Positive Expectations
With regard to the nation’s economic and financial recovery, the American people are generally not expecting miracles, though folks would likely not turn them down if they materialized. (As is typical in today’s instant information world, countless polls are already weighing in on the effectiveness of various programs despite the fact that many of them haven’t even started and the lag in effect is normally several months.) Rather, what most people are looking for is good news that better days are ahead-right around the corner would be great, but just knowing that they’ll eventually come (and they will) makes everyone feel somewhat better.
A case in point is the financial market uptick that occurred earlier this week when news was released regarding existing home sales for February. Not only was that news good, it was also unexpected. Additionally, the fact that the 5.1% gain over January totals was the largest month-to-month jump in nearly six years brought smiles to the faces of many investors and home sellers. Better affordability and historically low interest rate levels have naturally played important roles in encouraging home purchases. Actually, prices were off by an average of 15%, indicating that reality is setting in and the inevitable market revaluation process has begun in earnest.
Along with the good news related to home sales, it’s also quite interesting to note that even though the housing industry is still suffering in so many areas, mortgage applications have jumped 21% and housing starts experienced a 22% hike over a month ago (obviously from low levels).
While we should not make too much out of reading a single month’s numbers, the information is certainly encouraging amidst all the things that have been going on, particularly in light of the bad news we have been inundated with during the past several months. Moreover, it is especially pleasing that the positive reports are associated with the housing and mortgage industry, which is where the financial trouble had its genesis.
The sales figures for occupied homes do not reflect the upcoming $8,000 tax credit the government authorized in an attempt to lure first-time buyers into the housing market. If the tax credit works as planned, first-time buyers will continue to enter the market in the months to come. It appears as if up to 45% of the sales nationwide are properties which have been foreclosed.
By another perspective, although the number of existing home sales increased, the amount of money changing hands in the currently distressed property environment is less than it would have been had the sales taken place several months previous. The median sales price for existing homes nationwide has slipped to $165,000 from $195,800 a year earlier. This result is not surprising given the numbers of first-timers in the market, as they tend to purchase homes at the lower end of the price spectrum. And, as noted above, prices are also adjusting to the new environment.
In many areas of the country, homes are selling at a discount of up to 20%, and average sales prices are now about 28% less than they were at their peak in the summer of 2006. This is a “good news-bad news” situation in that better affordability is certainly a good thing for those who can now afford to purchase a home, but clearly bad for those who lost value on homes they owned (whether individuals or banks).
Additional positive news might be coming our way in the next few months as a result of the Federal Reserve’s decision last week to print $1.2 trillion and put this sum into the economy by purchasing mortgage-back securities and Treasury debt. The central bank is also going to increase its purchases of debt issued by Fannie Mae and Freddie Mac-up to $200 billion.
Further good news is expected because of the just-announced plans for a public-private initiative to buy loans and mortgage-backed securities from the banks. This effort could clear up to $1 trillion in so-called toxic assets and thereby substantially strengthen the lending institutions’ abilities and desires to provide more resources for additional property purchases. The initial reviews are certainly positive.
Although we aren’t out of the woods yet, the monthly data and the announcement of the new plans do show what can occur when shoulders are put to the wheel. The housing industry, of course, has to recover sufficiently in order for the overall economy to get back on track to facilitate economic growth and sustain job creation.
Although we will likely see a few more months of pessimistic numbers before we begin to receive a steady flow of optimistic news, there is light at the end of the tunnel and normalcy will return.
posted @ 07:59 AM CST [link]
Friday, March 20, 2009
An Enduring Resource
Practically everybody who has been reading the news and attempting to keep up with the latest economic twists and turns is undoubtedly aware that the nation has been undergoing an almost unprecedented downturn over the past several months.
Additionally, those following the economic situation in Texas know that the Lone Star State has been one of the few shining lights during much of this dark turmoil of economic adversity. Even though the state was certainly never fully immune to the difficulties being experienced around the country, Texas has been able to steer a fairly positive course during these troubling times, although there are a lot of signs of tough sledding ahead.
There are, of course, many factors that have played distinctive roles in helping our state to remain relatively healthy somewhat longer than other parts of the country. One of the most positive factors which helped to sustain momentum is the unique contribution being made by activities allied with the Barnett Shale.
The Barnett Shale is a natural gas reservoir underlying some 20 counties centered around Fort Worth. The shale that traps the gas is very hard (often likened to a very thick chalk board) and, until recent technology developed new ways of extraction, little commercial activity had been associated with it.
Since 2001, activity in the Barnett Shale has generated thousands of jobs and tens of billions of dollars in investment. Royalty and bonus payments to area residents, cities, school districts, and others, as well as property tax receipts to local taxing authorities have forged improvements in infrastructure, quality of life, and financial stability.
Barnett Shale activity also generates a notable addition to state business operations and tax receipts, a particularly important contribution in light of todays down economy. Since 2001, the Barnett Shale activity has cumulatively led to incremental benefits totaling $32.56 billion in gross area product (in constant 2008 dollars) and over 327,000 person-years of employment in the region. The total impact stems from numerous sources, including exploration and drilling, pipeline development, and the spending stimulated by tax payments.
The annual impact of all major sources of stimulus associated with the Barnett Shale on business activity across Texas in 2008 included approximately $36.23 billion in total expenditures; $13.65 billion in gross product; $8.05 billion in personal income; and $3.72 billion in retail sales. In 2008, the State of Texas received more than $275 million in severance taxes from activity in the Barnett Shale. Other types of state tax revenues and fees were also positively affected, with the total fiscal stimulus approaching $1 billion.
The current relatively low price environment in the natural gas market is definitely dampening exploration and drilling activity. Even with this temporary slowing, however, the past benefits from the Barnett Shale continue to positively influence the Fort Worth area and impact the state.
Cycles and volatility in the energy sector are inevitable, and, unlike the folks in East and West Texas, local residents have not experienced a previous downturn of any consequence in the overall upward trend. Despite the fact that the pace of growth is slower than in the recent past, the development of the Barnett Shale has diversified and strengthened the Fort Worth-area economy in fundamental ways. The region is much better off in terms of jobs and other business activity than it would have been otherwise, both now and in the future. With economic recovery, the demand for natural gas (and, hence, price levels) will rise because of the inherent desirability of gas as a fuel.
This year, which is likely to be the trough of the current downturn in energy markets, the benefits of the Barnett Shale are expected to include about $6.5 billion in output and some 70,000 jobs. While certainly lower than the recent past, this contribution remains above that observed as recently as 2006. It must be kept in perspective that these levels continue to represent a net increase over the economic situation that would occur in the area in these difficult times if it were not for the Barnett Shale.
While we obviously don’t know exactly what the future will hold, we simulated the effects of this activity through 2015. Assuming even a modest recovery, the net cumulative benefit to the region during the 2001-2015 period is more than $100 billion in output and more that 1 million person-years of employment. Simply stated, the natural gas resting under the ground in North Central Texas is like a vast savings account for the regional economy, not to mention a critical resource for the nation’s energy needs. While the pattern of withdrawals and, hence, stimulus, will be erratic, the Barnett Shale, like all of the vast hydrocarbon deposits in our great state, will remain an enduring and valuable resource for decades to come.
posted @ 08:03 AM CST [link]
Friday, March 13, 2009
Unique Economic Stimulus
Some people are saying that an event which occurs this month could be the positive shot our economy needs to begin climbing out of the doom and gloom we have been hearing so much about lately.
No, it’s not a new government stimulus/rescue/spending package created by our nation’s lawmakers; rather, it’s the return of the world’s number one golfer—Tiger Woods. Although his return after an eight-month respite following knee surgery was officially marked by his short-lived participation in the World Golf Championship (WGC) Accenture Match Play Championship a couple of weeks ago, his return to stroke play starts today (as I am writing this) at the Doral Golf Resort in Florida.
Woods will be joined by the other 79 professional golf players eligible for this event—the top 50 in the world rankings as well as the leading money winners across the globe. For four days, the sports world will indeed have its eyes sharply focused on the Miami area to see how he does. There is no cut after two rounds, so Woods is predicted to play every day of the tournament. And that’s good news for the sponsors and ticket takers where crowds are likely to be up considerably in comparison to what a Tiger-less event would have drawn.
A three-time winner at Doral (2005-2007), Woods’ last competitive stroke-play tournament was the US Open at Torrey Pines last June—which he won in a dramatic fashion on a bum knee. Now that his knee is fully recuperated, golfing enthusiasts are placing a huge burden on Woods’ shoulders with the expectation that his knees will not buckle from the weight—not just from the pressure of the game, but also from the economic boost his participation is giving to the golfing world.
And the timing for Woods’ reentry to competitive golf could not be better. During his lengthy layoff, the golfing world has been stressed economically because of decreased public interest. Without Tiger, television viewership numbers are often less than half that when he plays. During his extended absence, TV ratings dropped dramatically at some of the golfing world’s major tournaments, and a general decline in the size of crowds at other golfing events was noticeable.
Much of the support the golfing world receives comes from major financial institutions and automobile manufacturers, as well as from various corporate and business sponsors, many of which have struggled recently to keep their heads above water. Because of the interest wane in golfing tournaments while its major star has been recuperating, some tournaments have lost sponsorships and the futures of others have been in doubt. However, a few days ago when Woods announced he would participate in the Doral event, bookings immediately went up and new as well as traditional sponsors began clamoring for the limelight.
Tiger Woods is, indeed, an American sports and cultural phenomenon, and his smile is infectious. When he plays, whether he wins or not, those involved reap the benefits; more people buy tickets, TV advertising increases, and sponsors create new ways to get their names in front of larger audiences. It seems that everyone wins.
Of course, even though Tiger is again causing a renewed interest in the game, his participation alone will not cure all the economic-oriented ills facing course operators and golfing equipment manufacturers. Still, the possibilities he has in his bag and the potential for future benefits with each swing he takes will certainly lift the spirits of golfing enthusiasts and the entire sports world. With every fist pump, his multi-billion-dollar economic presence will become more obvious and he moves closer to what some folks already claim him to be—the stimulus plan all of America loves.
posted @ 08:01 AM CST [link]
Friday, March 6, 2009
New Trade Opportunities
Amidst the bad news related to the economy that we have been hearing lately, it’s nice to note some occasional good news coming our way, especially when Texas is a key focal point.
On March 6, a new trade avenue opens when Cathay Pacific Airways launches its newest cargo route which will include stops at the George Bush Intercontinental Airport. The trip will emanate from Hong Kong and land in Anchorage, Miami, and Houston three times a week.
The new operation is designed to mine new markets for growth between Texas and Asia, an effort which is also being enhanced by improvements in the Panama Canal. Moreover, because of the Miami linkage, it will also create new synergies and more connections into the emerging markets in Central and South America.
Hong Kong is one of China’s most important international finance and trade centers, and this opportunity is projected to substantially advance Texas trade in that part of the world. Because of the increasingly complex linkages in the world, such initiatives are critical to the overall long-term progress of the Texas economy.
For several years, Texas (the nation’s leading export state) has sought to compete with California and ports in Mexico in cargo transportation by sea. Adding this air cargo service will expand the volume capacity for a variety of industries in the state while also complementing the traditional ship transportation efforts.
Groundbreaking was held in September for a new transportation terminal in Hong Kong to more effectively manage the expected increases in cargo shipments along with the variety of products. Cathay Pacific has also purchased several new fuel-efficient airplanes with greater cargo capacity and the capability of traveling longer distances.
By adding Anchorage, Miami, and Houston to its freight routes, Cathay Pacific Airways is expanding its US hubs beyond their current operations in New York, Chicago, Atlanta, Los Angeles, San Francisco, and Dallas-Fort Worth.
Miami, the eastern point on the new trade route, is the nation’s busiest airport for international cargo. Dallas/Fort Worth International Airport handles some 60% of all air cargo in Texas (48% of which is associated with Asian trade) and has been ranked as “The Best Cargo Airport in the World” by Air Cargo World. The George Bush Intercontinental Airport is already the 11th largest gateway in the US in terms of international air cargo. Approximately 23% of the cargo trade handled in this facility is related to commerce with Asian nations. In 2007 (latest data), air cargo trade between Houston and Hong Kong totaled more than $24 million. The Bush Cargo Center, which opened in 2003, is capable of handling up to 20 wide-body aircraft simultaneously.
Don’t expect miracles immediately. The economy is what it is, and global conditions have certainly impacted worldwide cargo shipments recently—eight consecutive months of contraction. Asia Pacific carriers, which handle approximately 43% of the world cargo market, reported a 28% year-on-year drop in February. European carriers experienced a 23% decline, while North American operations suffered a 19% loss. Even so, major firms continue to seek ways to boost operations and increase revenue through various commercial ventures, especially those that create stronger ties with potential major markets.
In this light, the new Hong Kong-Houston connection is quite significant. In addition to the anticipated potential for financial gain through this cooperative partnership, the timing of the new operation is important as it provides a much needed positive impetus during this unique economic slowdown, and secures a competitive advantage for decades to come.
posted @ 08:00 AM CST [link]