ACE Report: Energy slowdown leads to a down March in region

By Jay Miller

Continuing its roller-coaster ride, Northeast Ohio lost 375 jobs in March, according to the latest Ahola Crain’s Employment (ACE) Report. The March loss was preceded by a February increase, which was preceded by a January loss and a December increase.

The longer, year-over-year gain, however, is positive, with Northeast Ohio employment up 3,316 jobs, a gain of 0.29%.

“The regional economy is expanding and is in better shape than many expected (given the) uncertainty caused by the volatile financial markets that disrupted economic activity earlier this year,” said economist Jack Kleinhenz, who compiles the ACE data, referring to stock market ups and downs that followed the price of oil.

Employment growth came entirely from the service sector, with employment in that sector growing by 6,397 jobs, a 0.7% increase. That was offset by a loss of 3,081, or 1.5%, in the smaller industrial sector.

Loretta Mester, president of the Federal Reserve Bank of Cleveland, explained the weakness in industrial sector employment in an April 1 speech to the New York Association for Business Economics after noting that the slowdown in the energy sector was affecting employment in northern Ohio and western Pennsylvania.

“Regional firms with international exposure, such as steel producers, also continue to struggle in the wake of dollar appreciation and lower commodity prices that reflect weak global demand,” she said.

“While manufacturers with ties to energy and steel production have faced challenges, the weakness in that segment has been offset by production increases at manufacturers supplying the construction industry and by the auto industry.”

The ACE Report surveys only Cuyahoga County and the six counties that surround it, while the Fed’s Cleveland-based Fourth District comprises Ohio, western Pennsylvania, eastern Kentucky and the northern panhandle of West Virginia.

Michael Teshome, an economist who covers the Midwest for PNC Financial Services Group, agrees with Mester but also sees a future of employment growth in other sectors.

“Layoffs in the steel industry will restrain employment growth in manufacturing,” he wrote. “Health care, finance and professional services will add to the area’s economic growth.”

PNC forecasts employment growth in Northeast Ohio at 1% for 2016 and 1.1% for 2017. Longer term, PNC’s economist sees opportunity for greater growth.

“Though still only in their early development stages, manufacturing hubs for the machinery of new energy technologies and transportation equipment hold great promise for those regions that can attract and cultivate them,” Teshome wrote.

“The (Northeast Ohio) region’s lower costs and availability of underutilized assets will be an important tool in attracting new industries and opportunities into the region in the years ahead.”

Month Non-Farm Small (1-49) Mid-Sized (50+) Goods-producing Service Producing
September (Actual) 1,164,804   473,914    690,890   215,278 949,526
Oct (est.) 1,165,339   473,967    691,371   217,727 947,611
Nov (est.) 1,162,090   472,798    689,292   214,944 947,146
Dec (est.) 1,164,636   473,839    690,797   215,335 949,301
Jan (est.) 1,164,051   473,610    690,441   215,102 948,949
Feb (est.) 1,165,721   474,355    691,366   214,476 951,246
Mar (est.) 1,165,346   474,200    691,147   214,441 950,905
Recent Month’s Estimated Change
Feb ’16 to Mar ’16    (375)   (154.98)    (220)    (34)    (341)
Diff from Mar 2015    3,316   1,607    1,709    (3,082)    6,397
Trend
3-month    1,165,040    474,055    690,985    214,673    950,366
6-month    1,164,531    473,795    690,736    215,338    949,193

Retailers Go Back to the Drawing Board to Draw in Consumers

As consumers alter their buying patterns, developers across the country are blowing up shopping centers and redrawing their mall maps to give more real estate to restaurants, nail salons and gadget stores and less square footage to clothing outposts.

Increased competition from online e-commerce sites has forced developers to retool their shopping emporiums to be more in step with the times and grab some of the 3.1 percent growth in retail sales predicted for 2016.

Even though e-commerce represents only 13 percent to 14 percent of retail sales, it continues to march along at a very fast pace. “Over the last 15 years, e-commerce has taken 30 percent of the growth in sales,” said David Shulman, senior economist with the UCLA Anderson Forecast. “But people still want to be out, be seen and touch things. Malls are out to sell an experience, which is why you are seeing more restaurants and other things at malls.”

The fast pace of commercial redevelopment is front and center in Los Angeles, where major malls such as the Westfield Century City, the Beverly Center and the Westside Pavilion have announced billion-dollar plans to retool their shopping centers and open them up to create more of a Main Street experience.

Westfield Inc.’s $800 million makeover of its Century City mall includes the first West Coast branch of Eataly, an Italian food emporium co-owned by celebrity chef Mario Batali; a new Nordstrom; an upgraded Bloomingdale’s; a new Macy’s building; and more open-plaza areas. About one-quarter of the high-end shopping center will be devoted to eateries.

Using the same retail model, the Beverly Center in March announced it was undertaking a $500 million remodel of its decades-old mall that will add more restaurants and open up the structure with skylights.

Retail sales have been tough this year—particularly for department stores, which saw flat sales in February compared to the previous year.

Macy’s same-store sales fell by 3 percent in 2015. Kohl’s reported same-store sales growth of only 0.7 percent for the same year.

“People still remain somewhat cautious,” said Jack Kleinhenz, the chief economist for the National Retail Federation. “While it was a while ago since the Great Recession took place, people have adjusted their purchasing habits.”

Shoppers today are buying more building materials and furniture to spiff up their houses or get them ready to sell than purchasing clothing. “Building materials and garden supplies were way up in February because of good weather and people investing in their homes,” Kleinhenz said.

Sporting goods sales were also doing well, up 6.5 percent in February over the previous year. “More people are wearing leisure apparel and buying more of that at a sporting-goods store than a department store. Leisure apparel has been very strong in the last year and a half,” Kleinhenz noted.

With so much inventory floating around, department stores and retail chains seem to be holding a sale every two weeks or introducing special 20 percent off discount coupons to lure buyers in. “Fifty-five percent of the people I interview said they are delaying their purchases compared to 28 percent last year,” said Britt Beemer, a retail analyst and founder of America’s Research Group, which polls 1,200 consumers a week to take the pulse of their retail-spending attitude. “Consumers are going out and gobbling up all those bargains and then hibernating.”

Consumer confidence in the country is all over the map—varying by region. States such as Texas, Louisiana and Oklahoma as well as California’s Central Valley, which are reliant on the oil industry, are seeing consumers pull in their credit cards.

The Midwest is looking very solid as strong crop prices have helped boost take-home pay.

In California, shoppers still were sitting on the fence. A recent survey by the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif., showed that during the first quarter of this year, consumers were losing some of their optimism. Despite a relatively strong job market, things such as stock-market corrections, low housing affordability and higher rents negatively affected consumers’ attitudes.

Beemer noted that consumers were tired of treading water. “They are not better off, and they are getting tired of it,” he said.

Slow sales

Figures recently released by the U.S. Department of Commerce show March retail sales were up 0.1 percent from February if you took out sales of cars, building materials and gasoline. While that isn’t spectacular, it is movement forward.

“The economy keeps plugging away. It is not at a great growth rate, but we will take it,” said Robert Kleinhenz, executive director of research at Beacon Economics in Los Angeles. (He is the brother of Jack Kleinhenz.)

Job growth continues at a faster pace in California than in the rest of the country. The state’s employment roles in February increased 2.8 percent over the previous year while the rest of the nation’s job market was up 2 percent during the same period. Employers are expected to add to their payrolls for the rest of this year.

With rising jobs come rising real estate prices in Southern California. Overall average asking lease rates for retail in the Greater Los Angeles market grew by 6 cents during the first quarter of 2016, ending at $2.37 per square foot, according to CBRE Research. That is up 21 cents from the same period last year, with rates expected to continue growing through 2017.

Retail vacancies in the Greater Los Angeles area were at 5.3 percent in the first quarter of this year—almost the same as last year.

In February, housing prices in Los Angeles County were up 6.1 percent over the previous year, with the median price reaching $445,000, below the $550,000 peak seen in late 2006 and early 2007.

In Orange County, the median house price in February soared to $712,000, nudging up against the all-time high of $720,000, Robert Kleinhenz said.

New housing permits in California are on the upswing. In 2015, there were about 97,000 new housing permits issued in the state for single- and multi-family residences. This year, it is expected to reach 110,000. The long-run average is for 125,000 permits a year.

“The wild card is demographics,” Robert Kleinhenz said. “The older half of the millennials [born between the early 1980s to the early 2000s] should be—at this point—forming households—be they renters or homeowners,” he said. “That decision has been delayed by virtue of the recession and the long shadow it has cast. Somewhere along the line, the millennials will start showing up in the housing market.”

 

By Deborah Belgum | Thursday, April 14, 2016 California Apparel News

ACE Report: Region loses 650 jobs in January, but year-over-year employment is up slightly

Employment in Northeast Ohio took a slight dip in January, with a loss of 650 jobs from December to January. That represents a loss of 0.06% of the region’s jobs, according to the Ahola Crain’s Employment (ACE) Report, with the number employed dropping to 1.16 million.

That January number, however, is a gain of 1,244 jobs, or 0.11%, from the number of people employed in the region in January 2015.

There is usually a falloff of employment in the early months of the year, said Jack Kleinhenz, the Cleveland Heights economist who compiles the ACE data.

Still, Kleinhenz sees regional employment on an upward trajectory.

“The employment data is consistent with an economy that downshifted during the month” of January, he reported. “The rate of improvement in labor market conditions remains erratic for both the nation and the region, but the labor market continues to move in the right direction.”

But where Northeast Ohio saw an actual drop in employment, Ohio and the nation saw only a decline in the pace of job growth. Nationally, the growth in payrolls was 151,000 for the month, according to U.S. Department of Labor estimates. That was below expectations since 262,000 jobs were created in December.

Similarly, job growth in Ohio was off slightly. The state saw growth of 7,888 jobs between November and December, according to data compiled by ADP, a national payroll firm, but only a gain of 6,837 between December and January, an increase of 0.15%.

Longer term, a report released in late January by the Brookings Institution showed that job growth in Northeast Ohio — it divides the region into Akron and Cleveland-Elyria metropolitan areas — has languished for a decade. Brookings is a Washington, D.C., think tank.

The organization publishes a periodic “Metro Monitor” that tracks growth, prosperity and inclusion in the 100 largest U.S. metropolitan areas. The report calls the recovery from the 2007-2009 recession as “slow and uneven,” with growth strongest along the West Coast, the Intermountain West and Texas and weak in the Sun Belt.

“The manufacturing economies of the eastern Great Lakes, like those in Northeast Ohio or Upstate New York, also saw weak recoveries,” the report stated.

Using data from Moody’s Analytics, Brookings puts employment growth in the two Northeast Ohio metros among the lowest third of the 100 metropolitan areas in the country. The report shows that employment in the Akron metro has been flat for the decade ending in 2014.

For the last five years, since the recession, Akron saw employment growth of 3.5%. For the last year, employment grew by and 1.5%, according to Brookings’ analysis.

In the Cleveland-Elyria metro, employment still is below a decade ago, by 3.3%, though it has picked up since the recession, with 3.6% growth for the last five years.

Brookings reports no employment growth in the Cleveland metro for 2014, the last year in the survey.<br

Seasonally Adjusted Data

Month Non-Farm  Small      (1-49)   Mid-Sized (50+)   Goods-producing   Service Producing
June(Actual) 1,163,941   473,458    690,483   216,623  947,318
July(est.) 1,157,861   470,937    686,924   216,173  941,688
Aug(est.) 1,158,709   471,291    687,418   216,196  942,513
Sept(est.) 1,159,375   471,571    687,805   216,203  943,172
Oct(est) 1,162,009   472,658    689,351   216,462  945,547
Nov(est.) 1,161,126   472,402    688,724   214,819  946,307
Dec(est.) 1,163,443   473,357    690,086   215,071  948,372
Jan(est.) 1,162,791   473,090    689,701   214,971  947,820
 

 

Recent Month’s Estimated Change
Dec ’15 to Jan ’16 (652)  (267)  (385)  (99)  (553)
Diff fromJan 2015 1,244  733  512  (3,014)  4,259
 

 

Trend
3-month 1,162,453  472,950  689,504  214,954  947,500
945,622 945,622  945,622  945,622  945,622  945,622

By Jay Miller

February 26, 2016

Where is China heading and how exposed is the U.S. economy?

The turbulence in Chinese markets continues to fray many nerves globally, and rightly so as China is the world’s second-largest economy. The Chinese growth engine is sputtering and not helping to pull along growth for the rest of the world. The catalyst for the financial market turmoil that started early this year was China’s plunging stock market, caused by its questionable financial policies. Markets experienced a similar episode last summer. While this appears scary and a major slump would be profound, it is important to understand the cause of the slowdown in the Chinese economy and the need to put it into perspective relative to the U.S. economy.

The Chinese philosopher Lao Tzu wrote that “A journey of a thousand miles begins with a single step.” The Chinese government is attempting to re-engineer its economy to rely less on investment spending and transition itself away from manufacturing and heavy industry toward more internal consumption. This is no surprise, as the strategy had already been long communicated when I visited policymakers in Beijing in 2007. This transition has meant cutting the double-digit pace of Chinese economic activity nearly in half. The former pace of growth was dependent on capital spending required to build factories, rail networks and roads — significant expenditures and far larger than spending focused on consumer-driven needs for household consumption. Making this pivot for an economy that steers more like an ocean liner than a speed boat is a difficult thing to achieve. Other reforms were needed, including moving from a command-and-control model toward a market-based economy including developing their debt and equity capital markets. The transition is a process that will take many decades and the deceleration will be drawn out with fits and starts.

MONTHLY ECONOMIC REVIEW: VOLATILITY TO FADE IN 2016

Economic factors from deflationary prices and weather conditions to reduced foreign tourism and shifting consumer preferences came together in 2015 to create an interesting and challenging environment for retailers. Looking at the year ahead, NRF Chief Economist Jack Kleinhenz believes the economy remains on solid footing and the probability of a major slowdown is relatively low. Download the January 2016 report.

The recent volatility in the Chinese stock markets and elsewhere reflects the challenges in rebalancing the economy. There have been setbacks and consequently there are heightened concerns about the current strength of the economy to withstand these changes. Equally important is whether central government authorities are able to manage and navigate China’s currency markets and equity markets in this new environment. In my view, the government has the financial resources and flexibility to respond its challenges and will attempt to steer the ship to safety.

The direct effects and the exposure of the U.S. economy to China are rather limited. This is quite evident by looking at trade ties as the United States imports nearly four times the amount of goods from China as it exports to China. The value of U.S. exports to China are less than 1 percent of U.S. gross domestic product. On the other hand, the value of imports from China are worth about 10 to 12 percent of all goods consumed by U.S. households.

Of course, financial linkages of U.S. companies and banks need to be considered in the event of a collapse associated with the loss of U.S. exports to China and U.S. investments there. While these risks should not be minimized, these finances are not very extensive. Looking forward I do not currently believe that Chinese economic activity will entirely collapse into recession. It is not hyperbole to state that the U.S. consumer is keeping China and the world economy afloat. As long as the world’s largest economy driven by consumer spending remains on solid footing, it will provide ballast for China to navigate the choppy waters of transition.

– See more at: https://nrf.com/news/where-is-china-heading-and-how-exposed-is-the-us-economy#sthash.ny24db5m.dpuf

ASID IDBI Third Quarter 2015

“Overall economic growth has slowed due to economic crosscurrents during the third quarter, but consumer spending,
along with long awaited housing and construction activity, are providing needed fuel to keep the economy on track.
Consumer and business spending should keep the design industry momentum in place for the near term. The slightly
slower U.S. economy should prove to be temporary and not prove to be a major speed bump for the design industry, and
panelists remain positive about the near term outlook for the industry.”