When Saudi Arabia oil facilities were attacked on September 14th, 2019, there were numerous questions about what it would do to oil production, as well as prices. While as of today, the national oil company of Saudi Arabia has returned to full pre-attack production levels, the initial threat to both oil production and Middle East peace sent oil prices soaring by 20% before Saudi officials calmed the markets by pledging to restore production.
Even as production recovers (though some of the current ‘recovery’ is through additional production at other facilities), the reality that additional attacks could be perpetrated against Middle East oil production, as well as increased specter of a potential conflict in that region, raises the question of how a run-up in oil prices would impact both the national and the regional economy.
For the national economy, it would have a distributional impact, but not an overall impact. Currently, the nation produces oil equal to the amount it consumes, and the major impact would be a shifting of incomes between regions within the national economy; however, as many of the nation’s trading partners are oil importers, it could cause a slowdown with strong impacts on the U.S. economy.
Regionally, an increase in oil prices would cause an economic drain in Hampton Roads, primarily through the impacts to gasoline and diesel prices. The U.S. Energy Information Administration estimates that 53% of the price of gasoline at the pump is directly related to the price of oil. Thus, a 20% increase in the price of oil would result in an almost 10.6% increase in the price of gasoline regionally. In the short term, this would result in an estimated $0.233 increase in the cost of gasoline per gallon, causing an annual leakage of $217 million from the regional economy. While this may only be 0.23% of the region’s economy, this impact would be significant for numerous businesses throughout the region.
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Source: AAA Fuel Gauge Report, HRPDC
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 by 3.1% in Q1 2019, but it would be wise to not put too much weight into the headline number. Consumer spending grew an anemic 1.3%, and while private investment grew by 4.3% from the end of 2018, three-quarters of that growth was driven by inventory growth, which is highly transitory.
Retail sales in Hampton Roads, as measured by the 1% local option sales tax, serve as an indicator for consumption in the region. Following the national and state trend, Hampton Roads’ taxable monthly sales continued at $1.98 billion in March 2019. (seasonally adjusted 3-month average). While there was some improvement in the underlying numbers, it was not the rebound similar to retail sales on the national level.
New Car Sales
Car sales, as a durable good, may be put off until such time as an individual’s economic prospects improve; thus, the number of new car sales indicate the level of confidence that households in Hampton Roads have in their financial future. Car sales move significantly from month-to-month, but looking at the overall trend typically provides a better signal. Car sales have remained flat over the past 2.5 years, moving around the level of 6,700 per month.
Hotel sales indicate the performance of the region’s tourism sector. In Q1 2019, accommodation sales increased by 4.54% on a seasonally adjusted basis, growing to $223 billion, and this is an exceptionally strong reading. Caution should be applied, as the first quarter of the year has the lowest volume of accommodation sales, and thus may not be significant compared to summer months.
Non-agricultural civilian employment figures are considered the best estimate of labor market activity by the National Bureau of Economic Research. Hampton Roads’ employment grew in April 2019 to 795,800, a growth of 2,200 jobs over the previous month (seasonally adjusted). It is worth noting that the estimate for employment in March 2019 was revised down by 400 positions.
Employment Growth by Industry
As the job market grows or declines, there will be some industries whose experience does not resemble the regional trend. Regionally, manufacturing (+2,900), scientific & technical (+2,700) and finally construction (+1,300) have grown strongly over the past year. Local government employment (-1,700) and retail employment (-1,500) continues to fall.
The unemployment rate is the percentage of the population actively seeking work but unable to obtain a position. Hampton Roads’ unemployment rate held steady at 3.22% in April 2019, but this reading, which is already quite low, continues to show strong fundamentals. For the past five months, the number in the labor force has grown steadily while the number reporting they were unemployed has also grown.
The number of initial unemployment claims is a leading economic indicator reflecting those who are forced to leave work unexpectedly, and thus revealing the strength of the job market with little lag time. In April, the region’s initial unemployment claims rose to 2,624 from 2,360 in December 2018 (seasonally adjusted), but this is consistent with the levels over the past six months.
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 has stayed below 300 for five consecutive months, and was at only 283 permits in April 2019 (seasonally adjusted). This is significantly below the 25-year average of 444 permits per month.
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 by 2.5% in Q1 2019, and this matches Virginia’s appreciation year-over-year (though still lags the nation). Regional housing values have surpassed those of Q2 2009.
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 continue to fluctuate, increasing slightly to 2,195 in April 2019, but new home sales continued to stay in the upper end of the post-recession range (287 settled sales in April, seasonally adjusted).
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 on the sale price of existing homes. The foreclosure level is still elevated from the housing boom. Foreclosures constituted 5.4% of all home resales in April 2019, down from a high of 8.0% in March 2016 (12-month average).
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