More bad economic news to close out 2008

Economically speaking, 2009 cannot get here soon enough. We are about to close out one of the worst economic years in recent memory, but the release of two pieces of economic data today tells us that we need more than just a new calendar to make things better.
According to the Case-Shiller index, national home prices dropped 18 percent between October 2007 and October 2008. This marks the 27th consecutive month the index has declined. The continued decline is harmful in two ways. First, it keeps potential buyers from entering the housing market as they are waiting for prices to hit rock bottom before they purchase. Second, it undermines consumer confidence. Homeowners who are watching the value of their homes drop are less likely to go out and purchase new goods than they once were.
Which brings us to the second piece of bad news, the Conference Board's consumer confidence index hit an all-time low in December. Historically, about 70 percent of economic output is devoted to satisfying the demand for consumption, so this lack of consumer confidence means we will likely carry 2008's economic woes with us well into 2009.

Kansas City Employees: Are We Still More Productive?

Last month we released our newest report “Economic Growth: Comparing Metros, 2001-2006”. In that report we compared metro level Gross Domestic Product (GDP) among the top metros in the country. Today, we take one further step and look at GDP per employee. This should give us a reasonable proxy for employee productivity.

Historically we have claimed the average Kansas City worker is more productive than the national average. According to the 2006 data, this claim still holds. The average Kansas City area employee contributes $65,052.40 to the regions GDP. Nationally that figure is $63,335.48. However, when we compare Kansas City’s productivity to some of our peer metros, we are in the middle of the pack.

By comparison, each Denver area employee contributes nearly $10,000 more a year to its economy than do Kansas City area employees, on average.
Even more concerning is the change in productivity between 2001 and 2006. Kansas City slips behind the nation in terms of productivity growth over this period. If this trend continues, it puts our claim to being more productive than average in jeopardy.

So does this mean that Kansas City employees are getting lax? Are other metros employees working harder than us? No. It appears more likely that our recent productivity performance is tied to the type of industries we have here than our work habits, given that the the leaders in productivity are metros like San Jose, San Francisco, Seattle and Washington DC.

But this means that some of our peers have attracted or grown industries with greater numbers of “good jobs” than we have. What are those industries? Stay tuned for part 2.

October Employment Numbers Released

The Bureau of Labor Statistics (BLS) released October employment figures today. Nationwide, the unemployment rate increased from 6 percent in September to 6.1 percent in October, but unemployment rates actually decreased in our region:
· Down from 6.2 percent to 5.9 percent in the Kansas City Metro
· Down from 6.2 percent to 6.1 percent in Missouri
· Down from 4.8 percent to 4.5 percent in Kansas
Keep in mind these figures are subject to revision. Also, figures for one month do not constitute a trend.
In these times where we are all looking for a bit of good news, however, maybe this will be the start of a positive trend for the area. We will continue to monitor employment data and other indicators in the coming months.

Financial Crisis Impact Difficult to Gauge

The financial crisis has grabbed headlines over the past few weeks, but it is difficult to assess how this situation will be felt here in the Kansas City area. The crisis is rocking the economy at its core, so virtually everyone who participates in the economy — that is, anyone who uses credit in our credit-based economy — will feel the impact directly or indirectly. While congress is debating what steps to take to ensure this doesn’t happen again, we can assume that there will be some shake-up in the financial sector, a rather important sector for the Kansas City economy.
The location quotient for the financial activities sector is 1.2, meaning that the percent of our workforce employed in the finance sector is 20 percent higher than the nation’s percentage. Overall, Kansas City has nearly 74,000 people employed in financial services. (Learn more about location quotients.)

Employment growth has been slow but steady in recent years, outpacing the nation. But the growth rate dropped dramatically in the end of 2007, and has turned negative over the summer. This is likely due to the problems in the home lending industry. While this industry has already begun to adjust, it is reasonable to expect more losses over the next several months.
With the finance sector’s relative importance to Kansas City, we could feel the impact of its difficulties more than the rest of the nation. We will keep an eye on Financial Activity employment and inform you of any changes in the months to come.

May Employment Figures Return to Negative Territory

In a recent blog we wrote (with a great deal of hope) that the local employment figures in April might be the beginning of an economic turn-around. Well, May’s figures have crushed that hope.
Overall employment dipped by 3,429. This decline, coupled with an increase in the labor force (+5,892), sent the local unemployment rate to 5.5 percent (up from 4.6 percent in April).
It is important to keep in mind that local employment data can fluctuate dramatically from month to month. Even so, we look to these monthly figures for some sign that the local economy is beginning to recover from this slowdown. Unfortunately it appears we will have to keep looking.

Gas Prices Take Their Toll on Area Consumers

July marked the first time ever that Kansas City area drivers put $4-a-gallon gasoline in their vehicles. As of this writing, the average cost of regular gasoline in the metro is $4.04 a gallon. Many residents have little choice but to pay this price to fuel their cars so they can get to and from work and run their errands.
It wasn’t that long ago that gasoline was around the $2-a-gallon mark (January 2007). The increased money going into the gas tanks has undoubtedly put the brakes on normal spending habits.
Kansas City residents, on average, are going to feel the pinch of gas prices a bit more due to the fact we have to drive a bit farther to get around than in other cities. According to the Center for Neighborhood Technology (www.cnt.org) the average Kansas City household drives 16,596 miles per year. At $4.04 a gallon this comes to over $3,300 in gasoline a year. Or looking at it another way, that’s over $1,600 more a year than we spent on gasoline at January 2007 prices. By comparison, Denver area residents are now spending approximately $2,800 a year in gas, or $1,400 more than when it was $2 a gallon.
The additional money going towards gasoline has to come from somewhere, and consumers are likely to cut back on discretionary spending to make up the difference. This is clearly dampening the economy, as consumers are looking for ways to save money rather than going out and spending it.
We will continue to research consumer spending and hope to have more information in the coming weeks.

Foreign Exports from the Region Increase

The Kansas City Metropolitan Statistical Area (MSA) exported nearly $5.7 billion worth of goods to foreign countries in 2006. This marked a 16 percent increase from 2005. While $5.7 billion is a lot of money, this amounts to only 6.2 percent of the region’s gross regional product (GRP) in 2005 (the most recent GRP figure available). Exports make up larger percents of GRP in all of our peer metros except Denver and Omaha.

Sources: US Department of Commerce, Bureau of Economic Analysis

Kansas City’s top exporting industry is Transportation Equipment ($1.5 billion) followed by Crop Production ($1.2 billion), Chemicals ($827 million), Food and Kindred Products ($770 million) and Computer and Electronic Products ($844 million)
Canada is the largest destination for our goods, receiving nearly $1.8 billion worth of goods from the Kansas City metro area. Mexico is second with $852 million, followed by Japan, China and Taiwan.
With the weakened U.S. dollar, American-made goods are more attractive to foreign buyers. Kansas City’s auto manufacturers are likely to see at least some benefit from the weak dollar, but other metros with an even greater international reach are more likely to see their economies buoyed by foreign trade.

April Employment Numbers are Encouraging

Kansas City’s unemployment rate dropped nearly a whole point between March and April (from 5.5 percent to 4.6 percent) according to the Bureau of Labor Statistics. Overall employment grew by nearly 7,000 while the labor force declined 2,473. This is all certainly positive news, but remember — we are dealing with non-seasonally adjusted data at the metro level, so these figures need to be taken with a grain of salt. Historically the unemployment rate normally drops between March and April. Since 2000, the local unemployment rate has dropped about a half percent every April.

Source: Bureau of Labor Statistics

The chart above shows the recent unemployment rate trend since 2000. The red dots show the unemployment rate for each April. You can see that the April rate is typically in a valley, and in most instances is the lowest unemployment rate for the year. So, the nearly 1 percent drop in the unemployment rate is somewhat significant, but we will need more months of data to determine whether we are just seeing typical seasonal effects, or if we maybe seeing the beginning of a positive trend in employment.

What maybe more noteworthy about Kansas City’s April unemployment rate is its relationship with the national rate.

Source: Bureau of Labor Statistics

Kansas City’s April rate of 4.6 percent was lower than the national rate of 4.8 percent. This marks the first time this has occurred since April 2003. It used to be that Kansas City’s unemployment rate was consistently lower than the U.S. rate, but we’ve been consistently higher the past five years (shown in yellow). We will keep an eye on this relationship to see if this is a one-month aberration, or a return to our normal pattern.

Housing Market Hasn’t Bottomed Out Yet

Economy watchers have been keeping a close eye on housing statistics lately. It is no secret that the troubles in the housing market have contributed greatly to the overall economic woes we are now feeling. Real estate experts have been waiting (so far in vain) for the housing market to bottom out so the recovery — for housing and for the economy in general — can begin.
Nationally, seasonally adjusted sales figures for existing homes dropped 2 percent between February and March. Locally, existing home sales rose for the second consecutive month, but we normally expect that kind of increase at this time of year as housing activity usually picks up in the spring and summer months. In order to evaluate our local market more realistically, we applied the seasonal adjustments from the national data to our local data. This assumes that the Kansas City market experiences seasonal changes similar to the national housing market.

Using the seasonal adjustment, we see that existing home sales dropped 9 percent between February and March. So it would appear that the housing market (both nationally and locally) is still struggling to gain momentum.
The March numbers were not without some good news, however. Local housing supply (current inventory divided by number of sales) for new homes continued dropping to 12.8 months. It was 20.9 months in January. Existing home supply also declined slightly to 7.9 months. A good rule of thumb says a five-to-six month supply indicates a balanced market (below five is a seller’s market and above six is a buyer’s market).
Also, the average home sales price increased in March to $168,384. It had been decreasing over the past three months.
So with housing supply declining and average homes sale prices increasing, the stage is set for buyers who are trying to time the market to go ahead and buy homes. If enough buyers do that, hopefully the logjam will be broken. Families looking to move will be able to sell their existing homes and make their moves. Such a domino effect could see home values recover rather quickly, making homeowners more confident that their investment is sound. This renewed confidence is just what the general economy needs to start its recovery.

Local February Employment Figures Don’t Show Much Change

The Bureau of Labor Statistics released local employment figures for February today. Overall, the numbers for Kansas City were fairly flat. Employment did decline by 1,812, but so did the number of unemployed, by 926. These equaled a total labor force decline of 2,738. The unemployment rate also declined slightly, from 5.4 percent in January to 5.3 percent in February.

Our local trends mirrored the national (CPS) figures from February in that employment, unemployment, unemployment rate and labor force all declined slightly.

For more information on the current employment picture, be sure to check out our employment section.

February Employment Numbers Add to Economic Concerns

The national economy lost 63,000 jobs in February, the biggest loss in employment since March 2003. This dismal figure comes on the heels of a January job loss of 22,000 and adds more fuel to the fire for those who think that the economy has entered a recession.

We are still awaiting the local employment numbers for January (due out next week) and February (due in early April), but we can begin to speculate what our numbers might look like. Nationally, the greatest level of national job losses occurred in construction (39,000 losses), manufacturing (down by 52,000) and retail (34,000 losses), while health care (up by 37,000) and government (up by 38,000) added jobs to help soften the blow.

We expect that the same industries will see job losses locally as well, but proportionately, they won’t be as dramatic here as nationwide at least not in construction and manufacturing.

Why? First of all, nationwide construction losses can largely be blamed on the well documented housing crisis. In Kansas City, however the housing market did not experience the same kind bubble as elsewhere, so the local residential market, while slow, will not come to a complete standstill. (For more information on Kansas City and the current housing crisis see our special report). Also, non-residential construction activity has increased in recent years and has been able to absorb some of the losses from residential construction.

Second, as discussed in our January 17th entry, our two local auto manufacturers have received good news recently that should keep them producing cars well into the foreseeable future. Moreover, if we examine manufacturing employment trends in recent years, while manufactures have lost significant numbers of jobs nationally, locally the trend has been virtually flat. So in terms of construction and manufacturing, Kansas City should not see the same level of job losses.

Kansas City felt the full force of the 2001 recession because two industries where we were particularly vulnerable, transportation and information, were most impacted. If this 2008 downturn ends up being a recession, it is likely that this time, Kansas City will fare better than the rest of the nation.

KC Foreclosures Increased in 07

The Kansas City Metro Area saw an 83.7% increase in the foreclosure rate between 2006 and 2007. According to RealtyTrac, 1.177% of all housing units in the region were in some stage of foreclosure throughout the past year. Kansas City’s 1.177% was less than the average for the 100 largest metro areas in the country (1.382%) but was higher than the nation as a whole (1.033%).
Out of the top 100 metro areas, Kansas City ranked 40th. The Detroit, MI area had the highest foreclosure rate at 4.918% followed by Stockton, CA (4.866%), Las Vegas, NV (4,228%), Riverside/San Bernardino, CA (3.826%) and Sacramento, CA (3.189%).
The metros with the highest foreclosure rates tended to be in one of 2 areas. The areas most impacted by the bursting housing bubble like Florida or the Southwest. Here, people purchased homes speculatively thinking that the values would continue to skyrocket. When the bubble burst, many people found themselves over extended in their monthly payments and owing more on their mortgages than their home is worth.
The second area of high foreclosure rates was in the rust belt area, where economic troubles have made it difficult for some homeowners to make ends meet.
Kansas City managed to avoid the housing bubble for the most part, and the local economy has proven itself diverse enough to weather economic storms. While we don’t yet know the full impact of the housing foreclosure crisis, these factors should keep Kansas City’s foreclosure rates close to the national average.

Local Employment Figures Not Encouraging

December’s employment figures released by the Bureau of Labor Statistics (BLS) showed a weakening local employment picture. Overall employment dropped by 6,377 while the number of unemployed rose 4,619. The unemployment rate rose only slightly (from 4.8% to 5.1%) because the labor force also shrank.
It is difficult to draw conclusions from one month’s data. But after the call of recession was sounded with the release of the weak national employment figures last month, it is noteworthy that the local figures were equally disappointing.

Spate of Major Employer News Mostly Good

This week has seen big news from several of the Kansas City areas top employers, and most of it was good news. We'll start with the bad news and we will work our way up.
Sprint Nextel Corp., the region's largest private employer, is considering job cuts according to the Wall Street Journal. Sprint has not officially commented on the cuts, so it uncertain how many of the region's 13,000 Sprint employees might be affected. On the positive side of the Sprint story, The Wall Street Journal also speculates that the executive headquarters in Reston, VA. might move back to the Sprint Campus in Overland Park. Such a move would not likely result in a lot of new jobs however.
Certainly job cutbacks are never welcome news, but they are necessary as Sprint tries to remain a player in a very competitive industry. Regaining a fortune 500 Headquarters would be a boost to the local economy's psyche. This and a leaner, more competitive Sprint could translate into better economic news for the region in the future.
Elsewhere, the future continues to look bright for the region's 2 auto manufacturers. The Ford plant in Claycomo is preparing to produce the redesigned F-150 pickup truck. This is certainly a plus for the local plant since the F-150 has been the top selling US vehicle for the past 26 years.
Across the state line at the General Motors plant in Fairfax, demand for the locally manufactured Chevy Malibu will translate in to 300 new jobs.
This good news in manufacturing is worth emphasizing. While manufacturing jobs have been in a steady decline nationally, Kansas City has held it's own in manufacturing employment. In fact MARC's economic forecast calls for thousands of new manufacturing jobs to be created locally in the next 2 years. The fact that Kansas City's strong manufacturing heritage persists despite national decline says a lot about the region's productive workforce and should be a source of pride for the local economy.