Important Details
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Consumer Confidence

The Zions Bank Utah Consumer Attitude Index increased 2.0 points to 98.3 in June. The U.S. Consumer Confidence Index increased 3.0 points to 85.2 in the same period.

Housing Market

In May, the CoreLogic® Home Price Index (HPI) for Utah—which measures home price appreciation—experienced a 7.2% year-over-year increase. Nationally, the HPI increased 8.8% during the same period.

Inflation

The Zions Bank Utah Consumer Price Index increased 0.1% from April to May for a trailing 12-month inflation of 1.4%. In the same period, the U.S. CPI increased 0.3% for a trailing 12-month inflation of 2.0%.

Job Report

Utah’s unemployment rate decreased 0.2 percentage points to 3.6% in May, while the national unemployment rate decreased 0.2 percentage points to 6.1% in June.

August 2014

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Randy Shumway, Zions Bank Economic Advisor

Utah Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

All over television food networks and social media, pictures of delicious meals depict good food as an essential summer experience. Many Utahns look forward to summer because it signals warm weather, traveling, reunions, fairs, and all the great food that comes with it. During summer months, restaurants and food vendors look to capitalize on hungry customers since eating out is often a focal point of summer activities. In the process, these restaurants and food vendors fuel an important segment of our economy by directly providing jobs, generating additional jobs in other industries, and contributing tax dollars to fund local community projects.

Nationally, restaurant industry sales are forecasted to reach $683.4 billion in 2014, with 990,000 restaurant locations expected to be in business across the country. Looking at the numbers for Utah specifically, the state boasted a total of 4,427 establishments selling food or drinks in 2012. In 2014, Utah restaurants are projected to register $3.6 billion in sales.

Beyond the economic impact of restaurant sales, food industry employees significantly boost state and national job figures. According to the National Restaurant Association, the restaurant industry is projected to employ 13.5 million people in 2014—about 1 in 10 working Americans. In fact, for every $1 million spent in Utah’s restaurants, nearly 30 additional jobs are generated statewide. Currently, jobs in Utah’s restaurant industry are forecasted to reach 111,600 by the end of the year, which accounts for 9 percent of employment in the state. The number of restaurant or food jobs is expected to increase to 126,600 by 2024.

In addition to supporting employment in the state, food establishments benefit local economies via the restaurant tax. For every dollar spent in Utah’s restaurants, an additional $1.15 in sales is generated for the state economy. Effective in all but Millard and Piute counties, the Utah restaurant tax generates revenue that subsidizes recreation and local attractions. In 2012, this tax generated about $34 million, and that number is steadily increasing each year. Counties use these tax funds to bring value to the community. For example, Salt Lake County uses restaurant sales funds to subsidize its county recreation budget and pay for capital-improvement projects.

So go out for ice cream or catch dinner at a local café—summer is a time for enjoying good food with friends and family. Utah’s restaurants not only have a positive impact on local communities by increasing revenues that fund recreation, maintenance, and special projects, but they also play a large role in Utah’s economy.

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U.S. Economic Outlook

Short-term U.S. Outlook: Although first-quarter GDP growth was the lowest it has been since 2011, the nation’s unemployment rate continues to improve, and personal income continues to rise. Similarly, U.S. GDP growth rates are expected to pick up in coming months.

In late June, the Bureau of Economic Analysis (BEA) released its third and final real GDP growth estimate, adjusting GDP growth for the first quarter of 2014 to negative 2.9 percent—the lowest single quarter growth in three years. The BEA’s previous estimate had indicated a decrease in GDP of 1.0 percent. This downturn in the percent change in real GDP primarily reflects decreases in five significant areas: exports, private inventory investment, personal consumption expenditures, nonresidential/residential fixed investment, and state and local government spending. In the first quarter, current-dollar GDP (the market value of the nation’s output of goods and services) decreased 1.7 percent, or $73.6 billion.

To explain the decline in the first quarter, the International Monetary Fund (IMF) indicated that the harsh winter in the early part of this year conspired with inventory drawdown, a still-struggling housing market, and lower external demand to slow momentum in the U.S. economy. However, the IMF also stated that recent data suggests a meaningful rebound in activity, which should lead to growth for the remainder of this year and into 2015.

After hitting a 4.5-year high in March—up 0.8 percent—U.S. consumer spending dropped 0.2 percent in May. Although consumer spending decreased, personal income increased 0.4 percent in May after also increasing 0.3 percent in April. Significantly, the economy added 1.1 million jobs over the last five months, which meets expectations for an economy that is growing modestly around 2 to 3 percent per year. With jobs and income on the rise, we can expect to see positive GDP growth rates in the coming quarters.

Long-term U.S. Outlook: International risk presents the largest potential downside to the U.S. economy, according to a recent Wall Street Journal poll of 50 economists. Already this year, conflicts in countries such as Ukraine, China, and Iraq have had a significant global economic impact. Currently, military flare-ups in energy-producing regions have many economists concerned.

Islamist militant gains in Iraq lifted world oil prices even higher in mid-June, which will not only inflate production costs for the industry, but also strain household purchasing power. Prices are up 16 percent so far this year, and while that can largely be attributed to typical seasonal increase, world events have had an impact on consumer purchasing power. In fact, economists at Nationwide Mutual Insurance estimate that each one-cent increase in gasoline prices reduces disposable income (income after gasoline payments) by $1.4 billion, which could potentially slow U.S. economic activity.

To offset price increases, OPEC stated that it could provide extra oil if the crisis in Iraq continues, and the U.S. might tap more into its large domestic supplies. As various conflicts arise and diffuse around the world, the situation in Iraq provides just one example of how the long-term U.S. economic outlook is affected by international risk factors.

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utah labor utah labor

Labor Market

It was a good month for the national labor market, as the addition of 288,000 jobs dropped the unemployment rate 0.2 percentage points to 6.1 percent. Utah’s labor market also had a superb month in May as unemployment dropped 0.2 percentage points to 3.6 percent, marking the lowest rate since November of 2008. Over the past year, all ten nonagricultural industry groups have seen increases in jobs, with the largest percentage gains in Construction, up 7.3 percent, and Information, up 6.8 percent. A more granular analysis of where job growth occurred in the last month shows even more encouraging signs: large gains were made in high-paying subgroups such as business support services, which grew 15.4 percent, and computer system design, which grew 5.2 percent. While any job growth is beneficial considering the still-struggling national landscape, Utah’s economy will benefit from attracting above-minimum-wage jobs.

For example, the software company Oracle announced they would be building a new customer software-support center in Utah. The center is expected to eventually employ 351 people in positions that will pay 125 percent of Salt Lake County’s average wage. The reasons Oracle cited for choosing to locate their new facility in Utah should come as no surprise: a pro-growth business environment combined with a highly-skilled workforce. This facility will stand as yet another point of evidence of state and business leaders’ investment in bringing more high-paying jobs to the state.

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Housing Market

Home prices continued on their trajectory of slow, steady growth in May. Nationally, home prices increased 1.4 percent month-over-month, representing an 8.8 percent increase from May of 2013. In Utah, prices increased 1.4 percent month-over-month, representing a 7.2 percent increase from May of 2013. Prices are still well below their pre-recession peak, with national prices 13.5 percent below their April 2006 peak and Utah prices 11.6 percent below their June 2007 peak.

A few underlying causes contribute to sluggish growth in home prices. One of these is a lack of home sales in the recent past. Throughout the winter and spring, low sales volume had a significant effect on home prices. Affordability is another important factor: when home prices increase faster than incomes do, home ownership moves out of reach for many people. As home values creep slowly toward their previous levels, this measured pace could serve as a healthy breather while incomes catch up.

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Zions Bank Utah Consumer Attitude Index

The Zions Bank Utah Consumer Attitude Index (CAI) increased 2.0 points to 98.3 from May to June, regaining some of last month’s 6.6-point decline. Utah’s CAI has improved 10.4 points over the past 12 months. For comparison, this month’s national Consumer Confidence Index® (CCI) increased 3.0 points to 85.2.

The Zions Bank CAI moved higher this month due to increased confidence in current economic conditions. The Present Situation Index—the sub-index of the CAI that reflects how consumers feel about current economic conditions—is now at an all-time high of 101.9 points, after increasing 5.7 points from May to June. The Present Situation Index has increased 24.5 points over the past 12 months, reflecting the ongoing positive economic progress in the state. Meanwhile, the Expectations Index—the sub-index of the CAI that reflects consumers’ expectations for economic conditions six months from now—declined slightly, dropping by 0.5 points from May to June. The Expectations Index has only increased 1.0 point over the past 12 months.

In general, a rise in the Expectations Index will predict a rise in the Present Situation Index, as consumers move from anticipating improvements to the economy to observing them occur. This principle has played out over the past twelve months. For instance, in June 2013 the Expectations Index sat 17.4 points higher than the Present Situation Index. Now, with observably-improved economic conditions, the Present Situation Index has not only risen to meet expectations—it stands 6.1 points higher than the Expectations Index. During this timeframe, the Present Situation Index increased drastically while the Expectations Index remained steady.

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Zions Bank Utah Consumer Price Index

The Zions Bank Wasatch Front Consumer Price Index (CPI) increased 0.7 percent from April to May on a non-seasonally-adjusted basis. Over the last twelve months, prices have increased in Utah by 1.9 percent. The national Consumer Price Index, released by the Bureau of Labor Statistics, increased 0.3 percent from April to May on a non-seasonally-adjusted basis and has increased 2.1 percent over the past twelve months.

Overall, transportation costs increased 1.9 percent in Utah from April to May as Utahns experienced the expected seasonal increase in gasoline prices. On average, Utahns paid $3.59 per gallon of gasoline in May, up from an average of $3.37 in April. While this is a significant month-over-month increase, it only raises the total cost of filling an average car tank by about $3.30. Nonetheless, gasoline prices have risen 17 percent over the past five months—up from $3.06 in December.

Food at home prices rose 1.0 percent from April to May due to higher produce and dairy costs. Produce prices in particular have swelled substantially recently, increasing by an average of 3 percent each month in 2014. Consumers who enjoy fresh produce will likely see a continued rise in produce prices with the ongoing drought in California. According to a new study released by an agribusiness expert from Arizona State University, California could lose up to 20 percent of its crops this year.

California grows over 200 different crops and is the primary supplier for a number of high-demand produce items such as avocados, grapes, lemons, melons, peaches, plums, and strawberries. Prices for fruits and vegetables that are particularly sensitive to water constraints—like avocados and lettuce—could increase as much as 30 percent over the next few months. The report’s publisher notes that the substantial price jump will likely be temporary, though, as higher domestic prices will incentivize foreign suppliers to ship more crops to the U.S. This will, in turn, increase supply and normalize prices.

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Food Truck Revolution

In the past few years, Utah has experienced a revolution in the food industry as mobile food trucks began rolling throughout the state. Coming out of the economic recession, the food truck scene started as individuals were forced to find new ways to earn a living. As early food truck sales became successful, momentum picked up, and other entrepreneurs joined the trend. Since 2010, mobile food trucks in Salt Lake City have increased from 1 to 36.

Since the restaurant industry typically sees only 3–5 percent margins, some food industry entrepreneurs turned to mobile trucks because margins are higher, start-up costs are lower, and other expenses, such as labor, are reduced. In fact, the largest expense for food trucks is their supply of food and beverages—an estimated 27 percent of costs. However, operating costs such as insurance, maintenance, licenses, etc. come in at a close second, comprising about 26 percent of costs.

The Small Business Development Center reports that adults ages 25 to 34 are the most common consumers at mobile vendors, spending an average of $44 a month. That stands to reason since these trucks rely heavily on social media to inform followers about the timing and location of their stops. Food trucks in Salt Lake City rally every Thursday from 11 a.m. to 2 p.m. at the Gallivan Center, where seven vendors are chosen to serve the masses. Another gathering occurs in Provo each Thursday evening next to the Startup Building, where about a dozen food trucks provide meals for families and hungry college students. As residents invest in tasty snacks or meals from local food trucks, they participate in this booming trend and support the state economy.

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The Power Of The 30-year Mortgage

In the 1950s, the United States became one of only two countries in the world to make 30-year home mortgages available. Home ownership rates grew quickly, which helped promote a robust middle class. The United States’ favorable mortgage terms—including low down payments, fixed interest rates, and 30-year time frames—were unique globally for many years. These terms extended the opportunity for home ownership broadly across the American population, a prominent factor in promoting and facilitating the growth of a stable middle class in the United States.

How does home ownership strengthen the middle class? Financially, a home can store value like other traditional investments and provide a return for the homeowner. Citizens are motivated to take care of and invest in their homes through capital improvement, thereby increasing property values. In the United States, middle class home ownership stabilizes communities, increases socio-economic mobility, and enables the population to accumulate wealth.

While favorable mortgage policies have sustained a thriving middle class in the U.S. for over 60 years, citizens of other countries with limited access to mortgages haven’t fared as well. For example, in recent weeks the eyes of the world have focused intently on Brazil, host of the World Cup. Home to beautiful coastlines, dense jungles and lush mountains, Brazil boasts some of the richest resources in the world. Over the years, however, its citizens have suffered widespread poverty and extreme economic inequality. Similar to Brazil in size and resource abundance, the United States has mitigated these issues via having a strong middle class and favorable mortgage terms.

Brazil has a significantly smaller middle class who lack feasible access to home ownership. Often, mortgages in Brazil historically have only been accessible to the wealthiest citizens, and decades of high inflation and interest rates (over 20% during some periods) have only worsened the situation. In Brazil, the top 20 percent of the population is 22 times wealthier than the bottom 20 percent (a ratio almost 3 times greater than that of the United States). This income gap enables the wealthy to purchase homes as investments, and denies many citizens the financial benefits of owning a home. Often, families in Brazil rent or squat simply because the income disparity and shorter-term mortgages put home ownership out of reach. When citizens are unable to secure affordable mortgages, the middle class stagnates.

Recently, policymakers in Brazil have been working to build a stronger middle class by updating mortgage terms to make home ownership more feasible. In 2008, Brazil extended mortgages to a 30-year term, and its mortgage market jumped from just 1.5% of GDP in 2007 to 6.2% of GDP in 2012. Seeing that positive impact, Brazil extended mortgages to a 35-year term in 2012. This further ignited demand for affordable homes—by the end of 2014, more than 2 million such homes will have been constructed. In fact, economists predict that 60% of Brazilians could join the middle class by 2018, compared with only 34% in 2004 before the extended mortgage terms went into effect.

While home ownership is not a lone silver bullet to creating a thriving middle class, favorable mortgage terms are an important factor in middle class success, and these factors have served as prominent drivers of the growth and stability of the middle class in the United States. Combined with other factors like a strong public education system, longer mortgages with favorable terms foster growth of the middle class and help transform economic and social conditions.

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Consumer Confidence

The U.S. Consumer Confidence Index® increased 3.0 points to 85.2 in June. The Present Situation Index increased 4.8 points to 85.1, while the Expectations Index increased 1.7 points to 85.2.

Housing Market

In May, the CoreLogic® Home Price Index (HPI) for Idaho—which measures home price appreciation— experienced a year-over-year increase of 7.0%. Nationally, the HPI increased 8.8% during the same period.

Inflation

The U.S. Consumer Price Index increased 0.3% from April to May. The index saw a year-over-year increase of 2.1%, which is within the Federal Reserve’s target annual inflation pace of 2–3%.

Job Report

Idaho’s unemployment rate decreased 0.1 percentage point to 4.9% in May, while the national unemployment rate decreased 0.2 percentage points to 6.1% in June.

August 2014

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Randy Shumway, Zions Bank Economic Advisor

Idaho Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

Whether you eat to live or live to eat, eating out fuels an important segment of our economy. Many Idahoans look forward to summer because it signals warm weather, traveling, reunions, fairs, and all the great food that comes with it. During summer months, many restaurants and food vendors look to capitalize on hungry customers since eating out is often a focal point of summer activities. The restaurant industry has been evolving over the past few years with new trends, including natural and organic options, tabletop/mobile device ordering, and even food truck catering. Since each restaurant requires staffing, food industry employees significantly boost state and national job figures.

Nationally, restaurant industry sales are forecasted to reach $683.4 billion in 2014, and 990,000 restaurant locations are expected to be in business. According to the National Restaurant Association, the restaurant industry is projected to employ 13.5 million people in 2014—about 1 in 10 working Americans. Idaho boasted 2,929 restaurants in 2012, and restaurants are projected to register $2.0 billion in sales in the Gem State in 2014. According to the Idaho Commerce department, the average household across the state spent roughly $2,400–3,800 on food away from home during 2013. The top two biggest spenders (on a household average basis) were Blaine and Ada counties.

With so many Idahoans choosing to dine out, more jobs are being created to service the growing demand. Jobs specifically in Idaho’s restaurant industry are forecasted to reach 61,400 by the end of 2014, which accounts for 9 percent of employment in the state. That number is expected to increase to 68,400 jobs by 2024, which marks a growth rate upwards of 11 percent. What’s more, for every $1 million spent in Idaho’s restaurants, an additional 27.2 jobs are generated in the state. Over a third of the current food industry jobs in Idaho are located in the Treasure Valley.

Next time you go out to eat—at a traditional restaurant, summer event, or at the taco truck on the corner—you can feel good knowing your dollars are positively impacting employment and the local economy.

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U.S. Economic Outlook

Short-term U.S. Outlook: Although first-quarter GDP growth was the lowest it has been since 2011, the nation’s unemployment rate continues to improve, and personal income continues to rise. Similarly, U.S. GDP growth rates are expected to pick up in coming months.

In late June, the Bureau of Economic Analysis (BEA) released its third and final real GDP growth estimate, adjusting GDP growth for the first quarter of 2014 to negative 2.9 percent—the lowest single quarter growth in three years. The BEA’s previous estimate had indicated a decrease in GDP of 1.0 percent. This downturn in the percent change in real GDP primarily reflects decreases in five significant areas: exports, private inventory investment, personal consumption expenditures, nonresidential/residential fixed investment, and state and local government spending. In the first quarter, current-dollar GDP (the market value of the nation’s output of goods and services) decreased 1.7 percent, or $73.6 billion.

To explain the decline in the first quarter, the International Monetary Fund (IMF) indicated that the harsh winter in the early part of this year conspired with inventory drawdown, a still-struggling housing market, and lower external demand to slow momentum in the U.S. economy. However, the IMF also stated that recent data suggests a meaningful rebound in activity, which should lead to growth for the remainder of this year and into 2015.

After hitting a 4.5-year high in March—up 0.8 percent—U.S. consumer spending dropped 0.2 percent in May. Although consumer spending decreased, personal income increased 0.4 percent in May after also increasing 0.3 percent in April. Significantly, the economy added 1.1 million jobs over the last five months, which meets expectations for an economy that is growing modestly around 2 to 3 percent per year. With jobs and income on the rise, we can expect to see positive GDP growth rates in the coming quarters.

Long-term U.S. Outlook: International risk presents the largest potential downside to the U.S. economy, according to a recent Wall Street Journal poll of 50 economists. Already this year, conflicts in countries such as Ukraine, China, and Iraq have had a significant global economic impact. Currently, military flare-ups in energy-producing regions have many economists concerned.

Islamist militant gains in Iraq lifted world oil prices even higher in mid-June, which will not only inflate production costs for the industry, but also strain household purchasing power. Prices are up 16 percent so far this year, and while that can largely be attributed to typical seasonal increase, world events have had an impact on consumer purchasing power. In fact, economists at Nationwide Mutual Insurance estimate that each one-cent increase in gasoline prices reduces disposable income (income after gasoline payments) by $1.4 billion, which could potentially slow U.S. economic activity.

To offset price increases, OPEC stated that it could provide extra oil if the crisis in Iraq continues, and the U.S. might tap more into its large domestic supplies. As various conflicts arise and diffuse around the world, the situation in Iraq provides just one example of how the long-term U.S. economic outlook is affected by international risk factors.

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idah labor

Labor Market

Idaho’s labor market had another good month in May as unemployment dropped 0.1 percentage point to 4.9 percent. This marks the first time unemployment has dipped below 5 percent in Idaho since July of 2008. Total employment increased by 1,000 from April to May, surpassing 741,000 and setting a total employment record in the state for the ninth time in nine months. The largest drops in unemployment were seen in the greater Coeur D’Alene area, where unemployment dropped 0.4 percentage points from 5.5 percent to 5.1 percent, and in the Rexburg area, where unemployment dropped 0.4 percentage points from 4.2 percent to 3.8 percent. Nationally, the economy beat expectations by adding 288,000 jobs, dropping the unemployment rate 0.2 percentage points to 6.1 percent.

According to a study by the Idaho Department of Labor, Idaho’s long-term job growth is set to outpace the national average for the next eight years. The study predicts that Idaho jobs will grow at a rate of 1.5 percent per year from 2012 to 2022, while the nation’s employment is projected to grow at 1 percent over the same period. Idaho is expected to add enough jobs over that period to reach 781,000 total jobs. The largest gains are anticipated in construction, health care, leisure and hospitality, and retail trade—each is expected to grow by more than 2 percent annually.

These projections portend a bright future for Idaho’s job market. As Idaho’s business and political leaders continue to focus on creating a business-friendly environment and a highly-skilled work force, they will invite growth in high-paying job sectors such as the information industry and professional and business services.

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U.S. Consumer Price Index

The national Consumer Price Index (CPI), released by the Bureau of Labor Statistics, increased 0.3 percent from April to May on a non-seasonally-adjusted basis, and the index has increased 2.1 percent over the past twelve months. The index rose this month primarily because of higher gasoline and food prices.

Food at home prices rose 0.4 percent from April to May due to higher fruit and vegetable prices. In particular, fresh fruit and vegetable prices increased 1.4 percent from April to May, and are now up 4.2 percent over the past 12 months. Consumers who enjoy fresh produce will likely see a continued rise in produce prices with the ongoing drought in California. According to a new study released by an agribusiness expert from Arizona State University, California could lose up to 20 percent of its crops this year.

California grows over 200 different crops and is the primary supplier for a number of high-demand produce items such as avocados, grapes, lemons, melons, peaches, plums, and strawberries. Prices for fruits and vegetables that are particularly sensitive to water constraints—like avocados and lettuce—could increase as much as 30 percent over the next few months. The report’s publisher notes that the substantial price jump will likely be temporary, though, as higher domestic prices will incentivize foreign suppliers to ship more crops to the U.S. This will, in turn, increase supply and normalize prices.

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U.S. Consumer Confidence Index

Consumer confidence rose for the second consecutive month in June. The national Consumer Confidence Index® (CCI) (how consumers feel about the economy) increased 3.0 points to 85.2. The Present Situation Index (how consumers feel about their current business and employment situation) improved 4.8 points to 85.1, while the Expectations Index (how consumers feel about the economy six months from now) also increased 1.7 points to 85.2.

Consumer confidence is now at its highest level since January 2008, driven in large part by mounting confidence in current business conditions. The percentage of consumers claiming business conditions are “good” increased to 23.0 percent from 21.1 percent, while those stating business conditions are “bad” decreased to 22.8 percent from 24.6 percent. Consumers are also recognizing the ongoing improvement in the labor market. Those stating jobs are “plentiful” moved slightly higher to 14.7 percent from 14.2 percent, while those claiming jobs are “hard to get” declined to 31.8 percent from 32.2 percent. Moreover, the percentage of consumers anticipating more jobs in the months ahead increased to 16.3 percent from 15.2 percent, while those anticipating fewer jobs edged down to 18.7 percent from 18.9 percent.

Steadily-improving consumer confidence has helped retailers overcome 2014’s shaky start. According to the U.S. Census Bureau, retail and food service sales increased 0.3 percent from April to May, and year-over-year retail sales are up 4.3 percent. If current conditions hold, retailers are on course for their best calendar quarter for over three years—providing further evidence that the U.S. economy is warming up from the cold spell earlier in the year.

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Housing Market

Home prices continued on their trajectory of slow, steady growth in May. Nationally, home prices increased 1.4 percent month-over-month, representing an 8.8 percent increase from May of 2013. In Idaho, prices increased 1.0 percent month-over-month, representing a 7.0 percent increase from May of 2013. Prices are still well below their pre-recession peak, with national prices 13.5 percent below their April 2006 peak and Idaho prices 17.9 percent below their November 2006 peak.

In May, home sales across the nation surged to their highest levels in years. New home sales jumped 18.6 percent to a seasonally-adjusted annual rate of 504,000—a level that hasn’t been seen since May of 2008. Additionally, existing home sales rose 4.9 percent from April to an annual rate of 4.89 million units—the largest single-month increase since August 2011.

These gains are welcome news for a housing market that has seen anemic sales through the first quarter of 2014. After May’s bump, new home sales in 2014 are now on track to match 2013’s levels. While this doesn’t represent a new explosion in housing activity, it does signal that the market is normalizing after a difficult first four months.

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The Power Of The 30-year Mortgage

In the 1950s, the United States became one of only two countries in the world to make 30-year home mortgages available. Home ownership rates grew quickly, which helped promote a robust middle class. The United States’ favorable mortgage terms—including low down payments, fixed interest rates, and 30-year time frames—were unique globally for many years. These terms extended the opportunity for home ownership broadly across the American population, a prominent factor in promoting and facilitating the growth of a stable middle class in the United States.

How does home ownership strengthen the middle class? Financially, a home can store value like other traditional investments and provide a return for the homeowner. Citizens are motivated to take care of and invest in their homes through capital improvement, thereby increasing property values. In the United States, middle class home ownership stabilizes communities, increases socio-economic mobility, and enables the population to accumulate wealth.

While favorable mortgage policies have sustained a thriving middle class in the U.S. for over 60 years, citizens of other countries with limited access to mortgages haven’t fared as well. For example, in recent weeks the eyes of the world have focused intently on Brazil, host of the World Cup. Home to beautiful coastlines, dense jungles and lush mountains, Brazil boasts some of the richest resources in the world. Over the years, however, its citizens have suffered widespread poverty and extreme economic inequality. Similar to Brazil in size and resource abundance, the United States has mitigated these issues via having a strong middle class and favorable mortgage terms.

Brazil has a significantly smaller middle class who lack feasible access to home ownership. Often, mortgages in Brazil historically have only been accessible to the wealthiest citizens, and decades of high inflation and interest rates (over 20% during some periods) have only worsened the situation. In Brazil, the top 20 percent of the population is 22 times wealthier than the bottom 20 percent (a ratio almost 3 times greater than that of the United States). This income gap enables the wealthy to purchase homes as investments, and denies many citizens the financial benefits of owning a home. Often, families in Brazil rent or squat simply because the income disparity and shorter-term mortgages put home ownership out of reach. When citizens are unable to secure affordable mortgages, the middle class stagnates.

Recently, policymakers in Brazil have been working to build a stronger middle class by updating mortgage terms to make home ownership more feasible. In 2008, Brazil extended mortgages to a 30-year term, and its mortgage market jumped from just 1.5% of GDP in 2007 to 6.2% of GDP in 2012. Seeing that positive impact, Brazil extended mortgages to a 35-year term in 2012. This further ignited demand for affordable homes—by the end of 2014, more than 2 million such homes will have been constructed. In fact, economists predict that 60% of Brazilians could join the middle class by 2018, compared with only 34% in 2004 before the extended mortgage terms went into effect.

While home ownership is not a lone silver bullet to creating a thriving middle class, favorable mortgage terms are an important factor in middle class success, and these factors have served as prominent drivers of the growth and stability of the middle class in the United States. Combined with other factors like a strong public education system, longer mortgages with favorable terms foster growth of the middle class and help transform economic and social conditions.

Read more Read more
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Food Truck Revolution

Tacos, burgers, pizza, noodles, desserts—you can find almost any kind of food served by a number of brightly-colored food trucks in Idaho. Growing in popularity and success over the past few years, food trucks have become a way for entrepreneurs to serve delicious meals and turn a profit.

Coming out of the economic recession, the food truck scene started as individuals were forced to find new ways of earning a living. Since the restaurant industry typically sees only 3–5 percent margins, some food industry entrepreneurs turned to mobile trucks because margins are higher, start-up costs are lower, and other expenses, such as labor, are reduced. In fact, the largest expense for food trucks is their supply of food and beverages—an estimated 27 percent of costs. However, operating costs such as insurance, maintenance, licenses, etc. come in at a close second, comprising about 26 percent of costs.

The Small Business Development Center reports that adults ages 25 to 34 are the most common consumers at mobile vendors, spending an average of $44 a month. That stands to reason since these trucks rely heavily on social media to inform followers about the timing and location of their stops. Official “Food Truck Rallies” have sprung up across the state of Idaho to service customer demand. In fact, because there is a ban on food vendors in downtown Boise, a local couple created a permanent home for many food trucks. They successfully raised $20,000 on the crowdsourcing web site Kickstarter and received permission from the city of Boise to open a food truck park just west of downtown. Their grand opening was on July 3rd, just in time for the Fourth of July weekend.

As food trucks continue to grow in popularity across Idaho, we can expect to see a greater number and variety of vendors in the coming years. As residents invest in tasty snacks or meals from local food trucks, they participate in this booming trend and support the state economy.

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This page was last modified on Tue Sep 01 07:41:31 MDT 2015