Hampton Roads Quarterly Forecast Analysis
OLD DOMINION UNIVERSITY
ECONOMIC FORECASTING PROJECT
COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION
May 21, 2014
SECOND QUARTER 2014 ECONOMIC FORECAST AND ANALYSIS FOR
THE HAMPTON ROADS MSA
The Hampton Roads MSA (formally the Virginia Beach-Norfolk-Newport News MSA) includes Currituck County, Gloucester County, Isle of Wight County, James City County, Mathews County, York County, Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Surry County, Suffolk, Virginia Beach and Williamsburg.
Real Gross Domestic Product, according to the advance estimates released by the Bureau of Economic Analysis, barely grew in the first quarter, increasing by only 0.1percent annual rate after growing at 2.6 percent during fourth quarter of 2013. The slow growth observed during the first quarter has been attributed partly to the adverse weather conditions during the winter. Decrease in growth has also been due to a downturn in exports and in nonresidential investment, a larger decrease in private inventory investment, a deceleration in personal consumption expenditures, and a downturn in state and local government spending. However, personal consumption expenditures that account for more than two thirds of economic activity, increased at a rate of 3.0 percent compared to an increase of 3.3 percent during the fourth quarter.
The national economy also added 569,000 jobs during the first quarter of 2014, or an average of 190,000 per month. Preliminary estimates provided by the Bureau of Labor Statistics indicate that the economy added 288,000 jobs during the month of April 2014. Seasonally adjusted unemployment rate for national economy has also decreased from 6.7 percent in December 2013 to 6.3 percent in April 2014 after remaining at about 6.7 percent for each of the three months of first quarter. These measures indicate that the national economy continues to improve.
For Hampton Roads, due to the region's heavy dependence on Department of Defense and a modest expected increase in defense spending, we expect Real Gross Regional Product to grow by about 2.2 percent in 2014. Bureau of Labor Statistics revised data in March 2014 indicate that the regional economy actually added 7,450 jobs in 2013 rather than a gain of 14,950 jobs as previously estimated.
Year-to-date economic data through March 2014 for Hampton Roads show mixed results for the regional labor market. According to the Current Employment Statistics (CES) job growth in Hampton Roads was almost flat (slightly negative) during the first quarter of 2014 compared to the same time period in 2013 whether we examine the seasonally adjusted data or the unadjusted data. However, Local Area Unemployment Statistics (LAUS), a survey of households, reveals that number of individuals employed increased by 12,000 during the first quarter of 2014 compared to first quarter of 2013. Labor force also increased by 6,600 and number of unemployed individuals decreased by 5,400. Consequently unemployment rate has declined from 6.5 percent to 5.8 percent during first quarter of 2014 when compared with the first quarter of 2013.
In addition, the lingering effects of uncertainty caused by sequestration continue to have a negative impact on the performance of the hotel industry. Hotel revenues decreased by 1.8 percent during the first three months of 2014 compared to the same time period in 2013. Taxable sales during the first quarter of 2014 increased by only 1.7 percent; new car and truck registrations during the first four months of 2014 increased by 2.6 percent when compared to the same time period in 2013.
Improvements in the national economy and its effect on the regional economy can be seen in the performance of the port activity. During the first four months of 2014, cargo tonnage and twenty foot equivalent units (TEU) at the port of Hampton Roads increased by 10.2 and 8.6 percent respectively when compared to the same time period in 2013. However, value of 1 unit residential building permits saw a decrease of 14.8 percent during the first quarter of 2014.
Employment (Non-Agricultural Civilian Employment +0.2%)
Unemployment Rate (Civilian Labor Force 5.4%)
Employment is expected to increase in the second quarter. Employment growth is likely to be concentrated in construction, professional and business services, and health care services. The region's unemployment rate will continue to fall and remain considerably below the national level.
Retail Sales (Taxable Sales +2.2%)
As the regional economy continues to recover, we expect that taxable sales will increase at a modest pace.
Tourism (Hotel Room Revenue +3.2%)
An anticipated recovery in the national and tourist market areas' economy should lead to an increase in hotel revenue for the second quarter.
Port (General Cargo Tonnage +6.3%)
The strong performance of the port during the first three months of 2014, during which cargo tonnage increased by 10.2 percent, provides good news for the regions' economy. We expect this trend in cargo tonnage to continue during the second quarter but at a lower rate.
Housing (Value of 1-Unit Family Housing Permits -9.7%)
The number of housing permits issued for 1-unit residential homes during the first quarter of 2014 decreased by 14.1 percent compared to first quarter in 2013 and the value of these permits decreased by 14.8 percent. However, this decline occurred after a substantial growth observed in both the number and value of 1-unit residential housing permits observed during 2012 and 2013. We expect that value of these permits will continue to decrease during the second quarter but at a lower rate as builders adjust to local residential housing market conditions.
The Hampton Roads' existing residential housing market has basically stalled during the first four months of 2014. Median price of existing homes through April 2014 has declined by 0.5 percent and number of existing homes sold declined by about 6 percent. However, decline in sales volume was primarily due to a 18.2 percent decrease in sales of distressed homes.
Other indicators point to a continued improvement in this market for the second quarter of 2014.These include: a steady volume of sales of non-distressed homes, relatively small inventory of homes in the market, a decrease in number of days on the market, and historically low mortgage rates. Measures of supply and demand indicate that it will take approximately 6.4 months to clear the existing inventory based on the current absorption rate, which is about the normal time period for the local residential market.
However, we continue to be concerned with the volume of distressed homes in the local residential market. Distressed homes, whether measured in sales as a proportion of all existing homes sold or measured in listings as a proportion as listing of existing homes currently on the market, continue to represent a significant proportion (between a fourth and a fifth) of the residential market activity.
Although mortgage interest rates are at historically low levels in 50 years and household income in the region is recovering, lack of substantial employment growth, relatively tight home loan requirements, and a large proportion of distressed market activity are likely to lead to a modest recovery in the Hampton Roads home prices during the second quarter.