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Consumer Confidence

The Zions Bank Utah Consumer Attitude Index increased 0.1 points to 96.2 in January. The U.S. Consumer Confidence Index® increased 3.2 points to 80.7 in the same period.

Housing Market

In December, the CoreLogic® Home Price Index (HPI) for Utah—which measures home price appreciation—saw a year-over-year increase of 10.4%. Nationally, the HPI increased 11% during the same period.

Consumer Prices

The Zions Bank Utah Consumer Price Index decreased 0.2% from November to December for a trailing 12-month inflation of 1.8%. In the same period, the U.S. CPI remained unchanged for a trailing 12-month inflation of 1.5%.

Job Report

Utah’s unemployment rate fell 0.2 percentage points to 4.1% in December, while the national unemployment rate fell 0.1 percentage points to 6.6% in January.

Feb/Mar 2014

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Randy Shumway, Zions Bank Economic Advisor

Utah Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

Last month, Governor Gary Herbert delivered his 2014 State of the State address at Utah’s Capitol building. Herbert reported that while Utah has experienced strong economic growth, it faces three unique challenges that require immediate attention. First, he stated that Utah is experiencing the second-fastest population growth in the nation. The state’s population is expected to nearly double within the next 35 years. In particular, growth within Utah’s student population makes educational funding a complex and important issue. According to the governor, expected student growth will cost the state roughly $70 million in 2015. Second, Governor Herbert addressed growing concern surrounding Utah’s poor air quality—this issue threatens the state’s economy and the health of its citizens. Third, the governor noted plans to relocate or expand the Utah State Prison in Draper in the greater context of reforming the state’s criminal justice system as a whole. Concomitant with the governor’s speech, the 2014 Utah Legislative Session commenced in late January. Utah’s lawmakers will deliberate and debate for 46 days with the goal of resolving matters pertinent to the state.

Utah’s political leaders have a number of key priorities for the session, and lawmakers face an expansive list of topics to address. In addition to 500 bills under consideration, the Republican-controlled legislature will need to pass a balanced budget for fiscal year 2015—Governor Herbert’s proposed budget includes a spending plan that is 3 percent higher than last year’s. Over the course of the session, legislators are also expected to take on other key topics, such as funding and improvement in Utah’s public education system, air quality, state transportation infrastructure investment, job creation and federal/state land use legislation. In addition, Utah’s concerned citizens have strong opinions regarding the priorities of the legislative session. The Utah Business Sentiment Survey (a monthly poll sponsored by Dan Jones & Associates and the David Eccles School of Business at the University of Utah) revealed that the three most important priorities for Utahns are in line with Governor Herbert’s remarks. First, Utahns saw “improving the quality of education in kindergarten through 12th grade” as the top priority for the session. Second most important was “decreasing pollution.” Natalie Gochnour, an Associate Dean at the David Eccles School of Business, noted, “The Utah clean air rally, Clean Air Caucus and other air quality initiatives appear to be right in sync with public opinion … Cleaning up Utah’s air ranked higher than many issues that usually garner lots of attention like increasing the number of jobs and creating a business-friendly environment.” The third-highest ranking priority was “protecting states’ rights.” Dr. Dan Jones reflected on this issue’s importance: “With federal health reform, same sex marriage, Medicaid expansion, and the federal government’s control over two-thirds of the land in Utah, this is an issue that garners a lot of emotion. Controlling our destiny as a state weighs heavily on peoples’ minds.”

The priorities of the 2014 Utah legislative session are set, and Utah’s lawmakers are taking on the challenge of improving many areas that impact the state’s economic future. Cooperation among lawmakers in this session will ensure that Utah continues moving in a positive direction.

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U.S. Economic Outlook

Short-term U.S. Outlook: Recent data suggests that the U.S. economy may be continuing to build momentum in its historically-sluggish recovery. Gross Domestic Product increased 3.2 percent in the 4th quarter of 2013, according to the Commerce Department. In the last six months of 2013, the U.S. experienced the strongest period-over-period growth in more than ten years. Experts credit increasing consumer confidence and spending, rising exports, and robust levels of business investment for the recent acceleration in economic growth. Despite various domestic and global challenges, the U.S. economic outlook is promising.

Several interrelated factors helped drive recent growth: consumer spending levels increased 3.3 percent in the 4th quarter, exports jumped over 11 percent, and business investment in equipment rose nearly 7 percent in the same period. In addition, cumulative progress in the housing, labor, and stock markets bolstered consumer confidence. The Wall Street Journal reported that rising consumer confidence was evident in 4th quarter lodging receipts, which jumped 10 percent—the biggest quarterly increase in over two decades. These gains were paralleled by rising business confidence: as executives witnessed consistent demand from domestic and foreign markets, many businesses chose to make long-term investments, which created a substantial rise in equipment purchases.

While the nation’s economy is certainly progressing, a few obstacles could dampen short-term gains. The stock markets are showing fragility—since the first of the year, the Dow Jones Industrial Average and the S&P have both fallen. Global markets have trended downward since mid-2013. Many experts believe this reversal is directly linked with the Federal Reserve’s announcement and tapering of monthly stimulus. The Fed announced their second round of tapering earlier last month, and indicated a cap on monthly stimulus at $65 billion for February. The Federal Open Market Committee reported that recent economic growth has promoted confidence that the economy can weather future reductions in stimulus.

Long-term U.S. Outlook: The nation’s long-term outlook is hopeful. Recent examples of bipartisan cooperation and compromise will help the U.S. avoid the same economic pitfalls experienced in 2013, such as another partial government shutdown. Designed to curtail political brinksmanship—which has plagued the U.S. economic recovery over the past three years—the 2013 Bipartisan Budget Act serves as a prime example of the good that cooperation can engender. Along with ensuring that the U.S. will avoid a potential shutdown in October 2014, this legislation provides $20–23 billion in deficit reduction over the next ten years, bringing much-needed stability to the nation’s fiscal policy. The Agricultural Act of 2014 also represents strong bipartisan compromise. The new farm bill surprised experts who did not expect it to advance. Among other purposes of this complex piece of legislation, the bill will act as a safety net for the nation’s agricultural producers. The bill approves nearly $1 trillion in spending on farm subsidies and nutrition programs, ensuring that farmers and ranchers are supported as they serve the nation’s domestic food production needs.

The U.S. is making headway. While the nation faces obstacles in the near future, ongoing efforts to achieve bipartisan collaboration between political leaders will enable the U.S. to better navigate a challenging economic environment in the long term.

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utah labor utah labor

Labor Market

Unemployment in Utah dropped to 4.1 percent in December, down from 4.3 percent in the previous month. Nonfarm payroll employment grew by 1.8 percent from December 2012. Looking broadly, nine out of the ten private sector industries posted net increases in jobs over last year. The largest additions were in education and health (7,700 jobs), trade, transportation and utilities (6,800 jobs), and leisure and hospitality (3,500 jobs). In the national labor market, unemployment dropped 0.1 percentage points to 6.6 percent in January—the lowest level since October 2008. Unfortunately, the January jobs report revealed that only 113,000 new jobs were added to the economy—well below the number experts predicted.

In positive news for the construction sector, a new survey by the Associated General Contractors of America suggests that building contractors in Utah are optimistic and plan to hire more new workers in 2014. They also plan to lease or buy new equipment in 2014, which could increase employment in other sectors of the Utah economy. The survey focused on commercial and industrial construction, where contractors forecasted major growth in the coming year. The only concern contractors expressed in the report was fear that they would not be able to find enough skilled workers to fill the jobs they expect to open up in 2014. At least this is a relatively good problem to have, considering the state of the labor market over the past few years. With the construction sector’s importance to the state’s economy, this issue can be interpreted as a positive sign for the coming year.

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Housing Market

Home prices in Utah continued to grow slowly in December—with a one-month increase of 0.2 percent—representing a 10.4 percent increase from one year ago. National prices decreased slightly by 0.1 percent in the month of December; however, this still represents an 11 percent year-over-year increase.

The Commerce Department reported that spending on private residential construction in the U.S. increased by 2.6 percent in December, raising the annual pace to $352.6 billion. This marks the highest annual spending rate since June 2008. Spending on single-family homes also rose 3.4 percent in December, representing a 21.6 percent year-over-year increase. While construction spending only rose 0.1 percent overall in the month of December, much of this was related to a slowdown in the U.S. government’s spending on construction. Residential construction was a bright spot, however, demonstrating that the housing market in the United States continues to rebound from its recession woes. For the year of 2013, construction spending rose by 4.8 percent to $898.37 billion.

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In Feb, the Utah consumer confifence index grew .1% In Feb, the US consumer confifence index grew 3.2%

Zions Bank Utah Consumer Attitude Index

The Zions Bank Consumer Attitude Index (CAI) was relatively unchanged from December to January, increasing 0.1 points to 96.2, which is its highest level since its inception in January 2011. For comparison, this month’s national Consumer Confidence Index® (CCI) increased 3.2 points to 80.7.

Although the Zions Bank CAI remained essentially flat, substantial change in the two indices that comprise the CAI indicate consumers are more optimistic about the future. The Zions Bank Present Situation Index—an assessment of confidence in current business and employment conditions—decreased 6.6 points to 88.7, while the Zions Bank Expectations Index—an estimate of consumer confidence in the economy six months from now—increased 4.6 points from December to January and now sits at 101.2. When the Expectations Index moves substantially higher than the Present Situation Index, consumers can typically be expected to spend more in the coming months, and the economy can be expected to improve. This 12.4-point difference between the two indices is the largest difference since June 2013.

For each of the past three years, the Present Situation Index has fallen and the Expectations Index has risen or stayed stable following the holiday spending season. Because consumer spending is highest in the holiday season, some consumers experience spending fatigue and are hesitant to characterize current economic conditions as extremely positive. Concurrently, consumers are less apt to make major purchases following the holiday spending season: the percentage of Utahns likely to make a major purchase such as a stove or refrigerator in the next six months declined from 26 percent in December to 23 percent in January.

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Zions Bank Utah Consumer Price Index

The Zions Bank Wasatch Front Consumer Price Index (CPI) decreased 0.2 percent from November to December on a non-seasonally-adjusted basis. Over the last twelve months, prices have increased in Utah by 1.8 percent. The national Consumer Price Index, released by the Bureau of Labor Statistics, was unchanged from November to December on a non-seasonally-adjusted basis and has increased 1.5 percent over the past twelve months.

Falling gasoline prices across Utah once again brought about a decrease in the CPI, as Utahns paid about 5 percent less for gasoline in December than they did in November. The average price for gasoline during the month of December was about $3.06, compared to November’s average of $3.21. Offsetting to a degree the price declines in transportation, food prices jumped in December. With a 0.6 percent month-over-month increase, the cost of food at home reflected rising prices for produce. This marks the second month in a row that prices for produce products have risen, and it is likely due to frosty weather in Chile. As one of the largest suppliers of fresh fruit in the world, Chile is an especially important source of fresh fruit for the United States during the winter months. Unfortunately, Chile saw the coldest fall temperatures in 80 years, which damaged several fruit farms and sent fruit prices soaring. According to a report by AccuWeather and the Chilean Fresh Fruit Exporters Association, the unexpected frost damaged about 20 percent of the winter fruit crop and cut the volume of some fruit exports by half.

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Utah Lifestyles

February poll results

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Utah’s Air Quality

Air quality is a point of increasing concern for Utahns—particularly in Cache Valley, along the Wasatch Front, and in the Uinta Basin. The Deseret News reports that seven Utah counties do not meet federal Clean Air standards for PM 2.5. Generated by industrial and agricultural operation, transportation, homes and businesses, these dangerous microscopic particles pose a serious health risk for Utah residents. In addition, air quality concerns are beginning to have a real impact on the state’s economy. Jeff Edwards, director of the Economic Development Corporation of Utah, indicated that the state’s poor air is the top reason businesses choose not to relocate to Utah. The state’s growing reputation for poor air quality also dissuades potential workers and tourists. The public has reacted strongly to the problem, and Utah’s lawmakers are expected to discuss the issue at length in the ongoing legislative session.

Over 4,000 Utahns rallied at Utah’s Capitol building last month, urging state leaders to address this increasingly dangerous dilemma. Advocacy groups, such as Moms for Clean Air and Utah Physicians for a Healthy Environment, and bipartisan groups like the House Clean Air Caucus support initiatives to improve Utah’s air quality. In response, Utah’s lawmakers have proposed various solutions. Governor Herbert has called for implementing actions that would limit wood burning and use cleaner fuel sources in non-attainment areas during the winter months when the air quality issue is most prevalent. Salt Lake City Mayor Ralph Becker believes that making mass transit more accessible would help clean up the city’s air. One point of consensus is that vehicle emissions represent the lion’s share of the problem—for significant change to occur, Utah’s residents will have to limit fossil-fuel-dependent travel.

In order for Utah to reach its full economic potential, the air quality issue must be resolved in the near future. Cooperation among residents, advocacy groups and lawmakers will bolster the physical and economic health of Utah.

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China—our Vital Economic Partner

We often hear people quip that “China owns the United States.”

Examining this statement more closely, China is certainly the United States’ largest foreign creditor, holding approximately $1.3 trillion of U.S. treasury bonds. And as long as Washington refuses to implement a long-term solution to our country’s increasing deficit, China could soon own much more U.S. debt.

While there are legitimate concerns associated with China’s increasing control of U.S. debt, the current $1.3 trillion loaned by China amounts to only 8 percent of our total outstanding debt, and represents about a quarter of the debt held by foreign creditors. Therefore, concerns that China might leverage its holding of U.S. debt to achieve inappropriate sway are often overblown. In fact, Japan trails China only slightly, holding $1.2 trillion of U.S. debt. Few Americans express concern that Japan is trying to gain overt or untoward influence on the U.S. Rather, Japan’s debt ownership is seen as a stamp of approval and an expression of confidence in American stability. According to a Pentagon analysis, any possible attempt by China to “use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States.”

Trade anchors our relationship with China. The U.S. and China have the first- and second-largest economies in the world, respectively, and our trade partnership with China lags behind only our exchange with Canada. In 2013, China bought $108 billion worth of American goods. In turn, the U.S. purchased $402 billion Chinese goods, creating a trade deficit of $293 billion last year. Due in no small part to the fact that the U.S. has had a trade deficit with China for 30 years, China has been able to leverage surplus trade dollars to purchase the $1.3 trillion of U.S. debt.

China’s export-dependent economy requires trade partners who consistently purchase goods on an ongoing basis. Considering that we took $402 billion of goods off their hands last year, the benefits to China of a prosperous United States are clear. Also, since China’s wealth is largely held in U.S. treasury bonds, they have a vested interest in an economically stable United States.

China’s U.S. debt holdings and its reliance on exports to the U.S. actually align the two countries’ economic interests. In other words, China and the United States need each other in order to maximize their own country’s positions. For example, competitive imports from China have been one factor in helping prevent inflation in the United States, thereby enabling the Federal Reserve to artificially pump over $3 trillion into the financial system to stimulate our economic recovery.

Looking ahead, more good news for the U.S. is emerging on the horizon. China’s average annual economic growth of 9.3 percent over the past seven years has done more than simply buoy U.S. and European economies (whose recessions would have been more painful without China’s economic growth). China’s success has grown its middle class. As China’s citizens prosper, they will transition toward a more consumption-based economy like the United States, and the trade balance between China and the U.S. will begin to shift accordingly. Such economic transformation in China will help the U.S. migrate toward a more manageable trade deficit.

As the United States increasingly invests in growing an educated, skilled workforce and in maintaining the entrepreneurial free-market that has made our economy the envy of the world, our goods and services will stay competitive and the United States will continue to thrive, particularly as China’s economy continues to evolve. We should hope for success in China, because as China benefits from a flourishing U.S., the United States certainly benefits from a flourishing China.

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Consumer Confidence

The U.S. Consumer Confidence Index® increased 6.1 points to 78.1 in December. The Present Situation Index rose 2.7 points to 76.2, while the Expectations Index jumped 8.3 points to 79.4

Housing Market

In December, the CoreLogic® Home Price Index (HPI) for Idaho—which measures home price appreciation—saw a 12% year-over-year increase. Nationally, the HPI increased 11% during the same period.

Inflation

The U.S. Consumer Price Index remained unchanged from November to December. The index saw a year-over-year increase of 1.5%, which is below the Federal Reserve’s target annual inflation pace of 2–3%.

Job Report

Idaho’s unemployment rate fell 0.4 percentage points to 5.7% in December, while the national unemployment rate decreased 0.1 percentage points to 6.6 % in January.

Feb/Mar 2014

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Randy Shumway, Zions Bank Economic Advisor

Idaho Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

On January 6th, Governor Butch Otter delivered his 2014 State of the State address at Idaho’s Capitol building. Governor Otter made his priority for the coming year very clear: improving the quality of education and increasing funding for education in the state. The governor outlined actions to enable Idaho to meet its goal, which is that by 2020, 60 percent of Idahoans ages 25–34 will have a post-secondary degree or certificate. Otter proposed a 2.9 percent increase in funding for public education in fiscal year 2015 from 2014 levels, which would boost Idaho’s schools by $37.4 million. Governor Otter also stated his intent to reduce business equipment taxes and to prevent the expansion of Medicaid to more low-income Idahoans.

Concomitant with the governor’s speech, the 2014 Idaho Legislative Session commenced in early January. Idaho’s lawmakers will convene for 86 days with the goal of resolving matters pertinent to the state. In addition to myriad bills under consideration, the Republican-controlled legislature will need to pass a balanced budget for fiscal year 2015. Governor Otter’s proposed budget includes a spending plan that is 3.7 percent higher than this year’s. Idaho’s political leaders and the concerned public have outlined their priorities for the session, and several key issues will garner significant attention, including education funding and utilization of Common Core standards, health care coverage, reformation of the prison system, and a potential increase of the personal property tax exemption. Like the governor, Idaho’s lawmakers hold education as a top priority. Implementation of a five-year education reform plan based largely on the recommendations of a task force appointed by Governor Otter is widely supported.

Many lawmakers align with the state’s business community in pushing for improvements to Idaho’s tax system. A bill drafted by Senator Chuck Winder would shift the local option taxing authority to Idaho’s cities and counties, thereby enabling voters to decide whether to approve funding for local projects through increases to retail sales tax. Voters would have the ability to determine which projects are most useful, and direct revenues to specific economic development or infrastructure improvements. In an effort to increase the number of quality jobs in Idaho, many in the state’s business community are calling for decreases in corporate income tax rates. Experts suggest that Idaho could attract more business expansion and relocation with rates competitive to those offered in neighboring states. Because Idaho has a declining and aging labor force, incenting additional business and entrepreneurial activity would drive job growth and draw workers to the state.

The priorities of the 2014 Idaho legislative session are set, and Idaho’s political leaders are taking on the challenge of improving many areas that impact the state’s economic future. Cooperation in this session among legislators from differing political parties will ensure that Idaho continues moving in a positive direction.

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U.S. Economic Outlook

Short-term U.S. Outlook: Recent data suggests that the U.S. economy may be continuing to build momentum in its historically-sluggish recovery. Gross Domestic Product increased 3.2 percent in the 4th quarter of 2013, according to the Commerce Department. In the last six months of 2013, the U.S. experienced the strongest period-over-period growth in more than ten years. Experts credit increasing consumer confidence and spending, rising exports, and robust levels of business investment for the recent acceleration in economic growth. Despite various domestic and global challenges, the U.S. economic outlook is promising.

Several interrelated factors helped drive recent growth: consumer spending levels increased 3.3 percent in the 4th quarter, exports jumped over 11 percent, and business investment in equipment rose nearly 7 percent in the same period. In addition, cumulative progress in the housing, labor, and stock markets bolstered consumer confidence. The Wall Street Journal reported that rising consumer confidence was evident in 4th quarter lodging receipts, which jumped 10 percent—the biggest quarterly increase in over two decades. These gains were paralleled by rising business confidence: as executives witnessed consistent demand from domestic and foreign markets, many businesses chose to make long-term investments, which created a substantial rise in equipment purchases.

While the nation’s economy is certainly progressing, a few obstacles could dampen short-term gains. The stock markets are showing fragility—since the first of the year, the Dow Jones Industrial Average and the S&P have both fallen. Global markets have trended downward since mid-2013. Many experts believe this reversal is directly linked with the Federal Reserve’s announcement and tapering of monthly stimulus. The Fed announced their second round of tapering earlier last month, and indicated a cap on monthly stimulus at $65 billion for February. The Federal Open Market Committee reported that recent economic growth has promoted confidence that the economy can weather future reductions in stimulus.

Long-term U.S. Outlook: The nation’s long-term outlook is hopeful. Recent examples of bipartisan cooperation and compromise will help the U.S. avoid the same economic pitfalls experienced in 2013, such as another partial government shutdown. Designed to curtail political brinksmanship—which has plagued the U.S. economic recovery over the past three years—the 2013 Bipartisan Budget Act serves as a prime example of the good that cooperation can engender. Along with ensuring that the U.S. will avoid a potential shutdown in October 2014, this legislation provides $20–23 billion in deficit reduction over the next ten years, bringing much-needed stability to the nation’s fiscal policy. The Agricultural Act of 2014 also represents strong bipartisan compromise. The new farm bill surprised experts who did not expect it to advance. Among other purposes of this complex piece of legislation, the bill will act as a safety net for the nation’s agricultural producers. The bill approves nearly $1 trillion in spending on farm subsidies and nutrition programs, ensuring that farmers and ranchers are supported as they serve the nation’s domestic food production needs.

The U.S. is making headway. While the nation faces obstacles in the near future, ongoing efforts to achieve bipartisan collaboration between political leaders will enable the U.S. to better navigate a challenging economic environment in the long term.

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idaho labor idah labor

Labor Market

Unemployment in Idaho dropped to 5.7 percent in December, down from 6.1 percent in the previous month. The last time Idaho had an unemployment rate so low was in October of 2008. Nearly 3,800 Idaho workers found jobs in December, which represents the largest single-month increase since January 1994. The labor force participation rate held steady in December, though it represents 2,000 fewer workers than the same period in 2012. This drop from a year ago reflects the ongoing departure of baby boomers from the work force and the fact that more discouraged workers are giving up on job searching. In the national labor market, unemployment dropped 0.1 percentage points to 6.6 percent in January—the lowest level since October 2008. Unfortunately, the January jobs report revealed that only 113,000 new jobs were added to the economy—well below the number experts predicted.

In positive news for the construction sector, a new survey by the Associated General Contractors of America suggests that building contractors are optimistic and plan to hire more new workers in 2014. They also plan to lease or buy new equipment in 2014, which could increase employment in other sectors of the economy. The survey focused on commercial and industrial construction, where contractors forecasted major growth in the coming year. The only concern contractors expressed in the report was fear that they would not be able to find enough skilled workers to fill the jobs they expect to open up in 2014. At least this is a relatively good problem to have, considering the state of the labor market over the past few years. With the construction sector’s importance to the state’s economy, this issue can be interpreted as a positive sign for the coming year.

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U.S. Consumer Price Index

According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) went unchanged from November to December on a non-seasonally-adjusted basis, as an increase in the cost of energy (gasoline prices rose 0.7 percent, and electricity prices rose 0.3 percent) was offset by a decrease in the cost of apparel (down 2.3 percent) and medical care products (down 1.0 percent). The CPI only saw a year-over-year increase of 1.5 percent in 2013, following an increase of 1.7 percent over the same time period in 2012. This marks the second consecutive year that the CPI ended the year below the Federal Reserve’s stated level of healthy inflation (2–3 percent). The last time the CPI did not increase at least 2.0 percent in two consecutive years was in 1997 and 1998.

Always important to the Gem State, overall food prices rose 1.1 percent in 2013 following a 1.8 percent increase in 2012. More specifically, the price of food at home rose only 0.4 percent in 2013, while the cost of food away from home rose 2.1 percent. Prices for meats, poultry, fish and eggs saw a year-over-year increase of 2.9 percent, and cereals and bakery products saw a year-over-year rise of 0.5 percent. However, in the same period, prices for nonalcoholic beverages and dairy products saw meaningful declines—down 1.4 percent and 0.5 percent respectively. Over the last ten years, overall food prices have risen at an average annual rate of 2.6 percent; aside from a decline in 2009, 2013’s 1.1 percent increase is the smallest annual increase in overall food prices since 1976.

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U.S. Consumer Confidence Index

Consumer confidence increased for the second consecutive month in January, as the national Consumer Confidence Index® (CCI) (how consumers feel about the economy) rose 3.2 points to 80.7. The Present Situation Index (how consumers feel about their current business and employment situation) increased 3.8 points to 79.1, and the Expectations Index (how consumers feel about the economy six months from now) increased 2.8 points to 81.8.

Consumers are more optimistic this month with their assessments of the labor market, business conditions, and household wealth. Those saying jobs are “plentiful” increased to 12.7 percent from 11.9 percent in the month prior, and those who think business conditions are “good” increased to 21.5 percent from 20.2 percent. Looking toward the future, the proportion of consumers who anticipate that their income will increase over the next six months rose to 15.8 percent from 13.9 percent, while those who expect a decrease in their income over the next six months declined to 13.6 percent from 14.3 percent.

The bump in consumer confidence appears to have taken place just in time for a stronger-than-expected holiday spending season. According to the U.S. Department of Commerce, retail purchases increased 0.2 percent in December after increasing 0.4 percent in November. After the retail sales report was released, the S&P 500 moved up 1.1 percent to reflect the better-than-expected report. Moreover, December capped the strongest quarter for consumer spending in three years, with 4th quarter household spending up nearly 4.0 percent on an annualized basis.

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Housing Market

Home prices in Idaho fell slightly in December, with a one-month decrease of 1.2 percent. Nevertheless, December prices were still up 12.0 percent from one year prior. National prices also decreased slightly, falling 0.1 percent in the month of December. However, this figure represented an 11 percent year-over-year increase.

The Commerce Department reported that spending on private residential construction in the U.S. increased by 2.6 percent in December, raising the annual pace to $352.6 billion. This marks the highest annual spending rate since June 2008. Spending on single-family homes also rose 3.4 percent in December, representing a 21.6 percent year-over-year increase. While construction spending only rose 0.1 percent overall in the month of December, much of this was related to a slowdown in the U.S. government’s spending on construction. Residential construction was a bright spot, however, demonstrating that the housing market in the United States continues to rebound from its recession woes. For the year of 2013, construction spending rose by 4.8 percent to $898.37 billion.

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Idaho: Impact of The Agricultral Act of 2014

The U.S. House of Representatives recently passed the Agricultural Act of 2014, and the U.S. Senate quickly followed suit. Idaho’s farmers and ranchers are generally relieved to see this sign of progress; however, many are unsure of the legislation’s specific impact, and they anxiously await changes that could go into effect in roughly six months.

For instance, the new farm bill puts to an end the dairy price support program and the Dairy Export Incentive Program. Since 2004, dairy products have been Idaho’s largest agricultural-related revenue source. According to FarmJournal, the bill establishes the Dairy Product Donation Program, which supports domestic feeding programs through donations generated by purchasing dairy products at prevailing market prices when margins have been $4 per hundredweight or less for two months. This program will act as a safety net for Idaho’s dairy farmers, providing price support during difficult stretches of production.

The bill also provides insurance for livestock producers. A new program will financially assist farmers and ranchers who lose livestock to natural disasters, including fire. In addition to providing future assistance, back payments will be made for 2012 and 2013.

In total, the farm bill authorizes twenty-three programs that impact all areas of Idaho’s agricultural economy. Idaho Congressman Mike Simpson, a supporter of the bill, stated, “Farming and ranching are the economic backbone of Idaho, and the farm bill is critical to keeping that backbone strong. I can’t imagine where we’d be without a farm bill or what the failure to pass one would do to our agricultural, economic, and national security.” Benefitting from bipartisan cooperation, the new bill’s passing has surprised experts. And while some in Idaho’s agricultural industry feel that it isn’t perfect, many regard this legislation is a step in the right direction.

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China—our Vital Economic Partner

We often hear people quip that “China owns the United States.”

Examining this statement more closely, China is certainly the United States’ largest foreign creditor, holding approximately $1.3 trillion of U.S. treasury bonds. And as long as Washington refuses to implement a long-term solution to our country’s increasing deficit, China could soon own much more U.S. debt.

While there are legitimate concerns associated with China’s increasing control of U.S. debt, the current $1.3 trillion loaned by China amounts to only 8 percent of our total outstanding debt, and represents about a quarter of the debt held by foreign creditors. Therefore, concerns that China might leverage its holding of U.S. debt to achieve inappropriate sway are often overblown. In fact, Japan trails China only slightly, holding $1.2 trillion of U.S. debt. Few Americans express concern that Japan is trying to gain overt or untoward influence on the U.S. Rather, Japan’s debt ownership is seen as a stamp of approval and an expression of confidence in American stability. According to a Pentagon analysis, any possible attempt by China to “use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States.”

Trade anchors our relationship with China. The U.S. and China have the first- and second-largest economies in the world, respectively, and our trade partnership with China lags behind only our exchange with Canada. In 2013, China bought $108 billion worth of American goods. In turn, the U.S. purchased $402 billion Chinese goods, creating a trade deficit of $293 billion last year. Due in no small part to the fact that the U.S. has had a trade deficit with China for 30 years, China has been able to leverage surplus trade dollars to purchase the $1.3 trillion of U.S. debt.

China’s export-dependent economy requires trade partners who consistently purchase goods on an ongoing basis. Considering that we took $402 billion of goods off their hands last year, the benefits to China of a prosperous United States are clear. Also, since China’s wealth is largely held in U.S. treasury bonds, they have a vested interest in an economically stable United States.

China’s U.S. debt holdings and its reliance on exports to the U.S. actually align the two countries’ economic interests. In other words, China and the United States need each other in order to maximize their own country’s positions. For example, competitive imports from China have been one factor in helping prevent inflation in the United States, thereby enabling the Federal Reserve to artificially pump over $3 trillion into the financial system to stimulate our economic recovery.

Looking ahead, more good news for the U.S. is emerging on the horizon. China’s average annual economic growth of 9.3 percent over the past seven years has done more than simply buoy U.S. and European economies (whose recessions would have been more painful without China’s economic growth). China’s success has grown its middle class. As China’s citizens prosper, they will transition toward a more consumption-based economy like the United States, and the trade balance between China and the U.S. will begin to shift accordingly. Such economic transformation in China will help the U.S. migrate toward a more manageable trade deficit.

As the United States increasingly invests in growing an educated, skilled workforce and in maintaining the entrepreneurial free-market that has made our economy the envy of the world, our goods and services will stay competitive and the United States will continue to thrive, particularly as China’s economy continues to evolve. We should hope for success in China, because as China benefits from a flourishing U.S., the United States certainly benefits from a flourishing China.

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This page was last modified on Thu Aug 27 12:20:41 MDT 2015