Veritas

Editorial Credibility: Free Press Blows it!

It’s really quite natural. We’ve come to expect that politicians will distort the truth, particularly in the heat of electoral battle. After all, that’s what elected officials do.
So, it’s difficult to get upset with Mayor Woodrow Stanley’s claims about Flint’s employment and housing during his term of office. Condemning the Mayor for distortions (and even outright lies) in the heat of his close reelection contest would be tantamount to condemning your dog for becoming pregnant after you knowingly let her run loose in the neighborhood while in heat.
However, when an institution that’s expected to educate the public as an impartial advocate for sound public policy perpetuates such distortions in support of a candidate, we must wonder about its real purpose. And, when that institution has a history of using such distortions in support of its stated positions, it’s time to publicly question its institutional credibility.
The Detroit Free Press has consistently distorted facts in support of its position on such issues as sprawl, taxation and farmland, to name a few. However, it has seldom accepted such blatant deceit as it did in last Tuesday’s editorial supporting Stanley’s reelection.
Locally we’ve laughed about Stanley’s claim that Flint’s undergoing its biggest housing boom in 30 years. But in its editorial the Free Press wrote, “Flint has seen more housing developed in the last few years than in the previous 30.”
So, let’s compare the past “30” years: During the 1970s the City of Flint added 1,450 single family and 1,313 multi-family units. Even in the ‘80s, when local housing activity was at depression like levels, the City added 80 single family and nearly 500 multi-family units according to government records. But since 1991, when Stanley first took office, there were a total of 20 single family permits issued. So, even if we eliminate the roughly 1,800 multi-family units in the past thirty years, the average number of housing units authorized annually in the City fell from 140 in the ‘70s; to 8 in the ‘80s; to 2.5 in the ‘90s.
“Housing boom?” Well, that depends on your definition of “boom.”
Then there’s the “Freep’s” referral to unemployment which claims, when Stanley won office “the official local unemployment rate was 11.3%, but city officials say the reality was more like 17%. Today, the rate is 5.3%.” However, for the first three quarters of 1999 the City’s unemployment rate stands at 9.8%, while the rest of Genesee County stands at 4.0%. Amazingly, the Free Press’ editorial masks Flint’s unemployment rate by lumping it with the “local” rate which, is lower, due to the tens of thousands of suburban residents who are employed outside of the Flint area. And, it calls this evidence of Stanley’s “remarkable job” during his 8 years.
By the time you read this column the Mayoral election will be over, and we seriously doubt that the Free Press editorial will have played any significant role in its outcome. However, the institution’s total disregard for the facts surrounding Mr. Stanley’s record should serve as a warning regarding acceptance of other positions the Free Press endorses.
We doubt the editorial board was attempting to deceive the the reader. More likely, it was merely attempting to justify a position in support of a close political ally of Detroit’s Mayor, Dennis Archer, much in the way it attempts to justify its stand on other issues. However, it does show just how erroneous those justifications can be.

Barry

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Critical Industry Update: GM backs off; housing affordability

General Motors is backing off from its plan to buy and operate up to 10% of its dealerships. The plan, which was announced September 28th, infuriated the company’s dealers who were concerned that the company owned outlets would gain preferential treatment. Now, GM says it will only take minority ownership in dealerships as part of its new retail operations.

Higher mortgage rates and home prices caused the National Association of Realtors housing affordability index to fall during the 3rd quarter. The trade group’s index was down to 127.4 from 134.5 in the 2nd quarter as the combination of prices and interest rates rose faster than the nation’s median income during the period.
As we’ve noted previously, when the index is a 100, the median income can support the purchase of the median priced home, with 20% down. For the July through September period, the median price was at $136,000 and mortgage rates averaged 7.58%. At that rate, the family earning the median income of $46,000 could afford a home priced at $173,300.

How low is too low when considering the unemployment rate? For the past two years we’ve frequently noted market concerns that the jobless rate remaining below the 6% level (natural jobless rate) is inflationary. Now, there’s an apparent academic change of heart. Some economists think 5% is the new natural rate while others think the “natural” rate continually changes and is “useless” anyway. Perhaps they should stick to beer price/violence comparisons.

The Seinfeld Section (it’s still about Nothing ; in particular)

Normally we only question economic analysis on page 2. However, an article in a recent issue of Business Week tells of two economists whose activities are far more worthy of this section’s attention. The note quotes a new, Bureau of Economic Research, study by a Michael Grossman and a Sara Markowitz (obviously Ivy Leaguers) finding that “students living in a fraternity or sorority houses have five to six more drinks per week” than other students. Furthermore, under the premise that roughly one third of America’s 14.5 million college students will be involved in some kind of campus violence, Grossman and Markowitz have come up with an economic solution to cut such turmoil.
Since “alcohol consumption on campus is correlated with increased violence, they analyzed the relationship between beer prices and levels of violence.” And guess what they discovered? A 10% increase in prices would “lower consumption enough to reduce the number of students engaged in violence by 4%.” That’s right, if we raise the price of a six pack by roughly 33 cents, we will cut the number of students engaged in violence by 200,000 annually.
Now that Mikey and Sara have completed this crucial study, we must wonder, can the Nobel Prize for economics will be far behind?

Now, another brilliant economic analysis: In announcing his switch to the Reform Party, perennial Presidential candidate Pat Buchanan told his audience that the reason to stop (temporarily) immigration is “to ease the downward pressure on workers wages.” Now, for the past two years, wages have been rising far faster than the rate of inflation and the tight employment market has been feared by the Fed and Wall Street alike. But what the hell Pat? If it makes sense to your supporters (who you refer to as “Peasants with pitch forks”), say it! Just don’t complain when no one of any substance takes you seriously.

By the way, an unscientific poll of MSU students suggests a 10% increase in beer prices would have a proportional effect on campus violence, but would pay major dividends to the sofa manufacturing and retailing industries.

There’s finally some life in the Republican presidential race as the Arizona Republic’s editorial attacking John McCain for his temperment has created an apparent backlash in the national press and suggestions that George W. Bush, or at least his supporters, are behind it. The Republic, McCain’s home state’s largest newspaper, released the editorial as its duty to America to let the rest of the country know what McCain’s really like. But instead, the newspaper has come under attack for a myriad of reasons, some relating to its poor relationship with McCain, and others relating to its ties to State leaders of the Bush campaign. First we learned that the relationship between McCain and the Republic has been sour since the paper published a “cruel” cartoon lampooning the Senator’s wife for a prescription drug related problem. Then we found that the Republic’s relationship with the governor (who’s closely tied to Bush) may have played a role.
Former U.S. Senator Warren Rudman, perhaps the most highly respected senator on both sides of the aisle during the ‘80s and early ‘90s, and a McCain supporter, found it “amazing” that, just as McCain appears to be a real threat in New Hampshire, the editorial appears. He further told CNBC’s Chris Mathews that he’ll refrain from any allegations at this time, but left the impression that he has evidence of a “Bush” connection.

Note: Republic managing editor Pam Johnson was on CNN and admitted contacting the Associated Press prior to publishing the editorial. However, she had no comment regarding the paper's refusal to allow CNN to show viewers the controversial cartoon depicting Mrs. McCain.

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Association News Update

Just two weeks following MAHB’s biggest legislative victory in years, the single state code (details on page 4), its outgoing President, Bob Jones, will address the association at next Wednesday’s General Membership meeting.
Bob, who spoke to our membership in ‘94 on operating a custom building company, has been an exceptionally dedicated advocate for the home building industry for years, and his efforts on its behalf will continue beyond his current term. In fact, by the time he appears, he will also be NAHB Area IX Vice President elect, set to represent Illinois, Indiana and Michigan on the National association’s executive committee. Jones, who will visit all thirty-one local associations in the state, will be talking about some of the challenges facing our industry in the near future and the importance of associations in representing the industry’s interest.

Association elections will also take place at the November meeting. The following have been nominated as officers by the Past President’s.

Economic Update: Oh, the wonders of a strong GDP report

Just when it appeared that investors were in a state of panic and the economy was heading for problems, the 3rd quarter Gross Domestic Product report was released... and America was back on track? Well, that’s at least how it appears.
Two weeks ago, this column was dedicated to the “fragility” of the economy. At that point, we had just been “saved” by a Consumer Price Report that was better than expected, on the heels of a devastating Wholesale Price Report that sent the markets tumbling.
Well, last week, the markets were tumbling again. 30 year bond rates were almost to 6.4 percent and the Dow fell to the 10,300 range by closing time last Tuesday. But the following morning a weak report on Durable Goods got the markets turned around. And Thursday’s report on third quarter gross domestic product led to soaring prices in a rally that put an exclamation point on ending the fears of another October catastrophe while, perhaps, setting the nation up for another exceptional fourth quarter.
From Wednesday morning to Friday’s closing, the Dow average climbed in the range of 350 points, while long term interest rates fell to 6.16%.
What’s amazing about the effect of the GDP report is that third quarter growth was stronger than expected at 4.8%, a signal that normally would cause negative market reaction. However, the inflation gauge that accompanied the report was substantially better than analysts had expected.
So, while two weeks ago we were explaining the absurdity of the inflation panic that had just taken place in response to, of all things, rising tobacco price resulting from litigation costs, we’re now writing about calm markets following reports of an economy that’s twice as hot as it’s targeted to be......go figure.

GDP & its Price Deflator
Although the economy grew 2.5 times faster in the third quarter than during the 2nd, and much faster than the revised 3.7% rate of the first quarter, its closely watched price deflator, a key gauge of inflation, was up at an annual rate of just 0.9%, well below its forecasts of 1.2% and the 1.1% rise it experienced during the April through June period. And, at least equally as important, the labor cost segment of the report was up at just a 0.8% rate, also below forecasts and the 2nd quarter.
So, now the talk among analysts seems to be back to the productivity issue and beliefs that the economy can grow faster than 2% without inflation....which now raises the question, will the Federal Reserve raise rates in November, considered a sure bet just two weeks ago? Now, the “Vegas” line is more like even money. However, even if they do, the rate increase has already been included in market set interest rates so it’s unlikely to have much of a negative effect.

Manufacturing Strong
Even a stronger than expected National Association of Purchasing Management (NAPM) index didn't shock the markets yesterday. The index of manufacturing activity actually fell to 56.6 in October, but any score above 50 means the sector is on an upswing. The report indicates that the manufacturing sector is continuing to rebound from the international crises which have hurt demand for most of the past two years.
The NAPM index has held above the 50 mark since the beginning of the year.

Consumer Confidence
The Conference Board’s index of consumer sentiment fell for the 4th consecutive month in October to its lowest level since February. The report, which was released on October 26th, suggests the volatile stock market and rising interest rates are taking their toll on the American psyche. Most telling is that expectations for the next six months fell from 106.2 in September, to 101.1.

Federal Surplus (not deficit)
Note we never dreamed we would write: The Federal Government surplus for Fiscal ‘99 ended up at $122.7 billion..... Of course, the nation still has a $5 trillion debt, which costs some $350 billion in interest or 21% of all annual outlays.

Housing Industry/Mortgage Market Update

The rate of sales of new homes took its biggest plunge in 5 years in September, falling 12.8 percent from August’s revised rate of 930,000 units (August’s rate had previously been reported at 983,000, the 2nd highest rate on record). The September pace was the slowest since December of 1997, according to the Commerce Department’s monthly housing report. The report appeared to confirm what economists have been expecting for some time; the recent rises in mortgage rates would ultimately take some of the steam out of the “red hot” housing market. Although Hurricane Floyd receives some of the blame for lower numbers in the South, sales were down in all regions of the nation, pointing the the finger at interest rates. Furthermore, inventory of new homes for sale reached a three year high as a 4.9 month supply was indicated. Inventory reached a 5 month supply in December of 1996.
Still despite September’s lower sales, most analysts believe year end sales will break the record of 890,000 set last year. And, since mortgage rates began falling after the economic reports last week (see note on this page), no one will be surprised by a sales upturn in November.

Sales of existing homes also fell in September, down 2.1% according to the National Association of Realtors. However, the sales rate of 5.13 million units showed the continuation of an exceptional housing market, despite the anticipated problems from higher mortgage rates. In fact, not only was the sales rate up from September of 1998, when interest rates were more than a point lower, but it marked the 11th consecutive month sales were above the 5 million level. The Midwest also experienced a decline as sales fell 5.1%, but the region’s median price was up to $121,100, up 4.6% from a year ago.

However, according to last month’s Construction Forecast Conference, sponsored by NAHB, the housing market will likely weaken over the next year. The association’s economics’ chief, David Seiders, called an expected slowdown “virtually inevitable,” and predicted that total starts will fall about 7.5% next year, to a level of around 1.57 million. And, he expects starts to remain at that approximate level through 2001.

Timing, once again, brought a conflict in mortgage rate reports as a buoyed bond market at the end of last week had a positive effect on local rates but came far too late to have any affect on Na- tional Rates which were re- ported Thursday.
The average thirty year fixed rate nationally, compiled by Freddie Mac, was up to 7.96% with one point.
However, Residential Mortgage Consultants’ survey of local lenders on Friday found the average rate in Southeast Michigan had fallen to 7.54% (with 1.6 points), as most major lenders were quoting 7.5% with 2 points.
In both cases, we find that rates are up between 1.1% and 1.25% over the final week in October of 1998.

Governmental Affairs Update: Single State Code; Higher Health Dept. Fees

A goal that’s been a major priority for Michigan’s home building industry since 1995 appears on the verge of becoming a reality as the House of Representatives approved Senate Bill 463 last Wednesday. The bill, which creates a single building code for the whole state, was originally expected to pass relatively easy as it came out of the Senate with a unanimous vote. However, while in the committee in the house, the concept came under from groups like the Municipal League, the Townships’ Association, and a number of major cities including Grand Rapids and Detroit.
First, they were able to tie the bill up in committee. Then, once it came to the floor, there was an amendment that would have gutted it by allowing local amendments to the code.
That amendment by two Detroit area reps, passed with the minimum 56 votes in favor last Tuesday. However, on Wednesday the amendment was brought back up, with heavy lobbying on both sides, while several representatives changing their votes. The outcome gave the amendment just 55 votes, one short of passage.
Now the bill goes back to the Senate where they’ll deal with some minor differences between the original bill, and the one that passed the house. Unfortunately, passage is not a done deal, since we can pretty much assure that the municipalities will go all out to attempt to stop it. However, it’s hard to imagine half the senate changing its vote.

Late last month the County Health Department attempted to raise rates on water and sewage regulatory fees by exorbitant numbers. The department’s proposal, which passed both, the Health Board and the Human Services Committee, and was headed to the Board of Commissioners for approval last Tuesday, but was tabled due to our concerns that the proposed fees were well beyond a reasonable increase.
In fact, the Health Department’s proposal called for raising fees between 100% and 233% on a number of items, and added a $300 fee for Lot or Soil Plan Review. It’s somewhat amazing since the same Department recently attempted to set Well Permit fees at $200 and ended up settling for $85.
However, the reasoning behind the fee request is what’s most troubling. The Department maintains that “users” have been getting a “free ride” for years, and they (the department) are merely attempting to cover costs. The County, however, has frequently noted the financial benefits its receives from the growth in housing, as stated in all of their proposals to bond companies for better bond ratings.
So, the services to new housing developments and home in general, is clearly an investment from the county’s perspective. Now, will they act accordingly?
Barry will be meeting with the Health Officer on Friday.

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