Washington Trust Bank Weekly Economic Perspectives

Economic Perspectives - 10/04/24

Steve Scranton

Perspectives

For the past two weeks the Perspective section of this newsletter has examined shelter affordability. The first week examined the topic from the household level within each state. Last week examined the topic through the lens of age for each state. This week concludes the analysis by examining the topic through the lens of race for each state.

Soundbite

Examining shelter affordability by race highlights another area of bifurcation within the economy. Based on the median income by race, the Asian category shows the highest median income levels and the highest number of states with affordable shelter based on the 28% criteria discussed previously. The Black or African American category has the lowest median income levels and the lowest number of states with affordable shelter. There is no easy fix for the affordable shelter problem. Finding a solution will require cooperation, and compromise, among all stakeholders (government, builders, buyer/renters, and neighborhoods).

Observations

The data is from the Census Bureau. The Census Bureau categorizes race as follows:

American Indian or Alaska Native
Asian
Black or African American
Hispanic or Latino
Some Other Race
Two or More Races
White

All race categories have median incomes in the $50,000-$75,000 category in the most states.
There are no states where the median income for the Asian race category falls into the $25,000-$49,999 category while there are 19 states (38%) where the median income for the Black or African American race category with median incomes in this category.

Number and Percentage of States Where the 28% Criteria is Met-Mortgage Payments

Based on median income, there is no state in the US where a Black or African American would meet the 28% mortgage payment/median income criteria, while there a 32 states (64%) where an Asian would qualify.

Number and Percentage of States Where 28% Criteria is Met-Rent Payments

The story is only slightly better when considering rent. In this case, there are only 5 state (10%) where the median income for a Black of Native American meets the 28% criteria, while there are 45 states (90%) where the median income of an Asian would meet the criteria.

Closing Thoughts

Examining shelter affordability by race illustrates another example of bifurcation within the economy.
- There is a $54,877 gap between the highest median income state for the Asian race category ($151,483) versus the Black or African American race category ($96,606).
- There is a $17,933 gap between the lowest median income state for the Asian race category ($53,223) versus the Black or African American race category ($35,290).
I won't repeat most of the thoughts that I have expressed in the last two Economic Perspectives newsletters other than to simply repeat that when shelter becomes unaffordable, out-migration from expensive states to affordable states becomes a risk for the expensive states and a potential opportunity for the affordable states.
Examining the data both by income (last week) and race (this week) continues to remind us that we are not all in the same financial situation when it comes to affordable shelter.
Lower interest rates are not the solution to shelter affordability. They are part of a solution as, all else being equal, lower mortgage rates result in lower mortgage payments and result in more people qualifying under the 28% criteria.
- The decision by the Federal Reserve to begin lowering its overnight borrowing rate does not guarantee that mortgage rates will decrease and has little impact on how landlords determine rent prices.
  - The Federal Reserve has direct control over short-term interest rates. Long-term interest rates (i.e. fixed rate mortgages) are determined by a variety of other factors.
As I stated before, finding a solution to affordable shelter will require all stakeholders to come together and agree to compromise to find the best overall solution.
- Government
- Builders
- Buyers/Renters
- Neighborhoods
The goal of raising awareness of the problem is to help facilitate a more objective discussion versus an emotional argument between all stakeholders.

Economic Data

Data	Time Period Being Report	Current Results	Previous Results	Comments
9/30/24
Dallas Federal Reserve Manufacturing Activity Index	September	-9.0	-9.7	Activity improved slightly but remains negative.
10/1/24
S&P-Global Manufacturing PMI Index	September	47.3	47.9	Manufacturing activity in the US slipped further into contraction.
ISM Manufacturing PMI Index	September	47.2	47.2	This version of manufacturing showed activity remains in contraction mode but did not deteriorate further.
Construction Spending Monthly Change	August	-0.1%	-0.5%	High interest rates continue to constrain construction spending.
Job Opening & Labor Turnover (JOLTS) Report	August	8,040,000	7,711,000	The number of job openings increased in August.
10/2/24
MBA Mortgage Applications Weekly Change	9/27/24	-1.3%	+11.0%	After a run of strong growth over the past month, applications fell slightly last week.
Purchase Applications	9/27/24	+1.0%	+9.0%	Applications to purchase a house continued to rise, albeit at a slower pace.
Refinancing Applications	9/27/24	-3.0%	+24.0%	Without a further decrease in mortgage rates, applications fell.
ADP Nonfarm Payroll Monthly Change	September	143,000	103,000	The growth in jobs increased the most in three months.
10/3/24
Challenger Jobs Cut Year-Over-Year Change	September	+53.4%	+1.0%	The amount of announced planned for layoffs surged. It remains to be seen if all planned layoffs happen.
Initial Jobless Claims	9/28/24	225,000	219,000	Initial claims rose 6,000.
Continued Jobless Claims	9/21/24	1,826,000	1,827,000	Continued claims declined 1,000.
Factory Orders Monthly Change	August	-0.2%	+5.0%	Excluding the volatile transportation sector, factory orders fell 0.1%.
ISM Non-Manufacturing PMI Index	September	54.9	51.5	This is the fastest pace of expansion since February 2023.
10/4/24
Nonfarm Payrolls Monthly Change	September	254,000	159,000	The strength in jobs growth makes the possibility of the Federal Reserve lowering its overnight borrowing rate by 0.50% at its November meeting far less likely.
Average Weekly Earnings Year-Over-Year Change	September	+3.4%	+3.5%	Construction experienced the strongest wage growth at 4.9% while Retail Trade experienced the slowest at 0.9%.
Unemployment Rate	September	4.1%	4.2%	The unemployment rate decreased by 0.1% as employment growth was stronger than labor force growth.

About the author

Steve Scranton, CFA

Chief Economist

Steve is the Economist for Washington Trust Bank and holds a Chartered Financial Analyst® designation with over 40 years of economic and financial markets experience.

Throughout the Pacific Northwest, Steve is a well-known speaker on the economic conditions and the world financial markets. He also actively participates on committees within the bank to help design strategies and policies related to bank-owned investments.

As the Economist for Washington Trust Bank, Steve participates in public speaking engagements, as well as authoring multiple communications, to keep our clients informed of economic and financial market conditions.

Learn more about Steve

Content Authenticity Statement:

The Economic Perspectives newsletter is comprised entirely of the expertise, thoughts, perspectives and opinions of the author with no use of generative AI. Data is sourced from the original providers (typically government agencies) and analyzed by the author.