As we look back on 2013 and forward to 2014 there were several key areas of the economy that show a strengthening economy as well as some cautionary tales. In this article we will cover a few of the various segments of our economy and review the opportunities, strengths, and cautions.
Auto Industry
The auto industry had the best sales year in 2013. You would have to go back to 2007 in order to see this level of sales performance. This shows that U.S. manufactures are gaining back their market share. One thing to note is that many of the vehicles that were purchased were financed by consumers as opposed to two years ago where we saw people mostly paying with cash. In either case, this increase in purchasing is a very positive economic aspect.
Office Market
The fourth quarter showed businesses occupying an additional 8.5 million square feet. This is the highest gain in occupancy this market has seen since the 3rd quarter of 2007. What makes this an positive indicator is that these gains in occupancy are on top of the completion of 9.1 million square feet coming online during this same period. This shows businesses have begun to expand a bit. When all is said and done, the national vacancy rate remains at 16.9% which is unchanged from the previous quarters.
Apartment Market
Nationally rents increased an average of 0.8% in the fourth quarter of 2013. Demand continues to remain strong with vacancy rates averaging 4.1%. Even when seasonal weakness is taken into account, the vacancy rates remained the same. Some of the demand is due to rinsing mortgage rates, tightening lending requirements, and higher home prices preventing many people from purchasing a home who rent instead.
Nevertheless, there is new housing development coming online in 2014 throughout various areas of the country that could slow down rent increases going forward. In fact, CoStar Group is predicting an additional 350,000 units will hit the nation’s 54 largest markets in 2015 and 2016.
Not all the glimmers is good news. Despite all this good economic news there are a few dark clouds in the forecast that need to be addressed.
Unemployment
The economy added only 74,000 new jobs in the month of December 2013. This is the weakest employment numbers we have seen in the last three years. Of course, there is data to suggest that the lackluster numbers may be due to weather conditions. For example, much of the drop in new employment came from construction and transportation where the bad weather has a direct impact. If this is true, it is expected that the Bureau of Labor Statistics will adjust up those numbers in the coming weeks.
One major concern with regards to unemployment is the number of people who have stopped looking for work. Therefore, although the unemployment rate has dropped down to 6.5%, at the same time the labor force participation rate has declined from 63% to 62%. This is the worst participation rate we have had in 35 years. Furthermore, according to the Bureau of Labor Statistics, currently there are 2.6 million looking for a job as of December 2013 and there 3.9 million Americans who have been out of work for 27 weeks or longer. It is a fact that unemployment is the key to stable economic growth and until those numbers return to pre-crisis levels, we will not have a stable economy.
Consumer Confidence
The consumer confidence number fell to a seven month low in November 2013 to a reading of 76.5 demonstrating that overall consumers are not confident of their personal economic wellbeing. A lot of this malady has to do with the unemployment numbers discussed above. Historically this index has matched pretty closely the future trends of the markets.
Energy
What has made the most amount of difference to the economy over the last year is the boom being experienced in the energy industry in various places around the country. The multiplier effect from the increase in oil and gas production has prevented this country from entering into a double dip recession. America has transformed from a oil consumer only nation to an oil exporter. Even coal production is on the upswing and once again and U.S. coal is one of the most sought after commodities in the world. As these new areas of energy production continue to increase and mature, the positive economic effects will be felt throughout our economy.
As we have seen there are a lot of positive and cautionary facts surrounding our economy. 2014 will be an interesting year and holds strong possibilities for good economic growth. As a business person, it is very important to not only understand what changes are occurring, but know how to prosper from them.
At Bay Area Mastermind, our members are kept abreast of the latest economic and fiscal changes so that they can take advantage of the opportunities. You are invited to take a Test Drive and see what you have been missing.