|Slowly but surely, the economy is heading toward overall improvement, various indicators show.
Confidence among local consumers has increased, reported Tim Graeff, director of the MTSU Office of Consumer Research, in the most recent Middle Tennessee Consumer Confidence Index.
“The Middle Tennessee economy continues to offer more positive signs for economic growth compared to other economies across the country as a whole,” he reported.
While consumers in Middle Tennessee continue to hold negative perceptions of the current economy, confidence rose sharply, buoyed by improvements in all three subcomponents of the overall index, Graeff added.
The Consumer Confidence Index now stands at 151, up significantly from 112 in December 2011. This marks the highest level since February 2008, when the index stood at 158.
“However, when viewed from a historical perspective, the overall confidence index is still at a relatively low level given that the index was routinely in the 200 to 300 range during the first half of the last decade,” he reported.
The general feeling about how things are going seems to be getting better on a national level, based on a Harris Poll of 2,056 adults surveyed online Feb. 6-13 by Harris Interactive.
More than one-third of Americans say they expect the economy to improve in the coming year, while 2 in 5 people say it will remain the same. One-quarter of those polled say they believe it will get worse.
Perceptions of the job market are also improving, albeit a little more slowly.
Looking ahead, there is also a sense of optimism on where the job market is heading, and feelings about whether the country is still in a recession are also improving, according to the Harris Poll.
A positive trend is clearly emerging economically as good news continues, wrote Mark Fleming in the March issue of The MarketPulse, a monthly economic publication of CoreLogic, a leading provider of information, analytics and business services.
He pointed to the expansion of the gross domestic product – a 3 percent annualized rate in the fourth quarter of 2011 – and expectation of forecasters that it will continue to grow by approximately 2 percent during the 2012 first quarter, despite the buffeting blows of a slowing European economy and increasing U.S. fiscal constraints.
Additionally, the composition of growth is beginning to change, he said.
“Coming out of the recession, business investment in equipment and software was the driving force behind economic expansion,” Fleming continued. “In other words, businesses substituted capital for labor as they cut costs and sought greater operating efficiency. Productivity also rose dramatically coming out of the recession.”
However, now equipment investment and software is declining and productivity growth is falling, both of which are leading signs that the ability of capital to substitute for labor is fading, thus triggering an increase in the pace of job creation.
“We’re already seeing signs of that in the labor market,” Fleming said.
Labor market gains steam
Private-sector employment increased by 216,000 from January to February on a seasonally adjusted basis, according to the latest National Employment Report released last week.
The National Employment Report, created by Automatic Data Processing Inc. in partnership with Macroeconomic Advisers, is derived from actual payroll data and measures the change in total monthly non-farm private employment.
Small companies, those defined by having between one and 49 employees, accounted for half of the hiring, followed by medium-sized firms and large companies, comprising more than 499 employees, with 88,000 and 20,000 jobs, respectively.
The estimated gain in employment from December to January was revised up slightly to 173,000 from the initially reported 170,000.
“This month’s employment gains in the ADP National Employment Report continue to be solid, with job growth averaging just over 200,000 for the past five months,” said Carlos Rodriguez, president and CEO of ADP. “Also, for February, virtually every sector of the economy added jobs – something I hope will continue for the rest of 2012.”
The past three monthly gains in employment shown on the report have averaged 223,000, compared to 156,000 per month over all of 2011, said Joel Prakken, chairman of Macroeconomic Advisers.
“February’s increase marks the 25th consecutive monthly gain in private employment as measured in the ADP report and suggests that the national unemployment rate may have declined slightly last month,” he said.
Home sales rise amid positive outlook
Another indication of an improving economy can be seen in area single-family home sales.
According to the Greater Nashville Association of Realtors, home sales in February surged nearly 34 percent compared to a year ago. This number is the average of sales in Davidson, Cheatham, Dickson, Maury, Robertson, Rutherford, Sumner, Williamson and Wilson counties.
Data shows 1,515 home sales closed last month, while only 1,134 sales closed in the same month last year. Additionally, pending sales last month topped 1,832, a noticeable increase from 1,416 in February 2011.
“February marks another increase in both home purchases and pending sales compared to last year,” said Kendra Cooke, president of the Greater Nashville Association of Realtors. “Based on recent reports of the Tennessee unemployment rate falling below the national average, along with an increase of jobs in our region and state, it’s reasonable to believe these trends will continue into the spring.”
Cooke also noted the housing market enjoys a position of both contributing to and benefiting from a decline in unemployment.
According to the National Association of Realtors, one new job is created for every two homes sold, and an additional $60,000 is pumped into the economy per home sold.
Average home prices have continued to decline – $159,900 compared to $169,900 – but appear to be contributing to the increase in sales. Inventory at the end of February was 18,271, down from 20,997 a year ago.
Total single-family home inventory has decreased from a 12-month supply last year to a 9-month supply last month.
“Inventory has decreased from last year, but history shows we can expect the spring buying and selling season to create an increase as more people begin to place their homes on the market,” Cooke said.
Commercial real estate still teetering
While the broader economy is starting to turn around, the commercial real estate sector continues to struggle due to reduced operating income, property values and equity, according to a report from the National Association of Realtors.
Additionally, commercial practitioners continue to experience difficulty in obtaining construction and land development loans, small business loans, short-term loans for capital improvements, and refinancing for mortgages.
Three main problems continue to negatively impact commercial real estate financing: bank liquidity, an equity gap and a contraction in small business lending.
In 2012, more than $393 billion in estimated commercial mortgages nationally are scheduled to mature and need to be refinanced or sold, based on CoreLogic data.
According to the most recent data, a projected 6,998 properties with an estimated aggregate loan origination value in excess of $4.2 billion that would needed to have been refinanced in January this year.
The southern region, which includes Tennessee, accounts for 36 percent of projected national maturities (on a dollar basis) for the month, with an estimated 3,055 commercial real estate mortgages valued at more than $1.5 billion.
That said, the same report states the highest dollar volume of maturities are Atlanta-Shady Springs-Marietta, Ga., Houstin-Sugar Land-Baytown, Texas, and Dallas-Fort Worth-Arlington, Texas. The only Tennessee metropolitan statistical area that made the mortgage maturity list is Chattanooga, Tenn.-Ga., which accounts for $6 million in the retail category of the total sum