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Saturday, March 25, 2017

Where are the Imbalances in Philippine Construction?

In our last post, Construction Gross Value as a Percentage of GDP Is at a 25 Year High! - Updated as of 4th Qtr. 2016, we came up with a chart showing this:




As of year-end 2016, this ratio stood at 12.22%, a 25-year high since 1990 and significantly higher than the average construction gross value ratio of 9.65% of GDP throughout this period. Now where are the imbalances taking place?

You'd be surprised by the results. No, not in Metro Manila or anywhere near there. As of the latest available data in 2015, Western Visayas tops the list at 23.86%, almost double the national average of 11.55%. So does Bicol, of all places. Why is that? We don't know. But we aim to find out soon enough.



Source: Philippine Statistics Authority

Friday, March 10, 2017

Construction Gross Value as a Percentage of GDP Is at a 25 Year High! - Updated as of 4th Qtr. 2016

Last May 4, 2015, we noted that Construction Gross Value (Construction GV) at 11.21% as of the year-end 2014 was already well above its historical average of 9.65% of GDP since 1990.  This ratio has run at an above average rate since 2009 and has already eaten away at the "cumulative underhang" or underinvestment in construction that has taken place since 2004, when the excessive investment in construction that took place in the mid to late 1990's was being absorbed.



As of the 4th Qtr of 2016, Construction GV as a percentage of GDP now stands higher at 12.22% of GDP - an all-time high for the past 25 years.  But the real story is that Cumulative Construction GV has gone well above equilibrium and now stands at 2.9% above equilibrium, a rise of 2.6% in just one year.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.


Monday, March 6, 2017

US House Prices Have Climbed Upwards But So Have Incomes

In our last post, "The US Housing Bubble Has Been Fully Reflated," we discussed how US House Prices have entered bubblicious territory because because median US House Prices stood at 5.63 times median household income - two standard deviations away from the long-term average of 4.24 times median household income.  Based on what I remember of my statistics classes, the probability of this taking place is exceptionally low: only 2.5%. Since then, house prices have continued to increase:



In 2015, house prices, as evidenced by the S&P/Case-Shiller 20-City Composite Index, increased by 5.03%, but so have incomes. Real Median Household Incomes increased even faster in 2015, by 5.33% to reach $56,516 at the end of 2015:




As a result, median new home prices are now only 5.11 times median household incomes in 2015, slightly less than two standard deviations above the long-term average of 4.24 times. Prices are still elevated but no longer in true bubble territory.




Source: St. Louis FRED

Friday, February 24, 2017

Philippine House Prices Have Resumed Their Relentless Upward Climb

In the last quarter of 2016, the Philippine House Price Index climbed by 2.33% to 218.47 from a low of 213.50 in the third quarter of 2016.  Overall, house prices are still 0.94% below their peak of 220.99 posted in the first quarter of 2016.



This is similar to what happened in Hong Kong, where home prices jumped 6.91% in the third quarter of 2016.

See related post:

After a 10% Market Decline in Late 2015 to Early 2016, Hong Kong Home Prices Resume Their Relentless Upward Trend in late 2016

Friday, February 17, 2017

Which Philippine Region Has the Highest Income Inequality?

We all know that Metro Manila, otherwise known as the National Capital Region (NCR), is the richest region in the Philippines.  Without question, it is the center of government, business, and finance in the entire country.

This is plainly evident in the 2015 Family Income and Expenditure Survey (FIES), where the NCR towers above the rest of the country in terms of Median Income Per Capita: Php 313,000 for NCR vs. Php 180,000 for the entire Philippines.



But which region has the highest income inequality?  One easy way to do that is by taking the ratio of the tenth decile (the top 10% in income) to the first decile (the bottom 10% in income).

From the 2015 FIES, we get this table...


Median Income Per Capita (In Thousands of Pesos)
Region Overall Bottom 10% Top 10% Top/Bottom
Philippines 180 83 652 785.54%
NCR 313 164 940 573.17%
CAR 196 93 595 639.78%
Region I - Ilocos Region 173 99 553 558.59%
Region II - Cagayan Valley 168 98 557 568.37%
Region III - Central Luzon 223 103 614 596.12%
Region IVA - Calabarzon 234 106 711 670.75%
Region IVB - MIMAROPA 142 79 608 769.62%
Region V - Bicol Region 136 88 482 547.73%
Region VI - Western Visayas 149 87 523 601.15%
Region VII - Central Visayas 160 62 607 979.03%
Region VIII - Eastern Visayas 124 72 526 730.56%
Region IX - Zamboanga Peninsula 127 73 503 689.04%
Region X - Northern Mindanao 135 68 612 900.00%
Region XI - Davao Region 166 85 571 671.76%
Region XII - SOCSKSARGEN 123 56 495 883.93%
Region XIII - Caraga 134 74 544 735.14%
ARMM 115 82 255 310.98%


and this chart:




Based on this, we can see that the region with the highest income inequality is actually Region VII - Central Visayas, composed of the three provinces of Bohol, Cebu, and Siquijor.  In terms of overall income, this region is "middle of the road." Its median income per capita was only Php 160,000 in 2015, slightly lower than the Philippines median income per capita of Php 180,000. But, in Central Visayas, the top 10% earn almost 10 times the bottom, higher than the overall Philippine ratio of 7.85 times.

NCR was actually more egalitarian, wherein the richest 10% "only" earned 5.73 times the poorest 10%.  Surprisingly, the most egalitarian region is also the poorest: ARMM, where the median per capita income is only Php 115,000 (around US$ 2,300). There, the richest 10% earn "only" around 3.11 times the poorest 10%.

Friday, February 10, 2017

Philippine Real Estate and Construction Loans Are Out of Whack As of September 2016!

It sure looks that way, judging from this chart:




It looks like Real Estate and Construction Loans as a percentage of Total Loan Portfolio (TLP) rocketed past its historical range of 12.6% to 16.6% of TLP sometime in 2011.  That ratio peaked at 20.55% as of September 2013 but has bottomed out at 18.61% of TLP as of December 2014. In 2016, this ratio has climbed back up to 20.04% as of September 2016.



Now, are we up to the levels of the previous real estate boom? (as in mid 1990s to 1997?) Honestly, we don't know.  BSP data only goes as far back as 1999 when the previous real estate bubble had already burst and the financial system was most likely deleveraging as evidenced in this chart:



Has the Philippine Real Estate Bubble Already Burst?

Is There a Real Estate Bubble in the Philippines?


Are Philippine Real Estate Loans Out of Whack?

Friday, February 3, 2017

Great Depression vs. Great Recession GDP Growth Rates - Updated As of the Fourth Quarter 2016

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.




Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the seven years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By the 4th Qtr of 2016, the US economy is only 30.81% larger, in nominal terms, than the bottom in 2009, averaging only 3.91% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 16.41% larger than the bottom in 2009, averaging only 2.19% growth every year since 2009.


The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.




Great Depression vs. Great Recession