as well). Quickly, on the point of wages/income, using the Filter Module in DIVER Analytics, I know thatAverage Weekly Wages were up in 2,529 counties between second quarter 2012 and 2013 (the good news) but up only 1.8% (from $671.19 to $683.53). For more depth on income data, I suggest the Filter or Data Access modules.

Growth and Pensions

Staying with slow growth but turning to how States spend their budgets. Governor Christie (no, I will not write about bridge-gate) issued his latest budget. The good news is the Governor seems to plan on doing his part to address New Jersey’s unfunded pension system by making a $2.25 billion contribution. The bad news is that over 90% of the budget growth is to address pensions, retiree costs and debt service (and not services many deem equally if not more important – education, safety, etc.). I don’t think many folks believe that the unfunded liabilities are not an issue. The DIVER data team tracks over 200 State Pension plans and as the chart below demonstrates, these plans are, on average, 70% funded – that is using the assumptions of the plans themselves (I will not go back down this path as I recently addressed my concerns around pension funding and discount rates; I do however, offer these self-explanatory tables). Are State and cities paying attention?

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According to a Bloomberg article last Friday, maybe so. The article, “Detroit Prods Cities to Target Pensions” makes the point that many municipalities are starting to wake up to the reality of their situation. Could it be that better reporting starting this year (thanks GASB) and recognition that low funded ratios and higher discount rates simply don’t work? To delve into Funded Ratio and ARC-related data for the States and cities, I suggest the Filter or Data Access modules. If you want to see how any portfolio you load into Analytics compares with the US average, use the Portfolio Dashboard (below for our Sample Portfolio).

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Below is the baseline visualization of the Funded Status for FY 2012 (only 19 States have reported for FY ’13 – available in Analytics). If you desire to truly peel back the onion and look at the plan by plan data and more in-depth figures (such as discount rate), use the contact information at the end of this commentary.

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Home Prices

Last week, the WSJ ran an article with the headline “Hot Home Prices Due to Cool” and noted that, while 2013 was the best year for home price growth since 2005, the expectation was for things to slow down in 2014. The WSJ used the Case-Shiller figures for the 20 major metro areas and showed over 13% growth. DIVER uses the FHFA data to gain greater granularity.

First off, as regular readers know, the devil is in the details – how many areas were up (using the Filter Module I count over 2,900 counties) and by how much (on average, only 3.7%)? Delving into these data points is highly critical because, as you know, assessed values generally lag home prices by about 18 months.

Does the reality of slower economic growth (see page one) impact home prices? Does the Feds taper impact home prices (because, as I believe, it impacts rates, irrespective of where the Fed Funds rate is)? On these last two points, I think so. Do home prices impact Assessed Values – you bet. Do Assessed Values impact tax receipts? You know where I’m going with this. There is a need to pay down underfunded pension plans and undergo reform, the economy may not be quite as robust as some believe and income growth and home price growth do not appear to support a continuation of growth in tax receipts.

From a credit perspective, yes, you can look at CAFRs (on average, issued over 200 days after the close of the fiscal year) or await the next rating review. However, the economy is the driving force behind what is reported. That’s why we focus on economic and demographic data. To that end, Lumesis will be releasing its February Geo Score later today. The Geo Score is a measure of the economic well-being of every State, county and over 350 cities. DIVER subscribers, simply visit Analytics or Advisor for access to all scores.

Have a great week.

Gregg L. Bienstock Esq.

CEO & Co-Founder, Lumesis, Inc.

Data Released Last Week:

  • Unemployment (%), Unemployment Rate Change, State, 2013
  • UPDATED: DIVER Geo Score, State, County and Place, Current & Trend, Feb 2014
  • Exports Total, Exports Growth and Exports as % of GDP, State, 2013
  • Drought Intensity, County, Feb, 2014
  • Weekly Initial and Continued Jobless Claims, State, 02/15/2014
  • Housing Price Index, State, County, 2013 Q4
  • House Price Change, State, 2012 Q4 – 2013 Q4
  • House Price Change, State, 2008 Q4 – 2013 Q4
  • UPDATED: Default Filings – Issuers, State, County, 2014
  • UPDATED: Bankruptcy Filings – Issuers, State, County, 2014

– See more at: https://staging2.lumesis.com/commentary-blog/2014-commentary/3-3-2014-growth-income-pensions-and-housing-a-few-of-my-favorite-things#sthash.gaD0poKR.dpuf