U.S./Arizona/PhoenixEconomic Outlook

Lee McPheters

May 6, 2015

• Two Cheers for 2014 GDP!• Consumers Remain Cautious• U.S. & Arizona Jobs are Up• 85% of New Jobs to Phoenix• AZ 2015 - Best Year of Recovery

The View from 30,000 Feet

GDP Components 2013Growth

2014Growth

U. S. GDP (Output) 2.2% 2.4%

Consumer Spending 2.4 2.5

Gross Investment 4.9 5.8

Residential Construction 11.9 1.6

Non-Resid. Construction -0.5 8.2

Government Spending -2.0 -0.2

3% GDP Growth Still Elusive

U. S. Bureau of Economic Analysis, GDP Accounts, April 29, 2015

GDP Components 2014Growth

2015Q1

U. S. GDP (Output) 2.4% 0.2%

Consumer Spending 2.5 1.9

Gross Investment 5.8 2.0

Residential Construction 1.6 1.3

Non-Resid. Construction 8.2 -23.1

Government Spending -0.2 -0.8

2015 GDP Off to A Slow Start

U. S. Bureau of Economic Analysis, GDP Accounts, April 29, 2015

U.S. Has Regained All Lost Jobs

U. S. Bureau of Labor Statistics, Seasonally Adjusted

Jan. 2008 Peak (138,365,000) May 2014 Recovery

Time Period: 7 yrs 5 mos

Feb. 2010 Bottom

U. S. Bureau of Labor Statistics, Seasonally Adjusted, Payroll Employment, March 2015

Arizona Has Regained 78% of Lost Jobs 68,000 Jobs (22%) Still to

Recover

313,000 ArizonaJobs Lost (12%)

245,000 Jobs Regained (78%)

Sept. 2010 Bottom

Oct. 2007 Peak (2,686,000)

1

Ranked by % Change:March 2015 vs March 2014

811

726

3

12

38

5

14

10

Top 10 Growth States

U. S. Bureau of Labor Statistics

647

2

March Job Growth: Arizona 14th

(AZ Jobs Up by 2.6% - 25 yr. Average is 3.9%)

9

4

Arizona Industry % Growth U.S. RankOverall Job Growth 2.6 14Other Services* 8.2 1State Government 3.2 3Financial Sector 3.6 6Health Care 3.4 8Retail Trade 2.6 9Construction 1.5 27

Latest Arizona Job RankingsRanked by Year/Year Growth: March 2015

U. S. Bureau Labor Statistics & W. P. Carey School of Business* Other Services includes Personal, Laundry, Repair Services

Arizona Industry New Jobs ShareNew Arizona Jobs 66,700Professional/Biz Services 13,700 21%Health Care 11,000 17%

Leisure/Hospitality 9,700 14%Retail Trade 8,000 12%Other (Personal) Services 7,200 11%Finance/Insurance 5,000 8%

99% of All New Jobs In Services

U. S. Bureau Labor Statistics, March 2015 vs March 2014

Arizona Industry New Jobs Avg. Wage*Private Job Growth 63,600 46,700Health Care (+Social Assistance) 11,000 50,600Retail Trade 8,000 30,200Employment Services 5,100 31,500Food Services 4,500 17,000Finance/Insurance 5,000 63,800Professional/Technical 4,700 77,100

New Arizona Jobs and WagesNew Jobs Added March 2015 vs. March 2014

U. S. Bureau Labor Statistics; Average Wages for 2014, estimated byW. P. Carey School of Business

5

10

74

Arizona Ranked 18th in Personal Income Growth Rate in 2014

Emerging Problem:Arizona Ranked 41st in

Per Capita Income in 2014

18

U. S. Bureau of Economic Analysis

323

206

212

9

8

1. Alaska

Real Incomes Falling For 10 Years

U.S. Bureau of Economic Analysis

2001: $56,200

2013: $50,600Arizona

U.S.

3

7

5

1

9

Arizona Ranked 6th (1.5%) in Population Growth in 2014

U. S. States Ranked byPercent Change 2014

6

U. S. Census Bureau, Dec. 2014

42

40

10

817

14

12

46

Leading Metro Destinations: 20141. Houston (65,850) 6. Denver (29,386)

2. Dallas (49,403) 7. Tampa (28,372)

3. Phoenix (41,127) 8. San Antonio (24,818)

4. Austin (33,059) 9. Charlotte (24,097)

5. Atlanta (32,294) 112. Tucson (861)

Phoenix 3rd Among MetroNet Migration Destinations(But Phoenix Gained 96,000 in 2006)

U. S. Census Bureau, Domestic Migration, 2014

Indicators 2013 2014 2015Real GDP Growth 2.2% 2.4% 2.9%

10 Year Treasury Note 2.4% 2.5% 2.3%

Inflation (CPI) 1.5% 1.5% 1.1%

Employment (Jobs) 2.3 mil. 2.5 mil. 2.7 mil.

Unemployment Rate 7.4% 6.2% 5.4%

U.S. Economic OutlookGDP Below 3% Growth for 10th Year!

W. P. Carey School of Business, ASU & Blue Chip Economic Indicators

Indicators 2013 2014 2015

New Jobs (thousands) 57.1 47.8 65.0

Employment (%) 2.3 1.9 2.5

Personal Income (%) 2.1 4.1 4.5

Population (%) 1.2 1.5 1.7

ARIZONA Economic Outlook

W. P. Carey School of Business, ASU, based on data available May 2015

Metro Phoenix Economic Outlook

W. P. Carey School of Business, ASU, based on data available May 2015

Indicators 2013 2014 2015

New Jobs (thousands) 51.2 41.5 55.0

Employment (%) 2.9 2.3 3.0

Unemployment (%) 6.7 6.0 4.6

Population (%) 1.7 1.9 2.0

Pessimists Expect…

Population Growth RemainsSlow Compared to Past Years

Too Many Lower Wage Jobs,Incomes Do Not Grow

Home Building Stagnant asRates & New Home Prices Rise

Education Cuts, Image IssuesHurt Arizona Brand Long Term

Optimists Expect…

More Business Service &Health Care Jobs In Arizona

Population Growth Up, WagesUp, Construction Rebounds

Home Values & Incomes Rise,Consumers Get Back in Game

National Economic GrowthBreaks out of 2% GDP Band

• 2015 - better than most states – but still below long term average growth rates

• Population increase is a key driver

• Construction is the missing catalyst

• Job quality greatest long term risk

• U.S. economy greatest short term risk

Current Arizona Consensus 2015 Likely Best Year Since Recession Ended

U.S./Arizona/PhoenixEconomic Outlook

Lee McPheters

May 6, 2015