Archives for 2017

The U.S. economy grew at a solid 3.2 percent annual rate from July through September, slightly slower than previously estimated but still enough to give the country the best back-to-back quarterly growth rates in three years.

The figure was revised down from last month’s estimate of 3.3 percent, the Commerce Department reported Thursday. The change reflected a bit less spending by consumers, which was offset somewhat by increased spending by state and local governments.

Still, the 3.2 percent growth followed a 3.1 percent gain in the second quarter, the first consecutive quarters that growth has topped 3 percent since 2014.

President Donald Trump has pointed to these gains as evidence his economic program is producing results. Many economists believe GDP growth this quarter could hit 3 percent or better.

Congress this week passed a major tax overhaul, giving Trump the biggest legislative achievement of his first year in office. Economists believe the proposal will boost growth temporarily in 2018 and possibly 2019. But then they forecast that the positive effects will fade, with slower growth going forward due to higher interest rates stemming from the bigger government deficits.

But at the moment, economists are optimistic about growth prospects. The Federal Reserve’s Atlanta regional bank is forecasting GDP growth could hit 3.3 percent this quarter. If GDP does top 3 percent, it would mark the first time that has occurred since three quarters in late 2004 and early 2005.

Trump has predicted the tax cuts will be “rocket fuel” for the economy and many economists are looking for a growth spurt next year.

“The economy is rock solid for now and with fiscal stimulus kicking in next month, the economy’s afterburners could put this economy’s rocketing growth rate into even higher orbit,” Chris Rupkey, chief financial analyst at MUFG Union Bank in New York, said in reaction to the new GDP report.

For all of 2017, the economy is expected to grow around 2.3 percent, a marked improvement from the slight 1.5 percent gain in GDP in 2016. For 2018, economists believe growth will be even better, helped by the boost from the Republican tax cuts and a stronger global economy.

Mark Zandi, chief economist at Moody’s Analytics, is forecasting growth of 2.9 percent for 2018, reflecting tax cuts that he predicts will add 0.4 percentage point to GDP next year. He expects the tax cuts to add 0.2 percentage point to growth in 2019. But even with that boost, he sees GDP slowing to a 2.2 percent rate in 2019 before slowing to 1 percent growth in 2020 as the higher interest rates drag on growth.

This forecast is in line with other analysts who see only a temporary gain from the tax cuts. They are at odds with forecasts of the Trump administration that the tax cuts will spur significant momentum that will lift the economy to sustained annual GDP gains of 3 percent or better.

The report on third quarter growth was the government’s third and final look at the quarter. The economy showed resilience last quarter in the face of two hurricanes: Harvey, which hit Texas in late August, and Irma, which battered Florida in September.

The U.S. economy is benefiting from a pickup in global growth, a healthy job market, which supports consumer spending, and a drop in the value of the dollar against other major currencies, which makes U.S. products less expensive in foreign markets.

What you need to know:

— Business investment in equipment shot up at a 10.8 percent rate, the best showing since the third quarter of 2014.

— Consumer spending, which accounts for about 70 percent of U.S. economic output, grew at an annual pace of 2.2 percent, a slight 0.1 percentage point less than last month’s estimate.

— Government spending and investment rose for the first time in three quarters, with spending by state and local governments revised to a small positive from a slight negative in the previous report.

— Housing construction fell for a second quarter, but the drop was not as severe as previously reported.

— The 1.5 percent annual GDP gain last year was the weakest performance in six years, since the economy contracted by 2.9 percent in 2009.

–GDP growth has averaged around 2 percent in the current recovery, which is now in its ninth year and is the third longest in U.S. history.

By: Martin Crutsinger (Albuquerque Journal)
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The proposed sick leave ordinance introduced during Monday’s City Council meeting is getting mixed reactions, with the Greater Albuquerque Chamber of Commerce supporting the measure and worker rights groups saying it would be the worst sick leave law in the nation.
“This is incredibly more business friendly than the prior one,” Sherman McCorkle, chairman of the Greater Albuquerque Chamber of Commerce’s Bold Issues Group, told the Journal.
“Something is going to move forward. We know that. The new mayor said that. The council has said that,” McCorkle said. “… This is much more fair and is something that the (chamber) board would look very favorably on.”
But Elizabeth Wagoner, an attorney with the New Mexico Center on Law and Poverty and one of the individuals who fought for the narrowly defeated sick leave ballot initiative, told the council on Monday that the proposed ordinance is too weak. She said 28 other cities and nine states have paid sick leave laws.
“If passed, this truly would be the worst sick leave legislation in the country,” Wagoner said. “It excludes many part time workers, most of whom want full time jobs or work multiple jobs to make ends meet. It excludes between 90 to 95 percent of Albuquerque businesses from coverage altogether. And it denies coverage for many important family care giving relationships.”
The proposed ordinance — sponsored by Council President Ken Sanchez, a Democrat, and Councilor Don Harris, a Republican — would require employers with 50 or more workers to provide them with up to 40 hours of paid sick leave a year. The ordinance would cover individuals who work an average of at least 20 hours a week, but not temporary workers.
Sanchez and Harris have said the ordinance they introduced is a starting point and that they hope to work with the business community and worker rights groups to come up with an ordinance that protects workers and the economy.
Voters in October narrowly rejected a sick leave ballot initiative that many Albuquerque business owners and groups warned would impose onerous regulations and hurt the local economy. The so-called Healthy Workforce Ordinance was defeated by fewer than 800 votes.
Wagoner said one of the problems with the new ordinance that has been introduced is that those who get sick leave would only be able to use it for themselves, or to care for their child or spouse.
“So, if your mother or grandmother falls and breaks her hip, you can’t take sick time under this ordinance to care for her,” Wagoner said. “Nieces, siblings, grandchildren, domestic partners and many other important family care giving relationships aren’t covered by this draft ordinance.”
She added that the proposed law has the lowest sick time accrual rate in the country and one of the longest wait periods to be able to actually use sick leave. Wagoner offered to help the city come up with a better ordinance.
“Better models are out there,” she said. “Albuquerque families deserve something better than last place.”
Wagoner was one of several people who spoke about the ordinance during the Council meeting.
Traeshaun Buffin, a full-time Central New Mexico Community College student, part-time worker and member of OLÉ, told councilors he is only able to work 15 hours a week and wouldn’t be covered under the proposed ordinance.
“Like the people that are covered with the proposed ordinance, we, too, get sick, and we all deserve the right to be able to earn the time off to be able to take care of ourselves and loved ones when we are not feeling well,” he said.
Others suggested the council shouldn’t move forward on sick leave.
“Nobody likes it,” Paul Ryan McKenney said. “Actual liberty minded folks and conservatives don’t like it. Progressives don’t like it. Nobody likes it. Your corporate bodies are the only ones that like it.”
By: Martin Salazar (Albuquerque Journal)
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Amazon’s $13.7-billion debut in brick-and-mortar grocery sales hasn’t led to a material decline in fundamentals for strip center REITs, say analysts with BTIG.

Amazon’s June 16 announcement that it would purchase Whole Foods Market for $13.7 billion sent shudders through the grocery sector. Six months later, the shudders have largely subsided into a modern-day equivalent of the “keep calm and carry on” resoluteness that got wartime Londoners through Luftwaffe bombing runs on their city.
BTIG analysts Michael Gorman and James Sullivan note that shares of strip center REITs in their coverage universe declined by more than 6.5% in the days following Amazon’s statement of its plans to enter the brick-and-mortar grocery space. Since then, though, this cohort of shopping center landlords has outperformed the broader MSCI US REIT Index, according to a research note from BTIG.
“Although the grocery business remains a competitive market with narrow margins, there has not been a material decline in fundamentals since the WFM acquisition,” Gorman and Sullivan write. “Management teams in the grocer space have also cited limited impact on their business to date.” Their operating metrics have remained stable, with occupancies exceeding 95%, leasing spreads nearly 11% and growth in same-store NOI of 2.3% during the third quarter.
Longer term, strip centers have seen consistent improvement in the productivity of the average tenant, rising from just under $10 million per store in 2002 to nearly $20 million in 2016, stabilizing at about $19 million in the most recent period. During the same period, net rental expense for the grocers has remained modest, averaging just under 1%. Gorman and Sullivan write that these data show that “while quality real estate can drive better sales for grocers, rent expense is a relatively modest component of their cost structure.”
At the same time, the honeymoon period of the marriage between Amazon and WFM may be getting testy. “While initial price reductions and hype drove higher traffic levels, the narrative has started to shift,” according to BTIG’s analysts. “Recent press reports have focused on WFM raising prices, on average, since the initial reduction. Moreover, others have also indicated consumer dissatisfaction with changes in quality, inventory and customer experience at the stores.”
BTIG had anticipated potential trouble spots in the Amazon-WFM combination when it was first announced six months ago. “The potential to scale Whole Foods business might not be as large as investors expect,” according to a research note Gorman and Sullivan prepared this past June.
They noted that about 67% of WFM’s sales come from fresh and perishable products that often require local distribution. “Based on reports from the USDA, the first point of sale for 75% of the organic produce sold in the US is less than 100 miles from where it originated. This leads to a more expensive, complicated and less scalable distribution network.” Furthermore, other grocers have improved their business models and organic product offerings over the years.
As a result, the BTIG analysts wrote in June, “despite the increase in store count, annual sales and buying power of Whole Foods, margins for the company have trended down from their peak in 2013-2014. The company’s margins since 2000 have been essentially flat at 34.5% gross and 5.5% operating.”
By: Paul Bubny (GlobeSt)
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