South Orange County Blog from Bob Phillips

Lansner: 4 years later, we’re better off

Posted in Consumer Confidence, Home Values, Jobs, Mortgage Rates, Personal Finance, Real estate, The Economy by southorangecounty on September 9, 2012

From Jon Lansner, of the Orange County Register, 9/7/2012

Are we better off than four years ago?

It’s the grand question any time a president asks the American people for a second term.

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The central question voters are being asked by presidential candidates President Barack Obama and Mitt Romney is, “Are you better off now than four years ago?” Here in Orange County, columnist Jonathan Lansner, says, yes, we are.

So, if the answer was only economic, and answered locally, I’d say “Yes.”

Why? Because my Big Orange Index – my quarterly compilation of three-dozen barometers for the local business climate – says so.

The index has risen for 11 consecutive quarters – as of the spring quarter of 2012 – and is 8 percent higher than it was in the first quarter of 2009 when President Barack Obama took office.

Not so stunning if you honestly recall the economic freefall of late 2008 – ignited by the implosion of foolhardy, risky mortgages pioneered in Orange County.

Yes, we can debate the style and power of the economic rebound. But if you seriously remember the depth of economic weakness that gripped the region – and the nation – in January 2009, it’s not hard to see improvement.

My Big O Index comprises six sub-indexes that track key slices of the local economy. Four of the six sliced have risen since the start of 2009. Let’s see what’s moving the needle.

Start with consumers – the folks who’ll vote. By The Big O math – using its Consumer Index as a benchmark for shopper psyche – local consumer confidence is back at levels last seen in the summer of 2008.

Why? For one, pollsters who study regional consumer confidence show optimism up 34 percent since 2009. Now, it’s not buy-buy-buy happy, but it’s clearly not gloom-with-extra-doom.

Look: Local shoppers are now buying roughly the same levels of cars and entertainment services as they did in 2009. Those are discretionary purchases that were put off during the recession.

Yet those locals who regained shopping mojo still are looking for a bargain. Ponder that my Big O shows that recent local wave of homebuyers acquired a house payment 21 percent lower than it was in 2009.

Orange County shoppers may feel better because their employer is less-stressed. The most optimistic measure within my Big O since Obama took office is the Boss Index.

Curiously, the same CEOs who speak of the current administration’s anti-business activities are telling their own pollsters that things are much better since ’09. The Big O’s collection of executive confidence measures is up 170 percent – yes, nearly triple – since the last inauguration. Another study of corporate psyche – surveys of local purchasing managers’ outlook – runs 46 percent more positive than 2009 levels.

What’s behind the executive-suite happiness? Corporate profits – measured by The Big O by the big company S&P 500 earnings – have jumped 63 percent in four years.

Not every boss is happy. The Big O’s Merchant index – after gaining for the past two years – sits 4 percent below its mark when Obama took office.

You’d think store owners are happy with Orange County incomes, which Chapman University economists estimate are up 7 percent in four years. But if you don’t sell cars, you’ve had a rough patch. Local taxable sales – minus vehicle purchases – run 8 percent below the early 2009 pace.

Those shrinking sales can be blamed, in good part, on discounting. Look at the local Consumer Price Index. It’s good news for shoppers that the rate of increase for local living costs is down 26 percent in four years.

But that same inflation drop means that shopkeepers have limited pricing power. Worse, they’re squeezed by rising wholesale costs – one measure of what it costs merchants to stock and run a store – that are up 16 percent in the same period.

These unnerving trends explain why local retail employee counts have run, in the past year, 2 percent below the start of 2009.

The service sector is equally challenged – with its benchmark within the Big O taking the biggest four-year dip among the six sub-indexes.

Non-retail taxable sales – one measure of how services perform – is off 8 percent in four years. Office space – filled by local service workers – is 20 percent less profitable for landlords in the same period.

Local hotels are enjoying a recent rebound, but Orange County hotel cash flows are essentially flat since Obama’s debut. And John Wayne Airport traffic – one metric of our appeal to the outside world, both for executives and tourists – is down almost 6 percent.

Conversely, the real estate rebound is firmly under way.

The Big O’s Property Owner sub-index enjoys the second largest gain among the Big O slices since the start of 2009.

Homebuilding is back, with permits for new residences up 46 percent since 2009. DataQuick finds mortgage dollars lent on all kinds of Orange County real estate up 90 percent since Obama came into power.

Yes, home values are way down – they peaked in 2006-2007, depending on who’s counting. The past four years, the damage has only been an extra 3 percent, when you look at Federal Housing Finance Agency and Real Estate Research Council of Southern California figures.

These housing price chops spurred buyers: Orange County sales are up 10 percent since ’09, by DataQuick’s tallies. Another nudge to buyers is apartment owners’ rising rents and full complexes. The Big O’s measure of rental cash-flows is back up to 2009 levels.

But there’s clearly work to do: Real estate-related jobs are off 4 percent since 2009 as overall construction is still slow and wild mortgage lending won’t return any year soon.

Real estate can thank bankers, who lend happily when they get repaid.

Not that anybody’s erased problem mortgages, but defaults – the first step to foreclosure – this year run 36 percent below 2009. Final acts of foreclosure have fallen by 44 percent. But bankruptcies keep lenders honest, with the local pace of filings up 55 percent vs. early 2009.

There’s a key reason debts aren’t being repaid much faster: the plight of the unemployed. By The Big O’s count, local joblessness has run 8.2 percent in the past year – up from the 6.1 percent pace when Obama was elected.

That’s real pain that cannot be ignored – and economics fails to fully paint this picture.

A plurality of positive business trends does not means that all is cured, or that one cannot debate what’s best for what’s next.

But my math says that we are better off than four years ago. ( End of article.)

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