by Greg Grootendorst, Chief Economist and Katherine Rainone, Regional Economist
Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced in a region over a specific period, a broad measure of overall domestic production. GDP functions as a comprehensive scorecard of the economic health of the nation, with national growth reported on an annualized quarterly basis. Gross Domestic Product is typically calculated by using the following formula: GDP = C + G + I + NX (where C=consumption; G=government spending; I=Investment; and NX=net exports).
Over the past decade, GDP in the US has been growing by an annualized rate of around 1-3% each quarter, steadily recovering after the Great Recession of 2008-09. This past year has been far from the norm. As the coronavirus pandemic began to take hold globally, GDP domestically shrunk by 5% in Q1 and an unprecedented 31% in Q2. Over the summer, as the pandemic seemed to loosen its grip in Asia, Europe, and the US, the economy began to recover as lockdowns were eased, allowing GDP in Q3 to grow by an equally unprecedented rate of over 33%. Annualized quarterly growth in GDP can be seen on the first chart in the second page of this report, but it is important to note that while Q3 posted record growth in GDP across the country, the context of that growth is important. Because the data is reported on an annualized quarterly basis, it compares GDP levels from quarter to quarter, and since there was record loss in Q2 and record gains in Q3, the growth looks off the charts. However, as seen in the above chart, GDP levels are 3.5% below where they were at the end of 2019 before the pandemic disrupted the global economy.
The biggest gains in Q3 were realized in personal consumption expenditures, an increase of over 40% from the previous quarter driven by increases in spending on both goods and services across the economy. Increases in private domestic investments also contributed to the sharp incline, growing at an annualized quarterly rate of 11.6% in Q3 after experiencing a decline of nearly 9% in Q2. Net exports of goods and services experienced a 3% decline in Q3 caused by an 8% decline in imports and nearly 5% increase in exports (led by motor vehicles, engines, and parts).
To view November’s full economic monthly report, click HERE.
Annualized Growth in GDP
Gross Domestic Product combines consumption, investment, net exports, and government spending to determine the size and general health of the economy. Real GDP increased 2.1% in Q4 2019 (GDP also grew by 2.1% in Q3 2019). The growth is driven in part by consumer spending, government spending, housing investment, and exports, while imports decreased. There was a decrease in inventory investment (-1.09%) as well as a reduction in business investment reflecting a decrease in structures and equipment.
Retail sales in Hampton Roads, as measured by the 1% local option sales tax, serve as an indicator for consumption in the region. Retail sales have bounced around, but after a surprisingly weak June, they continue to recover handily through to December (seasonally adjusted 3 month M.A.). Sales increased by 7.4% in December, making it Hampton Roads’ best December for total retail sales in recent years. Much of the recent growth in retail sales across the Commonwealth has been the result of increases in the number of online sales that are subject to tax.
New Car Sales
Car sales, as a durable good, may be put off until an individual’s economic prospects improve; thus, the number of new car sales indicates the level of confidence that households in Hampton Roads have in their financial future. Car sales have decreased and stabilized after an unusually strong September, hovering near the averages that have been observed over the past few years.
Hotel sales indicate the performance of the region’s tourism sector. In Q3 2019, accommodation sales decreased by 3.5%, settling at $220 billion for the quarter. This continues a pattern of slowing sales between second and third quarters in recent years, however, Q3 accommodation sales in 2019 increased 5.4% over Q3 2018. This shows accommodation sales are still trending upward from late-2013 lows.
Non-agricultural civilian employment figures are considered the best estimate of labor market activity by the National Bureau of Economic Research. According to data from the Bureau of Labor Statistics, Hampton Roads employment increased for the third month in a row since a recent high in June, to 796,600 positions in December of 2019. This figure represents a 1.05% growth from the same month in the previous year.
Employment Growth by Industry
As the job market grows or declines, there will be some industries whose experience does not resemble the regional trend. Several industries have seen significant decline year-over-year using BLS data, including Administrative & Support and Local government. The Construction and Leisure & Hospitality industries continue to see the largest increases in jobs when compared to the previous year, signs of strength due to their key role in the regional economy.
The unemployment rate is the percentage of the population actively seeking work but unable to obtain a position. Hampton Roads’ unemployment rate plateaued in December 2019 at 2.93%, the same rate it was in November. Comparatively, the national unemployment rate decreased again in December from the previous month to 3.5%, hovering at record lows.
The number of initial unemployment claims is a leading economic indicator reflecting those who are forced to leave work unexpectedly, thus revealing the strength of the job market with little lag time. Seasonal adjusted unemployment claims decreased in January 2020 to 2,438 claims, a decrease from December of 2019 but still above November’s recent low. This January number of claims represents a 17.6% decrease from the same month in 2018.
Permit data signals the level of construction employment and confidence regarding the future trajectory of the local economy. The level of new construction permitting for single family homes in December decreased to 352 permits, but when seasonally adjusted represents a slight increase relative to November. As the market continues to respond to the recently lowered federal interest rates, this indicator will be interesting to watch closely.
Home Price Index
The home price index measures the value of homes by evaluating changing price levels through repeated sales of properties. The index provides the highest quality data available on the trends in the real estate market. Hampton Roads’ home prices increased, yet again, by 4.2% over the previous year in Q3 2019, remaining below both the state and the nation. Regional housing values remain 4.3% below those seen during the peak of the housing boom.
Settled Home Sales
Settled home sales measure the level of transactions on the real estate market over time, and a healthy real estate market should have a consistent level of activity. The levels of existing home sales have been strong recently, with sales maintaining the same average level as during the housing boom in 2005. New construction sales in January saw a slight dip from December, continuing to represent roughly 11% of all sales.
Foreclosures have a significant impact on the real estate market and community, depressing home values on a neighborhood and regional level. Distressed homes’ share of total sales has particularly been shown to impact the sale price of existing homes. The foreclosure level is still elevated from the housing boom, but has been steadily declining, showing some of the lowest rates since 2009. Foreclosures constituted 4.2% of all home resales in December of 2019, down from a recent high of 8.1% in April of 2016 (12-month average).
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