Hampton Roads Planning District CommissionHRPDCVA

Economics

Hampton Roads Economic Monthly

Check In On Inflation

by Greg Grootendorst, Chief Economist and Katherine Rainone, Regional Economist

September 2022

In recent months, it’s been difficult to evade headlines discussing inflation. A lot has changed since we last checked in on increasing
prices in May 2021, so this month’s article will focus on overall inflation and some of the select categories that are contributing more (or less) to price hikes since year-over-year change in prices surpassed the coveted 2% target.

Inflation – the rate at which prices for goods and services rise, or the decline of purchasing power of the dollar over time - isn’t
a regional or local economic indicator, but it certainly affects the pockets and wallets of everyone who calls Hampton Roads
home. Since COVID-19 sent shockwaves through the global economy, the U.S. pumped money into the economy through various
measures with the intent of keeping the country out of a major recession. In March 2021, the Consumer Price Index (CPI) rose by
2.5% and the Personal Consumption Index (PCE) rose by 2.5% - the first month since 2012 the increase was 2.5% or higher. At that
time, economists were speculating as to whether or not these increases would contribute to long-term inflation, or if they would be
considered price shocks. Each month since has seen significant increases, coming to what was hopefully the peak in June 2022, with
July’s report showing a decline of 0.5% from the previous month.

Not all consumer goods are rising in price at the same pace however, and breaking down the CPI into categories can help paint a
clearer picture of where we’ve been, and where we might expect to go in the future. The two charts below show the CPI for select
categories from March 2021 – March 2022 and July 2021 – July 2022, as two monthly examples of how quickly various consumer
goods are changing and therefore impacting inflationary measures differently over time.

 

Bar Charts Percent Change in  CPI March 2021-March 2022; July 2021 -July 2022

 

 

 

 

 

 

 

 

 

 

 

 

Gasoline – Since the measures of inflation started rising in 2021, gasoline has been the largest contributor by far to the overall
increase in prices, quite the opposite from the onset of the pandemic, where gasoline prices plummeted to record lows as
Americans stayed home. Increase in demand as well as reduced supply (heavily impacted by the war in Ukraine) has caused gas
prices to increase. As gas prices have begun to come back down, it’s contribution to the CPI is reflected in a 44% year-over-year
rise, compared to 48% in March when the war began.

Used cars and trucks / car and truck rental – In March 2022, one of the biggest contributors to the overall increase in prices was
used car and truck sales (35.5%) and car rentals (23.4%). According to July’s CPI report, used car prices are only 6.6% higher than
last year, although still more than 50% higher than they were in February 2020, before COVID disruptions. Similarly, however much
more drastically, rental car prices have actually declined year-over-year by nearly 12%, as airline fares have shot to the top of the
chart with nearly a 28% increase in prices as pandemic-related travel restrictions have all but disappeared.

Housing / Rents – Increased demand for housing combined with a housing shortage have been pushing housing prices ever higher since the onset of the pandemic. In July, housing costs had shown an increase of 7.4% nationally, while rentals prices were not far behind with an increase of 6.3%. In the past several months, mortgage rates have increased, leading to some markets (including Hampton Roads) to experience a cool down in home sales. Prices are not likely to come down as quickly, but may plateau.

When we last reported on inflation, the Federal Reserve was keeping interest rates low, likely waiting to see if prices would rise in
the long-term. Once it became clear that these were not just short-term price shocks, the Fed raised interest rates several times this
summer in an effort to cool down the economy. As money becomes more expensive to borrow, the hope is that inflation will begin
to decline. If July’s CPI report is any indication of future movement, prices may have reached their peak.

If you have any questions or comments, please feel free to contact us at krainone@hrpdcva.gov or ggrootendorst@hrpdcva.gov.

To view September's full economic monthly report, click HERE.

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Annualized Growth in GDP

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

Retail Sales

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

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

Hotel Sales

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.

 

Employment

Employment

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

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.

 

Unemployment Rate

Unemployment Rate

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.

 

Initial Unemployment

Initial Unemployment

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.

 

Housing Permits

Housing Permits

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

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

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

Foreclosures

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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