{"id":8313,"date":"2019-11-05T16:22:50","date_gmt":"2019-11-05T16:22:50","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8313"},"modified":"2022-02-26T13:07:07","modified_gmt":"2022-02-26T13:07:07","slug":"city-revenues-are-slowing-another-recession-signal","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/city-revenues-are-slowing-another-recession-signal\/","title":{"rendered":"City Revenues are Slowing\u2014Another Recession Signal?"},"content":{"rendered":"\n<p>A report this week from the National League of Cities caught\nmy attention. In it, 63% of finance officers from major U.S. cities predicted a\nrecession as soon as 2020.<sup>1<\/sup> A perfect storm of falling city revenues,\nrising expenditures, softening business investment, and a housing market that\nfeels like it\u2019s plateauing. The question is \u2013 could this be a basis for a\nrecession on the horizon?<\/p>\n\n\n\n<p>The report, known as City Fiscal Conditions Report,<sup>1<\/sup>\nlooks at responses from finance officers in 554 cities with populations over\n10,000, so I\u2019d characterize it as offering a comprehensive view into economic\nconditions throughout America. For the data wonks out there, the Fed\u2019s Beige\nBook is another example of a report that offers a glimpse into how cities and\nregions are performing, and I\u2019d consider it equally insightful in helping us\nunderstand economic conditions \u2018on the ground.\u2019 <\/p>\n\n\n\n<p>_____________________________________________________________________________<strong><\/strong><\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_4&amp;content=stock_market_outlook_report\">Are You Ready for a Potential Recession?<\/a><\/strong><\/p>\n\n\n\n<p>An additional report that can help you keep a\nclose eye on important data is our Stock Market Outlook Report. This report\nwill give you an inside look into key economic indicators that can help you\nprepare your investments for a potential recession. Today, I am offering all\nreaders a first-look into our just-released November 2019 Stock Market Outlook\nreport.<\/p>\n\n\n\n<p>This report\nwill provide you with our forecasts along with additional factors to consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>What produces U.S. optimism in 2019?<\/em><\/li><li><em>Forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns <\/em><\/li><li><em>Which sectors are hot and which are not?<\/em><\/li><li><em>What industries within those sectors most\nmerit your attention?<\/em><\/li><li><em>Odds of recession<\/em><\/li><li><em>And much more.<\/em><\/li><\/ul>\n\n\n\n<p>If you have\n$500,000 or more to invest and want to learn more about these forecasts, click\non the link below to get your free report today!<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_4&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released November 2019 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_4&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>________________________________________________________________________<\/p>\n\n\n\n<p>The findings in the City Fiscal Conditions Report for 2019<sup>1<\/sup>\nundoubtedly show softening across the board. A summary of the findings includes:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>In fiscal year 2018, total constant-dollar\ngeneral fund revenue growth slowed to 0.6%.<\/li><li>Property tax revenues increased by +1.8%,\ncompared to +2.6% growth in 2017.<\/li><li>Sales tax revenues grew by +1.9%, compared to\n+1.8% in 2017.<\/li><li>Income tax revenues rose +0.6%, compared to\n+1.3% in 2017.<\/li><li>Expenditures are <em>rising: <\/em>+1.8% in 2018, which is slower growth than previous years\nbut less than what\u2019s expected in 2019. <\/li><\/ul>\n\n\n\n<p>Cities do fiscal reporting on a yearly basis, meaning that there\u2019s\nabout an 18 to 24 month lag for economic shifts to show up on city ledgers. In\nother words, the softening trend could be a signal of a slowdown that is already\nwell underway, which is what I think has finance officers worried. <\/p>\n\n\n\n<p>A report on U.S. cities\u2019 fiscal conditions can help us take\nthe pulse of the U.S. economy, but it does not help us forecast corporate\nearnings looking out over the next six to twelve months. In terms of portfolio\nmanagement, it is not enough to determine what is happening from an economic\nstandpoint \u2013 investors need to determine what the market <em>expects to happen and whether those expectations are being met<\/em>. <\/p>\n\n\n\n<p>The City Fiscal Conditions Report gives an indication the\neconomy is slowing, but this simply confirms something we already know. I would\nargue that it\u2019s already being reflected in the market, too, with downward\nrevisions to earnings estimates of cyclical companies over the past few months.\nGiven the negative expectations around corporate earnings coming into the third\nquarter, what we\u2019re seeing today are earnings surprising to the upside \u2013 which\nis helping push the market to new highs.<\/p>\n\n\n\n<p>But there\u2019s another side to the story that few people are\ntelling: <em>year-over-year growth is\nslowing, but it is not yet contracting. <\/em>Looking at the figures above from\nthe City Fiscal Conditions Report, it is clear to see that revenues are still\ngrowing, even if they\u2019re growing at a slower rate than previous years. In the\nprevious recession, revenues were declining for almost two years before the\nrecession took hold. I think we need more data before making any recession declarations.\n<\/p>\n\n\n\n<p>As I\u2019ve mentioned in previous columns, I also believe some\nof the softer economic data we\u2019re seeing across the board \u2013 but particularly in\nbusiness spending \u2013 is tied to policy uncertainty (particularly in the realm of\ntrade). If some of the pressure gets released over time with movement towards a\ndeal, or perhaps even the eventual signing of a deal, I could see most of these\ntrends reversing. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>Amid stories and data points of weakening economic growth, I believe\nit\u2019s important to remember that the market is a discounting mechanism of future\nearnings expectations. Only two factors drive stock prices, in my view:\nexpectations for future earnings and interest rates. Expectations for future\ninterest rates are essentially determined by the yield curve, so the key issue\nis how earnings expectations change in response to changing economic\nexpectations.&nbsp;In my view, it\u2019s times when the economic outlook is\ncompletely positive \u2013 and stocks are discounting strong earnings growth \u2013 that\nthe market is more likely to come under pressure. When the economic outlook\nturns more negative and stocks discount weak earnings growth, surprises to the\nupside can drive prices higher. This is why I\u2019d argue the market is hitting new\nhighs at the same time economic signals, like the fiscal condition of U.S.\ncities, are showing weakness.<\/p>\n\n\n\n<p>While you can\u2019t predict what is next for the market, it is important to keep an eye on these indicators along with economic data releases, earnings reports, and other economic factors. To help you do, I am offering all readers our<a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_4&amp;content=stock_market_outlook_report\"> <\/a><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_11_4&amp;content=stock_market_outlook_report\">Just-Released November 2019 Stock Market Outlook Report.<\/a> <\/strong><\/p>\n\n\n\n<p>This Special\nReport is packed with newly revised predictions that can help you base your\nnext investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>What produces U.S. optimism in 2019?<\/em><\/li><li><em>Forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns <\/em><\/li><li><em>Which sectors are hot and which are not?<\/em><\/li><li><em>What industries within those sectors most\nmerit your attention?<\/em><\/li><li><em>Odds of recession<\/em><\/li><li><em>And much more.<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<sup>3<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Overall growth for U.S. cities is weak, but not contracting (yet)<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8313","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8313","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8313"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8313\/revisions"}],"predecessor-version":[{"id":10687,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8313\/revisions\/10687"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8313"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8313"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8313"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}