Important Details
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Consumer Confidence

The Zions Bank Utah Consumer Attitude Index decreased 6.9 points to 106.5 in February. The U.S. Consumer Confidence Index decreased 7.4 points to 96.4 in the same period.

Housing Market

In January, the CoreLogic® Home Price Index (HPI) for Utah, which measures home price appreciation, experienced a year-over-year increase of 5.2%. Nationally, the HPI increased 5.7% during the same period.

Inflation

The Zions Bank Utah Consumer Price Index decreased 1.0% from December to January for a trailing 12-month inflation of -0.4%. In the same period, the U.S. CPI decreased 0.5% for a trailing 12-month inflation of -0.1%.

Job Report

Utah’s unemployment rate decreased 0.2 point to 3.4% in January, while the national unemployment rate increased 0.1 point to 5.7% in January.

April 2015

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Randy Shumway January 2015

Utah Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

Retail is the largest sector of employment in the United States, supporting one in four jobs in America, for a total of 42 million jobs. In Utah, the retail industry specifically—minus food and drink establishments—employs 180,537 people and contributes $8.7 billion to the state’s gross domestic product. That is a significant boost for Utah’s economy. In this article, we’ll look in more detail at employment within retail and then at the economic impact of retail consumer spending.

If we break down the retail industry by subsector in Utah, general merchandise stores provide the most jobs at 30,801, followed by non-store retailers at 29,306. Even the smallest subsector—furniture and home furnishings stores—provides 5,374 jobs for Utahns. These numbers show that retail plays a considerable role in supporting Utah’s labor market.

In terms of GDP impact, Utah’s non-store retailers—which include online-based companies, network-based companies, and other establishments that don’t have a physical store—come in on top, touting around $2.5 billion annually. General merchandise stores have the second-highest economic impact at $1.2 billion. Non-store retailers have the largest number of establishments in Utah at 12,110—more than three times the next subsector of miscellaneous store retailers, which has 3,176 establishments.

Just as the retail industry fuels Utah’s economy, it also benefits the national economy. Because a significant portion of our national economy depends on consumer spending, retail sales figures are utilized as a major indicator of the nation’s economic health. Following the great recession, when retail sales and consumer spending were low, the Federal Reserve held interest rates at historically-low levels and enacted a quantitative easing program to get money flowing through the economy.

One reason quantitative easing has been able to taper is that retail sales are now increasing. The National Retail Federation forecasts that retail sector sales—which exclude automobiles, gas stations, and restaurants—will increase 4.1 percent in 2015. This figure would mark the largest annual growth since 2011. Regardless of whether we look at just one subsector or the entire sector as a whole, a significant portion of our economy depends on consumer spending. The retail industry is the face that provides cash flow to numerous other industries, helping us obtain essential products and services. In addition to fueling economic growth via purchases in stores and online, retail provides reliable employment on both a local and national scale.

Read more Read more
storefront displaying gardening supplies

Short-Term U.S. Outlook

U.S. gross domestic product (GDP) increased at an annual rate of 2.2 percent during the last quarter of 2014, according to the revised estimate released by the Commerce Department at the end of February. The revised estimate was 0.4 percentage point lower than the original estimate of 2.6 percent. On average in 2014, GDP grew 2.4 percent.

Despite GDP contraction in the first quarter of 2014, the United States economy experienced strong growth in the second and third quarters, and modest growth in the fourth quarter—a positive year overall. The downward adjustment for fourth-quarter growth reflected slower additions to business inventories than were initially estimated. Also, imports figures slipped by 0.2 percentage points, reflecting a weaker trade balance. Juxtaposing the dollar’s increasing value against the euro’s slipping value, we may see more imports than exports for a while.

Americans have recently enjoyed greater personal disposable income as inflation stays low and year-over-year gas prices have declined significantly. Consumers are investing extra cash both in purchases and in savings. In January 2015, the savings rate increased to 5.5 percent—its highest point since December 2012.

Federal Reserve chair Janet Yellen addressed Congress at the end of February, announcing that increases to the federal funds rate would not occur for at least the next few meetings of the Federal Open Market Committee (FOMC). General consensus is that interest rate hikes won’t occur until at least September, though the Fed may choose to act more quickly if conditions warrant such a move. Both the Dow and S&P 500 increased following Yellen’s remarks.

Delicate domestic employment and economic weaknesses abroad affect the Fed’s reasoning in retaining flexibility with interest rate increases. Yellen stated that the current U.S. employment situation is still fragile, with too many Americans unemployed or underemployed. However, hiring has gained steam in recent months—employers added an average of 324,000 workers a month in the fourth quarter, which marks the labor market’s best performance in years. Despite positive indicators from the labor force, wage growth remains sluggish.

Since 2007, the world’s major economies have taken on higher levels of debt relative to GDP. Over the last seven years, debt owed by governments, households, and nonfinancial corporations has risen by $57 trillion to $199 trillion, representing 17 percent of global GDP. The global debt-to-GDP ratio was 286 percent as of the second quarter of 2014—a record high. The United States has contributed to this trend, taking on higher levels of government debt in order to fund fiscal stimulus following the Great Recession. In the second quarter of 2014, the U.S. debt-to-GDP ratio was 233 percent, or about $40 trillion. The Congressional Budget Office projects that the U.S. debt-to-GDP ratio will continue growing over the next decade. In this light, it makes sense to keep interest rates low for considerable time.

Long-Term U.S. Outlook

According to Stratfor’s forecast for the upcoming decade, the United States will continue to be the major economic, political, and military power in the world. However, the U.S. may become less entrenched in global political and military affairs than in past years because of its decreasing emphasis on foreign policy. Recent falling exports and growing energy self-reliance will partially negate the need for the United States to involve itself economically and militarily in foreign matters at the same levels it has historically. The U.S. economy is doing comparatively well and is expected to continue to improve.

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National Consumer Price Index dropped 0.5% Zions Bank Utah Consumer Price Index decreased 1.0%

U.S. Consumer Price Index

The Zions Bank Wasatch Front Consumer Price Index (CPI) decreased 1.0 percent from December to January on a non-seasonally-adjusted basis. The index has decreased 0.4 percent since this same time last year. The national Consumer Price Index decreased 0.5 percent from December to January and has decreased 0.1 percent over the past twelve months.

Utility prices decreased the most, registering a 5.6-percent decline from December to January. This drop was driven by lower propane prices throughout the Wasatch Front. Gas and electricity rates also decreased, but by smaller margins. Transportation was the other main driver in the CPI’s decrease. Gasoline prices hit a trough nationally on January 26. Although gasoline prices decreased by 23.3 percent in Utah in January, they have since begun to rise.

Food prices are finally reflecting lower gasoline prices. Food at home prices decreased 2.1 percent from December to January. The largest decreases showed up for bell pepper, cucumber, and apple prices, although meat, poultry, and other produce also decreased in price. Lettuce and citrus fruits registered a price increase in January. All other indices tracked by the Wasatch Front Consumer Price Index either increased or remained the same from December to January, though measured increases weren’t as sharp as declines in the food, utilities, and transportation categories.

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National Unemployment Rate decreased to 5.7% Utah Unemployment Rate decreased to 3.4%

Labor Market

Utah started 2015 on the right foot as the unemployment rate dropped from 3.6 percent in December (according to the BLS’s revised numbers) to 3.4 percent in January. Nonfarm payroll employment grew by 4.1 percent, and Utah’s economy added 53,600 jobs compared to January 2014. The number of unemployed Utahns actively seeking work in January was 49,800, down 100 from December’s 49,900. The greatest increases in employment occurred in the Trade, Transportation and Utilities industry, which added 12,500 jobs over the past twelve months, and the Professional and Business Services industry which added 10,200 jobs. Nationally, the unemployment rate ticked up slightly from 5.6 percent in December to 5.7 percent in January.

NPR recently released an analysis of the most common jobs in each state in the U.S., revealing some interesting information about the changing labor landscape in Utah. While the most common job in Utah from 1978 to 2012 was “truck, delivery, and tractor driver,” “software developer” officially became Utah’s most common job in 2014. Only Washington, Colorado, and Virginia also have “software developer” as the most common job.

Utah continues to establish itself as a major technology hub. In fact, one of NPR’s six major takeaways from the analysis was this: “Who knew Utah was a tech hub? Over the past few years, tech companies have rejuvenated Utah’s labor market. It’s home to an NSA supercomputing facility and a growing number of tech firms.” As Utah’s technology sector continues to grow, its economy and business landscape will benefit.

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Utah Consumer Attitude Index fell 6.9 points to 106.5 National Consumer Attitude Index fell 7.4 points to 96.4

U.S. Consumer Attitude Index

The Zions Bank Utah Consumer Attitude Index (CAI) decreased 6.9 points to 106.5 in February. While the Index has dropped below 110, consumers are still optimistic about the economic situation in Utah. The Utah CAI currently sits 9.8 points higher than its level twelve months ago, and consumer confidence in Utah continues to outpace that of the nation overall. The national Consumer Confidence Index® (CCI) decreased 7.4 points from January to February and currently sits at 96.4.

The fall in the Utah Consumer Attitude Index results from slightly lower expectations for the next six months. The Expectations Index, the sub-index of the CAI that reflects how consumers feel about economic conditions six months from now, decreased 10.6 points to 102.7 in February. Twenty-eight percent of Utahns expect business conditions to be better six months from now, which represents a 9-percent decline from January. Twenty-six percent of Utahns expect the number of jobs available in six months to be plentiful—a decrease of 7 points from last month—and 31 percent believe their total household income will be higher six months from now.

The Present Situation Index, which measures how consumers feel about current economic conditions, decreased 1.2 points to 112.4 this month. Sentiment about current general business conditions remained essentially constant, increasing by just 1 percentage point from January to February. Likewise, the percentage of consumers who think that the availability of jobs is plentiful experienced just a 2-point decrease to 36 percent this month.

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Utah CoreLogic Home Price Index increased 5.2% National CoreLogic Home Price Index up 5.7%

Housing Market

After a brief lull in December, housing prices in Utah and across the nation began climbing in January. According to the CoreLogic Home Price Index, home prices increased 1.1 percent in Utah from December to January, which represented a 5.2-percent rise compared to January 2014. Nationally, home prices also increased 1.1 percent in January, which represented a 5.7-percent rise compared to January 2014’s prices. In Utah, home prices are still 10.6 percent below their September 2007 peak, and home prices nationally are still 12.7 percent below their pre-recession high.

New home sales fell slightly in January across the nation, but this could actually be a good sign considering the weather. Similar to last year’s series of polar vortex storms, early 2015 has been marked by harsh weather. The Northeast saw its biggest drop in sales since June 2012 due to record-breaking storms that dropped more than 100 inches of snow in some cities. Facing such headwinds, a decline of only 0.2 percent can be seen as a sign that sales are strong in the rest of the country, and we can expect pent-up demand in the Northeast to manifest in new home sales when spring finally arrives.

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United States Federal Reserve building

The Federal Reserve: Reconciling Low Unemployment and Stagnant Wages

When the Federal Reserve was established in 1913, over 30,000 different currencies were in some type of use throughout the United States. The lack of a uniform currency contributed to systemic weaknesses in the monetary system, including bank runs, unstable interest rates and prices, and an overall lack of confidence in banking institutions. Thanks to its capacity to mitigate each of the aforementioned issues, along with many others, the Federal Reserve has played a key role in stabilizing the United States economy.

The Federal Reserve, also known as the Fed, is the central bank of the United States. The Fed has two primary, sometimes conflicting, responsibilities – ensure stable prices and maximize employment. To achieve those two mandates, the Fed has three primary tools at its disposal: the reserve requirement, the discount rate, and open market operations. Each of these tools gives the Fed the ability to adjust the supply of money and interest rates, thereby helping manage inflation and impacting employment.

The reserve requirement is the amount of money that a bank is required to hold, as a percentage of checking and savings deposits. The reserve requirement stabilizes the financial system by ensuring against bank runs. But the Fed has the authority to lower the reserve requirement. When they do this, banks can lend more, which makes it cheaper to borrow money. In other words, interest rates decline.

The discount rate is the interest rate the Fed charges banks to borrow money to ensure they have sufficient resources to meet the reserve requirement at the end of each day. When the Fed increases the discount rate, it is more expensive for banks to borrow money. Banks are subsequently more cautious about giving credit, causing interest rates to rise.

The most common tool the Fed uses is open market operations, which refers to the buying and selling of government securities by the Fed. When the Fed buys securities from a bank, that bank receives more money to lend, which in turn decreases interest rates.

The Fed’s target rate of inflation is 2%, connoting what they have determined to be the optimal flow of money. If average prices grow more quickly than 2%, the Fed can reduce the amount of money in circulation to cool inflation. But, if economic growth is slow and inflation low—as it has been for the past several years—the Fed increases the money supply to encourage spending.

Historically, low interest rates have induced businesses to expand, increasing employment and investment, while simultaneously encouraging consumers to spend more. When these factors have occurred, both prices and wages have typically increased (thus why stabilizing prices and maximizing employment can come in conflict). Six years ago, the Fed cut interest rates to help bolster the economy and employment. The result has been that employment has improved and the economy has slowly grown. What could have been a devastating depression was avoided.

However, two things have not occurred as expected—average prices haven’t increased as forecasted, and wages have stagnated. Technological improvements and globalization appear to be two of the reasons why prices and wages have not increased as expected.

Advances in technology have led to increased overall economic production without increased prices, due to the simple dictum that innovation makes productivity cheaper. While gains in productivity are great for consumers, they also come at a cost: businesses can continue to invest and expand without the need to hire as many employees, and without upward pressure to increase wages. Globalization compounds this effect by allowing firms to acquire less expensive resources abroad.

When businesses have more options for both labor and raw materials, prices and wages remain low. Unemployment has fallen to 5.5 percent nationally—close to what economists might call a “natural” rate of unemployment—but wages have not risen concomitantly.

The Federal Reserve plays a key role in stabilizing the United States economy—the adjustment of just a few percentage points has a huge effect—but there are limitations to what the Fed can accomplish, as evident in the last few years. Neither wages nor inflation has grown as expected, and the Fed has little more in its arsenal to affect either. Therefore, with a growing economy and shrinking unemployment, the best long-term solution for improving wages transfers from the Federal Reserve to another critically important institution—our education system. But that is a different story, for another day…

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woman and man walking together

OUTDOOR RETAIL

Shopping malls are an important contributor to retail sales and consumer spending throughout Utah. Understanding the value of retail and its impact on the economy, Orem City is in the process of redeveloping its University Mall area to bring greater economic benefit to the region.

While the regional shopping mall will continue to house over 180 retailers, Orem plans to add a mixed-use space with a park that enables more retail opportunities like farmer’s markets and performances. The University Place, as it will be called, will also include office space for businesses. This project has a number of similarities to other recent retail shopping mall/mixed use projects in the state, such as City Creek Center in downtown Salt Lake City and Station Park in Farmington.

The new economic development area is in an excellent location to connect transit and positively impact local businesses. By developing a central mixed-use space that can support a variety of events, the city and region will benefit as people visit and spend money in the area.

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Consumer Confidence

The U.S. Consumer Confidence Index® decreased 7.4 points to 96.4 in February. The Present Situation Index decreased 3.7 points to 110.2, while the Expectations Index decreased 9.8 points to 87.2.

Housing Market

In January, the CoreLogic® Home Price Index (HPI) for Idaho, which measures home price appreciation, experienced a year-over-year increase of 4.3%. Nationally, the HPI increased 5.7% during the same period.

Inflation

The U.S. Consumer Price Index decreased 0.5% from December to January. The Index saw a year-over-year decrease of 0.1%, which is below the Federal Reserve’s target annual inflation pace of 2%.

Job Report

Idaho’s unemployment rate decreased 0.3 percentage points to 4.1% in January, while the national unemployment rate increased 0.1 percentage point to 5.7% in January.

April 2015

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Randy Shumway January 2015

Idaho Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

Retail is the largest sector of employment in the United States, supporting one in four jobs in America, for a total of 42 million jobs. In Idaho, the retail industry specifically—minus food and drink establishments—employs 101,181 people and contributes $4.5 billion to the state’s gross domestic product. That is a significant boost for Idaho’s economy. In this article, we’ll look in more detail at employment within retail and then at the economic impact of retail consumer spending.

If we break down the retail industry by subsector in Idaho, general merchandise stores provide the most jobs at 17,297, followed by non-store retailers at 15,145. Even the smallest subsector—furniture and home furnishings stores—provides 2,408 jobs for Idahoans. These numbers show that retail plays a considerable role in supporting Idaho’s labor market.

In terms of GDP impact, Idaho’s non-store retailers—which include online-based companies, network-based companies, and other establishments that don’t have a physical store—comes in on top, touting around $936 million annually. General merchandise stores have the second-highest economic impact at $717 million. Non-store retailers have the largest number of establishments in Idaho at 7,143—almost three times the next subsector of miscellaneous store retailers, which has 2,468 establishments.

Just as the retail industry fuels Idaho’s economy, it also benefits the national economy. Because a significant portion of our national economy depends on consumer spending, retail sales figures are utilized as a major indicator of the nation’s economic health. Following the great recession, when retail sales and consumer spending were low, the Federal Reserve held interest rates at historically-low levels and enacted a quantitative easing program to get money flowing through the economy.

One reason quantitative easing has been able to taper is that retail sales are now increasing. The National Retail Federation forecasts that retail sector sales—which exclude automobiles, gas stations, and restaurants—will increase 4.1 percent in 2015. This figure would mark the largest annual growth since 2011. Regardless of whether we look at just one subsector or the entire sector as a whole, a significant portion of our economy depends on consumer spending. The retail industry is the face that provides cash flow to numerous other industries, helping us obtain essential products and services. In addition to fueling economic growth via purchases in stores and online, retail provides reliable employment on both a local and national scale.

Read more Read more
storefront displaying gardening supplies

Short-term U.S. Outlook

U.S. gross domestic product (GDP) increased at an annual rate of 2.2 percent during the last quarter of 2014, according to the revised estimate released by the Commerce Department at the end of February. The revised estimate was 0.4 percentage point lower than the original estimate of 2.6 percent. On average in 2014, GDP grew 2.4 percent.

Despite GDP contraction in the first quarter of 2014, the United States economy experienced strong growth in the second and third quarters, and modest growth in the fourth quarter—a positive year overall. The downward adjustment for fourth-quarter growth reflected slower additions to business inventories than were initially estimated. Also, imports figures slipped by 0.2 percentage points, reflecting a weaker trade balance. Juxtaposing the dollar’s increasing value against the euro’s slipping value, we may see more imports than exports for a while.

Americans have recently enjoyed greater personal disposable income as inflation stays low and year-over-year gas prices have declined significantly. Consumers are investing extra cash both in purchases and in savings. In January 2015, the savings rate increased to 5.5 percent—its highest point since December 2012.

Federal Reserve chair Janet Yellen addressed Congress at the end of February, announcing that increases to the federal funds rate would not occur for at least the next few meetings of the Federal Open Market Committee (FOMC). General consensus is that interest rate hikes won’t occur until at least September, though the Fed may choose to act more quickly if conditions warrant such a move. Both the Dow and S&P 500 increased following Yellen’s remarks.

Delicate domestic employment and economic weaknesses abroad affect the Fed’s reasoning in retaining flexibility with interest rate increases. Yellen stated that the current U.S. employment situation is still fragile, with too many Americans unemployed or underemployed. However, hiring has gained steam in recent months—employers added an average of 324,000 workers a month in the fourth quarter, which marks the labor market’s best performance in years. Despite positive indicators from the labor force, wage growth remains sluggish.

Since 2007, the world’s major economies have taken on higher levels of debt relative to GDP. Over the last seven years, debt owed by governments, households, and nonfinancial corporations has risen by $57 trillion to $199 trillion, representing 17 percent of global GDP. The global debt-to-GDP ratio was 286 percent as of the second quarter of 2014—a record high. The United States has contributed to this trend, taking on higher levels of government debt in order to fund fiscal stimulus following the Great Recession. In the second quarter of 2014, the U.S. debt-to-GDP ratio was 233 percent, or about $40 trillion. The Congressional Budget Office projects that the U.S. debt-to-GDP ratio will continue growing over the next decade. In this light, it makes sense to keep interest rates low for considerable time.

Long-Term U.S. Outlook

According to Stratfor’s forecast for the upcoming decade, the United States will continue to be the major economic, political, and military power in the world. However, the U.S. may become less entrenched in global political and military affairs than in past years because of its decreasing emphasis on foreign policy. Recent falling exports and growing energy self-reliance will partially negate the need for the United States to involve itself economically and militarily in foreign matters at the same levels it has historically. The U.S. economy is doing comparatively well and is expected to continue to improve.

Read more Read more
National Consumer Price Index dropped 0.5%

U.S. Consumer Price Index

The United States Consumer Price Index (CPI) declined 0.5 percent in January on a non-seasonally-adjusted basis. Over the last twelve months, the Index has decreased 0.1 percent. The decline in the Index was largely due to the recent decline in oil and gasoline prices.

The energy index fell 9.7 percent, and the gasoline index fell 18.7 percent in January—the sharpest in a series of seven consecutive declines. The all-items index would have risen 0.1 percent had the gasoline index gone unchanged. The fuel oil index and natural gas index also fell, although the electricity index rose. The food index did not change in January, and the food at home index fell for the first time since May 2013.

The index for all items minus food and energy rose 0.2 percent in January. The shelter index rose 0.3 percent, and indexes for personal care, for apparel, and for recreation increased as well. The medical care index went unchanged, while an array of indexes declined in January: household furnishings and operations, alcoholic beverages, new vehicles, used cars and trucks, airline fares, and tobacco.

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National Unemployment Rate decreased to 5.7% Idaho Unemployment Rate dropped to 4.1%

Labor Market

Idaho started 2015 on the right foot as the unemployment rate dropped three tenths of a percentage point, from 4.4 percent in December (according to the BLS’s revised numbers) to 4.1 percent in January. Idaho’s total nonfarm payroll employment grew by 3,800 jobs and hit an all-time high for the second straight month, reaching 778,500. Nationally, the unemployment rate ticked up slightly from 5.6 percent in December to 5.7 percent in January.

Employment in city centers is growing while employment in surrounding suburbs is shrinking, according to a report by City Observatory, an Oregon-based think tank. As recently as 2007, all indicators predicted employment growth at a much higher rate in suburban areas than in urban areas, but that trend appears to have reversed itself in the last few years. This change reflects a number of factors: for instance, people increasingly prefer shorter commutes, and younger workers are more interested in living in urban environments. The study also suggests that more skilled, higher-paying jobs are popping up in urban centers.

As jobs increasingly move to cities, it will be important for Idaho to ensure that Boise and other urban centers continue to provide an attractive environment to support a flourishing labor market.

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National Consumer Attitude Index fell 7.4 points to 96.4

U.S. Consumer Confidence Index

After January’s increase, February saw a dip in the national Conference Board’s Consumer Confidence Index. The Index stands at 96.4 for February, down 7.4 points from 103.8 in January. The Present Situation Index, which measures how consumers feel about current economic conditions, dropped 3.7 points to 110.2. The Expectations Index, which reflects how consumers feel about economic conditions six months from now, experienced the sharpest decline—dropping to 87.2, down 9.8 points from January to February.

Consumers’ assessment of current economic conditions was moderately less favorable in February than it was a month earlier. The percentage of consumers saying business conditions are good decreased from 28.2 percent in January to 26.0 percent in February. Consumers were also slightly less optimistic about the job market: the percentage of people who think jobs are plentiful decreased from 20.7 percent to 20.5 percent.

Optimism about short-term economic conditions also declined. Consumers who expect business conditions to improve over the next six months decreased from 18.9 percent to 16.1 percent, while those expecting business conditions to worsen increased from 8.2 percent to 8.7 percent. Consumers expecting more jobs in the coming months declined from 17.3 percent to 13.4 percent. Income growth expectations were modest.

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Idaho CoreLogic Home Price Index up 4.3% National CoreLogic Home Price Index up 5.7%

Housing Market

After a brief lull in December, housing prices in Idaho and across the nation began climbing in January. According to the CoreLogic Home Price Index, home prices increased 1.2 percent in Idaho from December to January, which represented a 4.3-percent rise compared to January 2014. Nationally, home prices increased 1.1 percent in January, which represented a 5.7-percent rise compared to January 2014’s prices. In Idaho, home prices are still 17.1 percent below their September 2007 peak, and home prices nationally are still 12.7 percent below their pre-recession high.

New home sales fell slightly in January across the nation, but this could actually be a good sign considering the weather. Similar to last year’s series of polar vortex storms, early 2015 has been marked by harsh weather. The Northeast saw its biggest drop in sales since June 2012 due to record-breaking storms that dropped more than 100 inches of snow in some cities. Facing such headwinds, a decline of only 0.2 percent can be seen as a sign that sales are strong in the rest of the country, and we can expect pent-up demand in the Northeast to manifest in new home sales when spring finally arrives.

Read more Read more
United States Federal Reserve building

The Federal Reserve: Reconciling Low Unemployment and Stagnant Wages

When the Federal Reserve was established in 1913, over 30,000 different currencies were in some type of use throughout the United States. The lack of a uniform currency contributed to systemic weaknesses in the monetary system, including bank runs, unstable interest rates and prices, and an overall lack of confidence in banking institutions. Thanks to its capacity to mitigate each of the aforementioned issues, along with many others, the Federal Reserve has played a key role in stabilizing the United States economy.

The Federal Reserve, also known as the Fed, is the central bank of the United States. The Fed has two primary, sometimes conflicting, responsibilities – ensure stable prices and maximize employment. To achieve those two mandates, the Fed has three primary tools at its disposal: the reserve requirement, the discount rate, and open market operations. Each of these tools gives the Fed the ability to adjust the supply of money and interest rates, thereby helping manage inflation and impacting employment.

The reserve requirement is the amount of money that a bank is required to hold, as a percentage of checking and savings deposits. The reserve requirement stabilizes the financial system by ensuring against bank runs. But the Fed has the authority to lower the reserve requirement. When they do this, banks can lend more, which makes it cheaper to borrow money. In other words, interest rates decline.

The discount rate is the interest rate the Fed charges banks to borrow money to ensure they have sufficient resources to meet the reserve requirement at the end of each day. When the Fed increases the discount rate, it is more expensive for banks to borrow money. Banks are subsequently more cautious about giving credit, causing interest rates to rise.

The most common tool the Fed uses is open market operations, which refers to the buying and selling of government securities by the Fed. When the Fed buys securities from a bank, that bank receives more money to lend, which in turn decreases interest rates.

The Fed’s target rate of inflation is 2%, connoting what they have determined to be the optimal flow of money. If average prices grow more quickly than 2%, the Fed can reduce the amount of money in circulation to cool inflation. But, if economic growth is slow and inflation low—as it has been for the past several years—the Fed increases the money supply to encourage spending.

Historically, low interest rates have induced businesses to expand, increasing employment and investment, while simultaneously encouraging consumers to spend more. When these factors have occurred, both prices and wages have typically increased (thus why stabilizing prices and maximizing employment can come in conflict). Six years ago, the Fed cut interest rates to help bolster the economy and employment. The result has been that employment has improved and the economy has slowly grown. What could have been a devastating depression was avoided.

However, two things have not occurred as expected—average prices haven’t increased as forecasted, and wages have stagnated. Technological improvements and globalization appear to be two of the reasons why prices and wages have not increased as expected.

Advances in technology have led to increased overall economic production without increased prices, due to the simple dictum that innovation makes productivity cheaper. While gains in productivity are great for consumers, they also come at a cost: businesses can continue to invest and expand without the need to hire as many employees, and without upward pressure to increase wages. Globalization compounds this effect by allowing firms to acquire less expensive resources abroad.

When businesses have more options for both labor and raw materials, prices and wages remain low. Unemployment has fallen to 5.5 percent nationally—close to what economists might call a “natural” rate of unemployment—but wages have not risen concomitantly.

The Federal Reserve plays a key role in stabilizing the United States economy—the adjustment of just a few percentage points has a huge effect—but there are limitations to what the Fed can accomplish, as evident in the last few years. Neither wages nor inflation has grown as expected, and the Fed has little more in its arsenal to affect either. Therefore, with a growing economy and shrinking unemployment, the best long-term solution for improving wages transfers from the Federal Reserve to another critically important institution—our education system. But that is a different story, for another day…

Read more Read more
little boy looking at items on store shelf

IDAHO’S TOY INDUSTRY

When we think retail, many of us think of toys. Obviously, holiday toy purchases make up a big portion of annual consumer spending, but toys are in fact a sizeable retail product subsector year round. Toy sales contribute to employment and to overall economic impact within the state.

Collectively, Toy Industry Association members and other toy manufacturers, wholesalers, distributors, and retailers account for an estimated 1,639 jobs in Idaho. Of these, 28.6 percent are employed by small businesses. In fact, every one of the state’s major business sectors is involved in supplying goods and services to the nation’s toy industry. This means that Idaho’s businesses have a substantial impact on the overall toy industry in the nation.

The toy industry’s total economic impact in Idaho is $213.3 million, and it generates roughly $20.04 million in state taxes. Although toy sales are most visible during the holidays, they consistently contribute to Idaho’s economic growth—boosting employment and connecting businesses.

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This page was last modified on Fri Apr 17 03:48:31 MDT 2015