Monday Report
Utah Home Building Bust December 1st - 2008

Economic Notes:



Utah's home building industry is struggling

  • The number of new residential construction permits has fallen from a peak of 28,285 in 2005 to a projected 11,000 in 2008.
  • Construction employment has fallen by 13,400 in October of 2008.

Percent Decline in Residential Building Permits 2005 - 2008

State% Chg.
Arizona -67.4%
California -67.1%
Utah -61.1%
Oregon -55.1%
New Mexico-51.9%

Source: Bureau of Economic and Business Research, October 2008.

Percent Decline in Residential Building Permits 2005 - 2008

CityPermits Issued Jan - Sept 07Permits Issued Jan - Sept 08% Change
Eagle Mountain65389 -86.4%
Herriman251 42-83.3%
Bluffdale7213 -81.9%
West Jordan561114 -79.7%
Draper27156 -79.3%
Riverton31372 -77.0%
Saratoga Springs487143 -70.6%
Lehi753243 -67.7%
St George750245 -67.3%
State14,455 6,822-52.8%
West Valley292264 -9.6%
South Jordan749704 -6.0%

Source: Bureau of Economic and Business Research, October 2008.

Handicapping the Energy Shift

Energy prices are extraor¬dinarily volatile. Politicians raise alarms about the security of foreign oil and gas supplies. Scientists warn of irreversible damage to the earth from the uncontrolled use of fossil fuels. Welcome to the late 1970s.

For anyone who remembers that time, the crisis atmosphere surrounding energy today evokes more than a little déjà vu. But back then, there was a gradual return to normalcy as prices set by the Organization of the Petroleum Exporting Countries (OPEC) fell and the economy recovered.

Now, several factors make the energy outlook different from what it was then: global climate change, energy insecurity, and growing worldwide demand. A soft landing won't occur this time without an unprecedented energy shift - a shift away from the carbon-intense fuels and technologies of the past.

Life during an energy shift is tense, and for good reason: The forces that determine how quickly it can be accomplished are difficult to see clearly. One way to understand the options is to examine some of the persistent myths about energy, and the constituencies that benefit from their promulgation. These myths are relevant because they can drive public opinion, - and, hence, public pol¬icy - and because business practices may also be based on them, which in some cases can lead to severe competitive disadvantage.

  1. The Peak Oil Myth: The world is running out of oil.

    Reality This myth has become popular among some environ¬mentalists and others who hope to promote alternative energy and conservation. It has also been popularized by an ongoing argument, based on some supply estimates, that the world has passed the maximum global petroleum production rate.

    Although a tempting notion, that scenario is not true. Despite the current imbalance between supply and demand in oil and other fossil fuels, long-term supplies will be available. Existing reserves still hold plenty of fossil fuels, and new reserves continue to be discovered in regions such as Central Asia and South America. There are also vast proven reserves of "nonconventional oil," derived from tar sands, oil shale, and even coal. Using known technology, these could provide enough hydrocarbons to fuel a petroleum-based economy for many decades to come.

    However, in one sense, the "peak oil" argument is right. Nonconventional oil sources are expensive, and also likely to prove un¬acceptable from an environmental perspective unless costly new technologies are deployed to limit greenhouse gas emissions. Therefore, although oil will remain abundant, it will not necessarily be easy to retrieve in the near future, and basing the drivers of industrial society on oil will not be sustainable beyond, probably, the next 35 years.

  2. The China Myth: Rising prices are all Asia's fault.

    Reality: This myth has gained currency because it makes it easier for people in the West to ignore their own role in boosting energy prices. Instead, it focuses all the blame on the newly industrializing nations of Asia. It is true to some extent that growth in energy de¬mand in China, India, and other developing nations has been a major factor in rising prices. Mainstream forecasts project that energy de¬mand in emerging Asian countries will more than double over the next 30 years. But the whole truth is more complicated. For one thing, price pressures can just as easily be blamed on growing energy demand in the de¬veloped world. In the past 10 years, energy usage in North America, for instance, has increased as much as it has in China.

    Demand is only part of the price equation. Prices remained low during the 1980s and 1990s because oil production from nations outside OPEC - drilling in areas including Alaska, the North Sea, and Russia - grew steadily. Non-OPEC production, however, began to decline in 2002. Since then, the OPEC producers that control the most economical and easily recoverable oil and gas reserves in the Middle East have been straining to increase their capacity to produce more oil, but have not been able - or willing - to keep pace with demand. More broadly, the supply crunch has extended across the energy spectrum. The costs of providing other forms of energy have climbed in recent years owing to a dramatic rise in the cost of production equipment such as coal mining ma¬chinery, re¬finery vessels, and infrastructure of all kinds.

  3. The Easy Ethanol Myth: Biofuels are the green solution for transportation.

    Reality: This myth is promoted by those in the agriculture sector that stand to benefit from biofuels development, and it is also an at¬tractive story for environmentalists. But the "first generation" biofuels available today are at best neutral, and in some cases harmful, from an environmental perspective, once the climate-change effects of land use are factored in. Biofuels are also implicated in food shortages, though the extent of their effect is uncertain. Even the next generation of biofuels under development in 2008 may not be a major improvement. With enough technological development, future biofuel ap¬proaches, such as algae-derived fuels that don't require large amounts of land, may prove to be a truly green solution, but many obstacles stand in the way, and development is going to take a long time. Continued Next Week

Source: strategy+business - published by the global commercial consulting firm Booz & Company.


  • Sherwin Williams
  • The Sherwin Williams Co. (Southwest Division) trades as Sherwin Williams at 3,300 locations nationwide.
  • The stores, offering paint, supplies and related products, occupy spaces of 5,000 sq.ft. in


Utah Home Building

  • Approaching the worst in Utah history.
  • Permits down 61%
  • High Growth Cities hit hardest
    • Eagle Mountain
    • Herriman
    • Bluffdale
    • West Jordan
    • Draper
    • Riverton
    • Saratoga Springs
    • Lehi
    • St George
  • Construction employment down 13,400
  • Residential Construction peaked in September 2007
  • How much longer will it last?

Source: University of Utah Bureau of Economic and Business Research, November 2008

  • Economic Notes:
    • International Business Confidence
    • Global business sentiment is as dark as it has ever been, although the free fall in confidence may be over; the survey results have been broadly unchanged since early November. Pessimism is pervasive across the entire globe, with the only distinction being that Asian businesses are somewhat less nervous than elsewhere. Equipment and software investment did fall last week to a new record low, as did demand for office space and sales strength. Pricing pressures are falling rapidly, although they are not yet consistent with outright deflation. The global economy is suffering a severe recession according to the business confidence survey results.
    • The Conference Board Consumer Confidence
    • The Conference Board index of consumer confidence bounced back modestly in November from its record-low October reading. The index rose to 44.9 from October's 38.8 (upwardly revised from 38). The expectations component was responsible for the rebound, rising to 46.7 from 35.7. The present situation fell to 42.2 from 43.5. Assessments of current labor market conditions continued to deteriorate, although expectations reversed some of October's deterioration.
    • GDP
    • There was a small downward revision to GDP in the second quarter. Real GDP fell 0.5% at an annualized rate in the third quarter, according to Tuesday's preliminary report; in the advance release in October, the reported decline was 0.3%. There were downward revisions to consumer spending and exports; these were somewhat offset by an upward revision to inventory investment and a downward revision to imports. Profits from current production saw a small decline in the third quarter. Profits have declined for five straight quarters, and in seven of the last eight quarters. The U.S. economy is in recession, and will continue to contract well into 2009.
    • PI
    • Personal income rose 0.3% in October, more than expected, after increasing 0.1% in September. Income growth was lifted modestly by hurricane adjustments, which reduced income in September. Wage growth was positive but very weak, despite the large job loss in the month. Spending fell 1% after falling 0.3% the prior month, also in line with expectations. Real spending fell 0.5%, its fifth consecutive decline. The core PCE deflator was unchanged while the top-line deflator fell 0.6%. The saving rate rose to 2.4% from 1% in September.
    • Durable Goods (Advance)
    • New orders for manufactured durable goods declined 6.2% in October following a 0.2% decline in September and a larger decline in August. Excluding transportation orders fell 4.4%. Shipments were down 2.4%, marking the third consecutive monthly decline. New orders for core capital goods fell 4% and shipments were down 2.4%. The October report reflects a severe retrenchment in factory activity.
    • Case-Shiller Monthly Home Price Indices
    • House prices fell at a quicker rate in September than during August. The 10-city index declined 18.6% from a year ago in September. Over the same period, the 20-city index fell 17.4%. House price declines were broad-based, as all 20 metro areas tracked by the index registered declines in house prices over the past year.
    • FHFA Purchase-Only House Price Index
    • The FHFA purchase-only house price index (now released by the Federal Housing Financial Agency rather than OFHEO) fell by 1.3% in September, a decrease of 7.0% compared with September 2007. The rate of house price decline measured by the index is accelerating and indicates that the U.S. housing market as a whole is still some distance away from finding a price bottom, even though sales have remained level in the last months.
    • Existing-Home Sales
    • October existing-home sales indicate that markets continue to feel the effects of mortgage credit quality problems that are causing a flood of distressed homes to hit the market. Sales and inventories are about flat, while house prices are falling. In October, existing-home sales fell 3.1% m/m to 4.98 million annualized units, but this pace is close to where sales have been treading for the last year. Inventories are also about flat, with 10 months of available supply. The decline in house prices accelerated to an 11% y/y drop.
    • Jobless Claims
    • Initial claims for unemployment insurance decreased 14,000 for the week ending November 22. This was a move below expectations. Although a decrease, initial claims still remain very elevated and suggest a labor market under stress.
    • New Home Sales (C25)
    • New single-family home sales fell 5.3% to an annualized pace of 433,000 in October, and there were net downward revisions of 17,000 to prior months. The main positive in this report was that builders are still slashing inventories at a rapid pace. Intense financial problems and a weakening economy will continue to weigh on housing demand, but a policy-engineered decline in mortgage rates raises the possibility that sales could start to recover sometime in the first part of next year.
    • MBA Mortgage Applications Survey
    • In the week ending November 21, the MBA composite market index rose slightly to 404.4 in a week that also saw mixed results in the refinance and purchase indices. The market index increased 1.5%, underlined by a decrease in the refinance index. The refinance index fell 2.1%. The only sizable change occurred in the purchase index, which increased 5.3% but still remains at a historic low.
    • Chain Store Sales
    • Chain store sales fell 0.9% in the week ending November 22. Year-over-year growth fell to -0.8%, the second year-ago decline in the index since April 2003 and the largest since February of that year. The ICSC noted that the benefit to sales from lower gasoline prices was being offset by rising unemployment, but holiday sales appear to be delayed this year.
    • Oil and Gas Inventories
    • Crude oil inventories rose by 7.3 million barrels during the week ending November 21, according to the Energy Information Administration. Gasoline inventories rose by 1.9 million barrels. Distillate supplies declined by 0.2 million barrels. Refinery operating capacity jumped to 86.2% from 84.9%. Total domestic petroleum demand rose strongly from the prior week. This mixed report points to moderately higher oil prices.
    • Natural Gas Storage Report
    • Working gas in underground storage decreased by 66 billion cubic feet during the week ending November 21. The consensus estimate was for a draw of 44 billion cubic feet

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