Elliott D. Pollack & Company
To:GFOAZ
By:Jim Rounds
Senior Vice PresidentElliott D. Pollack & Company
February 21, 2014
Economic Outlook2014-2015
Elliott D. Pollack & Company
Economic Crisis Du Jour
• European Debt;• U.S. Debt Ceiling;• Rating Downgrade;• ObamaCare;• Fiscal Cliff;• Sequestration;• Govt. Shutdown;• Debt Ceiling…Again;• And Again… No growth for
you!
Elliott D. Pollack & Company
What is
real?
Elliott D. Pollack & Company
United States Real Gross Domestic Product* Annual Growth 1970 - 2015**
Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators
0.2%
3.3%
5.2%
5.6%
-0.5%-0.2%
5.4%
4.6%
5.6%
3.2%
-0.2%
2.6%
-1.9%
4.6%
7.3%
4.2%
3.5%3.5%4.2%
3.7%
1.9%
-0.1%
3.6%
2.7%
4.0%
2.7%
3.8%
4.5%4.5%4.8%
4.1%
0.9%
1.8%
2.8%
3.8%3.4%
2.7%
1.8%
-0.3%
-2.8%
2.5%1.8%
2.8%
1.9%
2.8%3.0%
-4%
-2%
0%
2%
4%
6%
8%
* Based on chained 2009 dollars.
** 2014 and 2015 are a forecast from the Blue Chip Economic Indicators, January 2014.
Recession Periods
3.8% = 40-year avg during expansion
3.2% = 20-year avg during expansion
Elliott D. Pollack & Company
US Non-Farm EmploymentChange from Prior Month (S/A)
June 2010 – January 2014Source: Bureau Labor of Statistics
-122
-61-42
-57
241
137
7170
168
212
322
102
217
106122
221
183164196
360
226243
9611088
160150161
225203214
197
280
142
199199201
149
202
164
237
274
75
113
(250)
(200)
(150)
(100)
(50)
0
50
100
150
200
250
300
350
400
Feel Better When >200k
Elliott D. Pollack & Company
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
U.S. Unemployment Rate 1970 – 2014*
Source: Bureau of Labor StatisticsRecession Periods
*Seasonally adjusted data through January 2014
Underemployment = 12.7%
Elliott D. Pollack & Company
U.S. Leading Indicators1971 – 2013*
Source: The Conference Board
30
40
50
60
70
80
90
100
110
120
Recession Periods
*Data through December 2013
Elliott D. Pollack & Company
10 Components of U.S. Leading Indicators – December 2013
• Interest rate spread• Manuf. new orders index• Leading Credit Index (inverted)• Stock prices• Manuf. new orders – consumer goods• Manuf. hours• Consumer expectations• Manuf. new orders – capital goods• Building permits• Claims for unemployment (inverted)
+
-
Elliott D. Pollack & Company
Consumer Confidence1978 – 2013*
Source: The Dismal Scientist
20
30
40
50
60
70
80
90
100
110
120
130
140
150
*Data through December 2013.
Recession Periods
Weary
Worried
Disenfranchised P.O.’d
Elliott D. Pollack & Company
WEALTH EFFECT
Housing prices are up.
Stock market is up.
Elliott D. Pollack & Company
Financial Obligation Ratio**1980 – 2013*
Source: Federal Reserve
15.0%
16.0%
17.0%
18.0%
19.0%
*Data through third quarter 2013**Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.
Recession Periods
Elliott D. Pollack & Company
Household Debt CompositionPercent Change Year Ago
2004 – 2013* Source: The Federal Reserve Bank of New York Recession Periods
* Data through third quarter 2013.
Elliott D. Pollack & Company
Interest Rate Monthly Payment
3.0% $449.22
4.0% $460.00
5.0% $471.78
6.0% $483.32
7.0% $495.03
8.0% $506.91
9.0% $518.96
10.0% $531.18
How Rate Sensitive?$25,000 Car Loan Payments
5-Year Term
Elliott D. Pollack & Company
Interest Rate
$150,000Loan
$200,000Loan
$250,000Loan
3.0% $632.41 $843.21 $1,054.01
4.0% $716.12 $954.83 $1,193.54
5.0% $805.23 $1,073.64 $1,342.05
6.0% $899.33 $1,199.10 $1,498.88
7.0% $997.95 $1,330.60 $1,663.26
8.0% $1,100.65 $1,467.53 $1,834.41
For Comparison:Mortgage Payments
30-Year Term
Interest Rate
$150,000Loan
$200,000Loan
$250,000Loan
3.0% $632.41 $843.21 $1,054.01
4.0% $716.12 $954.83 $1,193.54
5.0% $805.23 $1,073.64 $1,342.05
6.0% $899.33 $1,199.10 $1,498.88
7.0% $997.95 $1,330.60 $1,663.26
8.0% $1,100.65 $1,467.53 $1,834.41
Elliott D. Pollack & Company
Business
Elliott D. Pollack & Company
Business Spending on EquipmentPercent Change from Prior Quarter
2005 – 2013* Source: Bureau of Economic Analysis
Recession Periods
*Data through third quarter 2013
Elliott D. Pollack & Company
Business Spending on Plant Percent Change from Prior Quarter
2005 – 2013* Source: Bureau of Economic Analysis
Recession Periods
*Data through third quarter 2013Note: Data smoothed in Q1 of 2011
Elliott D. Pollack & Company
Hours WorkedPercent Change from Year Ago
1976 – 2013* Source: Bureau of Labor Statistics
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Recession Periods
*Data through third quarter 2013
Elliott D. Pollack & Company
US Non-Farm EmploymentPercent of Persons Working Full Time (S/A)
1970 – 2013*Source: Bureau Labor of Statistics Recession Periods
*Data through December 2013.
LT Average
Elliott D. Pollack & Company
Top Sources of New JobsU.S.
Source: Bureau of Labor Statistics
Job Growth Wage
Total 2,238,000 $49,200
1 Administrative Services 435,900 $34,870
2 Food Services 347,900 $16,242
3 Retail Trade 316,700 $27,729
4 Health Care 277,900 $45,407
5 Professional services 220,200 $83,357
6 Construction 180,000 $52,294
7 Wholesale Trade 98,500 $68,226
*Job growth January 2014/ January 2013
Elliott D. Pollack & Company
Jobs are being created at a slow rate.
Those that have jobs are spending a little more but will remain cautious.
Unemployment should trend lower.
Wealth levels are improving.
Consumer Summary:
Elliott D. Pollack & Company
Businesses are in better shape.
Spending on equipment to continue to grow.
Spending on plant will lag until capacity utilization goes higher…getting close.
Employment to continue to grow.
Business Summary:
Elliott D. Pollack & Company
Federal Government
Elliott D. Pollack & Company
Arizona At Risk For Spending CutsFederal Spending as Percent of State GDP
Pew Center for the States
National Average = 5.3%
Elliott D. Pollack & Company
What will they bring us this spring? Impact of the shutdown was overstated. We don’t want to go through this again though.
Federal Government Summary:
Elliott D. Pollack & Company
Arizona Jobs?
Elliott D. Pollack & Company
2
1
323 15
11
9
4
5
Alaska 24
710
Job Growth 2006Source: US BLSSource: US BLS
Jobs growing
Jobs declining
Top 10
Hawaii
6
8
50
14
Elliott D. Pollack & Company
49
46
2341 40
3
43
27
50
Hawaii
39
1
Alaska 2
1848
4
10
5
Jobs growing
Jobs declining
Top 10
8
6
9
7
Job Growth 2010Source: US BLSSource: US BLS
32
Elliott D. Pollack & Company
9
49
14 5
3
43
17
11
4
1
2
Alaska 50
Jobs growing
Jobs decliningTop 10
Hawaii
26
821
Job Growth 2013*Source: US BLS
6
7
10
*Pre-revisions
Elliott D. Pollack & Company
Arizona RankEmployment Growth
1990-2013Source: Bureau of Labor Statistics
*Pre-revisions
Elliott D. Pollack & Company
Arizona Employment* Source: ADOA
Sectors in Decline
Net
Change%
Change
Government -4,400 -1.0%
Manufacturing -2,500 -1.6%
Other Services -100 -0.1%
*December 2013/ December 2012
Sectors Improving
Net
Change%
Change
Trade, Transp. & Utilities 15,100 3.1%
Education & Health Services 12,800 3.4%
Financial Activities 10,400 5.8%
Professional & Bus. Services 6,600 1.8%
Leisure & Hospitality 6,400 2.4%
Construction 4,900 4.2%
Information 300 0.8%
Natural Resources & Mining 100 0.8%
Elliott D. Pollack & Company
Top Sources of New JobsArizona
Source: Bureau of Labor Statistics, ADOA
*Job growth December 2013/ December 2012
Job Growth Wage
Total 49,600 $45,237
1 Financial Activities 10,400 $59,564
2 Health Care 9,500 $47,847
3 Retail Trade 8,200 $29,843
4 Professional Services 6,600 $49,866
5 Wholesale Trade 5,400 $69,918
6 Food Services 5,000 $16,452
7 Construction 4,900 $47,020
Elliott D. Pollack & Company
Top Sources of New JobsU.S.
Source: Bureau of Labor Statistics
Job Growth Wage
Total 2,193,000 $49,200
1 Administrative Services 411,300 $34,870
2 Retail Trade 406,900 $27,729
3 Food services 294,000 $16,242
4 Health Care 281,400 $45,407
5 Professional services 175,800 $83,357
6 Construction 123,000 $52,294
7 Wholesale Trade 97,500 $68,226
*Job growth December 2013/ December 2012
Elliott D. Pollack & Company
Arizona Job Losses Exceeded U.S.Source: Bureau of Labor Statistics, Seasonally Adjusted Data
Slide stolen from Lee McPheters…
Elliott D. Pollack & Company
Arizona Jobs Regained Since Bottom of CycleMost Industries Yet To Regain Lost Jobs
Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted, As of December 2013
Elliott D. Pollack & Company
Greater Phoenix Employment* Source: ADOA
Sectors in Decline
Net
Change%
Change
Manufacturing -2,100 -1.8%
Government -2,100 -0.9%
Natural Resources and Mining
-300 -7.7%
*December 2013/ December 2012
Sectors Improving
Net
Change%
Change
Trade, Transp. & Utilities 12,800 3.4%
Education & Health Services 10,900 4.2%
Financial Activities 8,300 5.5%
Professional & Bus. Services 6,300 2.2%
Leisure and Hospitality 5,200 2.8%
Construction 5,000 5.6%
Other Services 1,000 1.6%
Information 400 1.3%
Elliott D. Pollack & Company
Employment Levels: Greater Phoenix back to Peak in 2016?
Source: ADOA
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2,000.0
2,200.0
2,400.0
Recession Periods
Peak
*Based on seasonally unadjusted monthly data
Elliott D. Pollack & Company
Tucson
Elliott D. Pollack & Company
Tucson Total Nonfarm Employment NSA
1990 – 2013*Source: Bureau of Labor Statistics
Recession Periods
200,000
250,000
300,000
350,000
400,000
450,000
*Data through December 2013.
Elliott D. Pollack & Company
Tucson Employment* Source: ADOA
Sectors in Decline
Net
Change%
Change
Construction -1,000 -6.7%
Government -800 -1.0%
Professional & Business Services
-400 -0.8%
Information -300 -7.0%
Other Services -200 -1.6%
Manufacturing -100 -0.4%
*December 2013/ December 2012
Sectors Improving
Net
Change%
Change
Trade, Transp. & Utilities 1,700 2.8%
Financial Activities 800 4.2%
Leisure & Hospitality 400 1.0%
Education & Health Services 200 0.3%
Natural Resources & Mining 100 4.8%
Elliott D. Pollack & Company
Remainder of State
Elliott D. Pollack & Company
Balance of State Employment* Source: ADOA
Sectors in Decline
Net
Change
Government -1,500
Other Services -900
Manufacturing -300
*December 2013/ December 2012
Sectors Improving
Net
Change
Education & Health Services 1,700
Financial Activities 1,300
Construction 900
Leisure & Hospitality 800
Professional & Business Services 700
Trade, Transp. & Utilities 600
Natural Resources & Mining 300
Information 200
Elliott D. Pollack & Company
Population?
Elliott D. Pollack & Company
Why did population flows slow?
Slow job growth, High un(der)employment, Delayed retirement, Difficulty in selling home, Difficulty in qualifying for a loan, Etc.
Elliott D. Pollack & Company
2
4
8
1
10
Arizona Population Growth Was
Slow But Still Top 10 in 2012
Percent Change 2012
7
U. S. Census Bureau
65
39
Elliott D. Pollack & Company
Arizona Rank - Population Growth1991-2012
Source: Census Bureau
Elliott D. Pollack & Company
1
9
4
2
7
10
6
5
8
31 States in Red Lost Domestic Population to 19 States in Green
Texas, Florida, Arizona Attracted Most Domestic Migrants in 2012
3AlaskaHawaii
U.S. Census Bureau
Slide stolen from Lee McPheters…
Elliott D. Pollack & Company
Arizona Domestic Migration Ranking
Source: U.S. Census Bureau
Year Rank
2005 2
2006 3
2007 4
2008 3
2009 11
2011 12
2012 3
*No data available for 2010
Elliott D. Pollack & Company
Arizona International Migration Ranking
Source: U.S. Census Bureau
Year Rank
2005 8
2006 9
2007 8
2008 9
2009 8
2011 8
2012 18
*No data available for 2010
Elliott D. Pollack & Company
Housing?
Elliott D. Pollack & Company
Greater Phoenix Single Family Permits
Source: RL Brown
Year Permits % chg
2004 60,872 27.6%
2005 63,570 4.4%
2006 42,423 -33.3%
2007 31,172 -26.5%
2008 12,582 -59.6%
2009 8,027 -36.2%
2010 6,822 -15.0%
2011 6,794 -0.4%
2012 11,615 71.0%
2013 12,785 10.1%
Elliott D. Pollack & Company
Single Family Permits Greater Phoenix 1975–2016*
Source: RL Brown & Elliott D. Pollack & company
8.711.1
22.3
28.9
18.8
11.510.6
11.6
19.4 18.1
22.623.2
17.915.1
12.010.6
13.7
18.4
22.7
27.428.5
29.631.7
36.035.3
34.736.2
38.9
47.7
60.9
63.6
42.4
31.2
12.6
8.06.86.8
11.612.8
15.819.0
24.0
0
10
20
30
40
50
60
70
# Permits(000)
*2014 – 2016 forecast is from Elliott D. Pollack & Company
Elliott D. Pollack & Company
Home Prices IndicesGreater Phoenix
1989 – 2013* Source: Macro Markets, LLC; AMLS
60
80
100
120
140
160
180
200
220
240
MLS Index Case-Shiller Index Trendline (4.0%)
Recession Periods
*Data through November 2013.
Elliott D. Pollack & Company
2,1012,555
4,096
5,2815,795
4,8825,2745,363
6,547
7,2417,172
6,8677,493
8,511
9,570
11,783
9,607
5,044
3,018
2,0881,865
1,4372,038
2,245
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
Greater Tucson - Single Family Permits1990–2013
Source: Bright Future Real Estate ResearchRecession Periods
Elliott D. Pollack & Company
Tucson New Median Home Price2000-2013*
Source: Bright Future Real Estate Research
*Data through December 2013.
Recession Periods
$267,725
$172,250
$250,403
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
$280,000
Elliott D. Pollack & Company
Tucson Resale Median Home Price2000-2013*
Source: Bright Future Real Estate Research
*Data through December 2013.
Recession Periods
$220,000
$135,000
$154,700
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
Elliott D. Pollack & Company
What Else Will/ Can Happen?
Elliott D. Pollack & Company
5
910
Benefits of the “SUNBELT”
Alaska
Hawaii
Industrial Northwest
Elliott D. Pollack & Company
Leads to…
• Retirement freedom,• Ability to move,• Comfort with additional spending,• Etc.
Elliott D. Pollack & Company Source: CBRE
Competitiveness Map – 2011, 2012Source : CBRE
Elliott D. Pollack & Company
Competitiveness Map – 2013Source : CBRE
Too far or just right?
Elliott D. Pollack & Company
Perception/Marketing Issues - AZ Example:
- Rankings (1-50 example, state and local).
- Branding (state and local).
- Consistent theme (“smart state/city”).
- Strategic research of self and competitors (state and local).
State: Any Areas of Need?
Elliott D. Pollack & Company
Long term infrastructure support?
How to fund? Limited resources.
State: Any Areas of Need?
Elliott D. Pollack & Company
Education:
- Studies have become political statements rather than solid, fundamental analyses.
- Remedy? What was done on economic development?
State: Any Areas of Need?
Elliott D. Pollack & Company
Others?
State: Any Areas of Need?
Elliott D. Pollack & Company
Forecasting and Budgeting
Elliott D. Pollack & Company
Things to keep in mind:
Avg. expansion is just under 5 years,The current expansion will hit 5 years this
summer,But, its not the age, it’s the mileage,How many more years of growth?
Forecasting & Budgeting
Elliott D. Pollack & Company
Things to keep in mind:
Less time to plan for next downturn,Less time to build infrastructure,Etc.
What are you doing now in terms of longer term planning?
Forecasting & Budgeting
Elliott D. Pollack & Company
Forecasting & Budgeting R
isk
Revenues
Most Likely
Pessimistic
Elliott D. Pollack & Company
Forecasting & Budgeting R
isk
Revenues
Most Likely
Pessimistic
Recession
Normal Expansion
Now
Elliott D. Pollack & Company
Forecasting & Budgeting R
isk
RevenuesMost LikelyPessimistic
Highest
Risk
?
Elliott D. Pollack & Company
The last dollar that is projected is the most risky.
Marginal analysis. What to do?
True “most likely”? Capital? Reserves?
Forecasting & Budgeting
Elliott D. Pollack & Company
Forecasting & Budgeting R
isk
RevenuesMost LikelyPessimistic
Highest
Risk
?
Elliott D. Pollack & Company
Questions?
Elliott D. Pollack & Company
ELLIOTT D. POLLACK & Company
7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251
480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / [email protected]
• Economic and Fiscal Impact Analysis/Modeling
• Real Estate Market and Feasibility Studies
• Litigation Support
• Revenue Forecasting
• Keynote Speaking
• Public Finance and Policy Development
• Land Use Economics
• Economic Development