Elliott D. Pollack & Company Schizophrenia and Economists Paramount Pool and Spa Systems October 6th, 2014 Presented By: Jim Rounds Sr. VP, Elliott D

Elliott D. Pollack & Company

Schizophrenia and Economists

Paramount Pool and Spa Systems

October 6th, 2014

Presented By:Jim Rounds

Sr. VP, Elliott D. Pollack & Company


Paranoid about the economy?


Past “Headlines”


What The #$@&,I Thought It Was Getting

Better?

2010

By:Jim Rounds, Senior Vice President



“The Not So Attractive Recovery”

(But it has a great personality!)

2011




2012



You Heard It Here First: Less

Dreadful Times Ahead!


2013



Firming Up The Recovery…


How toAvoidthe…


Is there a story?

• Does the data make sense?

• If not, is there an explanation for why it is off?

• If not, then worry.


Let’s start with the

U.S.


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%

1.6%

2.3%2.2%2.1%

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, September 2014.

Recession Periods

3.8% = 40-year avg during expansion

3.2% = 20-year avg during expansion

Underlying = 2.2%

Act: -2.0, 4.6, 2.8, 3.3%

But, next year hit “average.”


U.S. Leading Indicators1971 – 2014*

Source: The Conference Board

30

40

50

60

70

80

90

100

110

120

Recession Periods

*Data through August 2014


10 Components of U.S. Leading Indicators – August 2014

• Interest rate spread• Manuf. new order index• Leading credit index (inverted)• Consumer expectations• Manuf. new orders – consumer goods• Manuf. hours• Manuf. new orders – capital goods• Stock Prices• Claims for unemployment (inverted)• Building permits

+

-


U.S. Consumer Debt1999 - 2014*

Source: Federal Reserve

Overall, borrowing remains more than $1 trillion below its 2008 peak .

(Trillions)Recession Periods

Debt down from peaks but level still high with no

adjustment…


Financial Obligation Ratio**1980 – 2014*

Source: Federal Reserve

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

*Data through first quarter 2014**Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.

Recession Periods

Consumers have less “relative” debt compared to income…


S&P 5001980-2014*

Source: Standard & Poor's (S&P); Moody's Analytics (ECCA) Converted

*Data through July 31,2014

Recession Periods

Risk? Bubble?


U.S. Household Net Worth(Billions of Dollars, NSA)

1970 - 2014* Source: Board of Governors of the Federal Reserve System

*Data through first quarter 2014

Recession Periods

But, people are focusing policy discussions on narrowing the “gap.”


U.S. Average Household Incomeby Each Fifth Percentile & Top 5%

Source: U.S. Census Bureau

Every group has been somewhat flat since downturn and “gap” has

been growing for a while.


U.S. Average Household Incomeby Each Fifth Percentile & Top 5%


This is being ignored...


Grass always greener on other side, or did neighbor steal your grass?


Consumer Confidence is High

…and so is Colorado…munchies!


Consumer Confidence1978 – 2014*

Source: The Conference Board

20

30

40

50

60

70

80

90

100

110

120

130

140

150

*Data through August 2014.

Recession Periods

Disenfranchised Weary

Worried

P.O.’d

So people will be spending more…


Capacity Issues?


65

70

75

80

85

90

Capacity Utilization Rate1970 – 2014*

Source: The Federal Reserve Bank of St. Louis

*Data through June 2014.

Recession Periods

Front end of accelerated investment; 10% in Q2


Demographics Still Matter


U.S. Birth Index1909-2012

Source: U.S. Census Bureau; Harvard Joint Center for Housing Studies

Baby Boomers1945-1964

78.7 M


Consumer Life CycleSource: U.S. Census Bureau; Dent Research; EDPCo

Age


Starter Homes Cycle31-32 year lag

1960-2043Source: U.S. Census Bureau

?


Trade Up Home Cycle41-43 year lag


?


Vacation Home Cycle50 year lag1979-2062


?


Retirement Home Cycle65 year lag1994-2076


?


Federal Government

No, not an accident…


Federal Government ExpendituresPercent Change Year Ago

1970-2014*Source: U.S. Bureau of Economic Analysis

*Data through first quarter 2014.

Recession Periods


State and Local Government ExpendituresPercent Change Year Ago

1970-2014*Source: U.S. Bureau of Economic Analysis

*Data through first quarter 2014.

Recession Periods


Summary U.S.:

Economic conditions improving, hard to tell when things will better slope up (but soon),

demographics not fully in our favor but manageable.


2010 2011 2012 2013 2014 2015

Real GDP 2.5% 1.6% 2.3% 2.2% 2.1% 3.0%

Consumer Price Index

1.6% 3.2% 2.1% 1.5% 1.9% 2.1%

Industrial Production

5.7% 3.3% 3.8% 2.9% 4.0% 3.6%

Disposable Personal Income

1.0% 2.5% 3.0% -0.2% 2.6% 2.8%

Corporate Profits

25.0% 4.0% 11.3% 4.2% 0.3% 6.4%

Unemployment Rate

9.6% 9.0% 8.1% 7.4% 6.2% 5.7%

Housing Starts 0.59 0.61 0.78 0.92 1.01 1.20

U.S. Blue Chip Economic IndicatorsForecasts as of September 2014

Yea

r-ov

er-y

ear

%

chan

geTo

tal

Uni

ts

Ann

ual A

vera

ge

Forecasts


Population


52

7

1

Population Growth 2013Source: U.S. Census Bureau

8

3

9

6

Growing

Declining

Top 10

10

Alaska

Hawaii

4

31

19

Part growth, part math related to base size…


Population GrowthAnnual State Ranking


2005 2006 2007 2008 2009 2010 2011 2012 2013

Arizona 2 2 5 8 19 14 12 7 8% change 3.3% 3.3% 2.3% 1.8% 1.0% 1.1% 0.9% 1.3% 1.2%

California 19 17 22 25 28 24 28 30 36

% change 0.7% 0.5% 0.6% 1.0% 1.0% 1.1% 0.9% 0.9% 0.9%

Florida 4 10 19 27 31 17 6 9 7

% change 2.5% 1.8% 1.1% 0.9% 0.7% 1.0% 1.3% 1.2% 1.2%

New York 49 47 47 40 39 38 31 31 31% change -0.2% -0.1% 0.1% 0.4% 0.5% 0.4% 0.5% 0.4% 0.4%

Texas 9 6 8 5 3 3 1 3 4% change 1.7% 2.6% 2.0% 2.0% 2.0% 1.8% 1.6% 1.6% 1.5%


Population FlowsAnnual Growth Rate

2000-2013Source: U.S. Census Bureau Recession Periods


Distribution of Movers in U.S. by Type*1990-2013


*Excludes movers in the same county

Mov

ers

(in m

illio

ns)


Employment


2

1

323

9

4

5

Alaska

710

Job Growth 2006Source: US BLS

Jobs growing

Jobs declining

Top 10

Hawaii

6

8

13

40


49

4

7

40

Hawaii

1

Alaska 2 6

510

3

Jobs growing

Jobs declining

Top 10

8

9

14



10

3 4

5

6

7

1

2

Alaska

Jobs growing

Jobs decliningTop 10

Hawaii

9

25


8


15

9 7

3

6

2

1

4

Alaska

Jobs growing

Jobs decliningTop 10

Hawaii

10

Job Growth 2014YTD August 2014 vs YTD August 2013

Source: US BLS

5

8

26


Employment GrowthAnnual State Ranking

2006-2014*Source: U.S. Bureau of Labor Statistics

2006 2007 2008 2009 2010 2011 2012 2013 2014*

Arizona 2 17 46 49 49 28 9 10 15% change 5.4% 5.0% -2.1% -7.2% -1.9% 1.1% 2.1% 2.1% 1.9%

California 23 33 45 44 4 32 4 3 9% change 1.8% 1.7% -1.3% -6.0% 0.9% 1.0% 2.4% 3.0% 2.3%

Florida 13 45 50 47 40 26 11 8 5

% change 2.6% 0.2% -3.5% -6.2% -1.0% 1.1% 2.0% 2.5% 3.0%

New York 40 20 12 7 14 11 27 25 26% change 1.0% 1.3% 0.7% -2.7% 0.0% 1.4% 1.4% 1.3% 1.3%

Texas 6 4 3 8 7 3 3 5 3

% change 3.3% 3.3% 2.0% -2.8% 0.3% 2.2% 2.9% 2.9% 3.2%

*YTD August 2014 vs. YTD August 2013


U.S. Employment Losses – Recent RecessionsDuration in Months

Source: Bureau of Labor Statistics

2008


How hard did you get hit?


Percent of Jobs LostBy Select States



Employment Losses – Most Recent RecessionDuration in Months



Employment RecoveryDuration in Months

Source: Bureau of Labor StatisticsPre-Recession Peak Employment = 100

AZ

AZ & FL Have Yet to Regain All Lost Jobs


Housing?


Long-Term Home Prices in the U.S.Adjusted for Inflation

1980-2014*

Source: Figure 2.1 in Robert J. Shiller, Irrational Exuberance, 2nd. Edition, Princeton University Press,2005, 2009, Broadway Books 2006, also Subprime Solution, 2008, as updated by author*Data through first quarter 2014.

Recession Periods

Housing bubbles have to be evaluated by individual market…


Tougher Qualifications

(1) More paperwork,

(2) Lower debt to income ratios,

(3) Longer lockout period after a foreclosure,

(4) Higher down payment requirements,

(5) Others…


Net Percentage of Large U.S. BanksReporting Eased Standards versus Tougher Standards

on Residential Mortgage Prime Loans2007 Q1 – 2014 Q2

Source: Federal ReserveRecession Periods

Still Flat…


YearU.S.

Foreclosures% chg year

ago

2002 230,750

2003 253,584 9.9%

2004 273,930 8.0%

2005 290,872 6.2%

2006 379,380 30.4%

2007 587,872 55.0%

2008 972,933 65.5%

2009 1,009,284 3.7%

2010 1,145,292 13.5%

2011 930,633 -18.7%

2012 821,689 -11.7%

2013 618,493 -24.7%

U.S. Annual Foreclosures2002–2013

Source: CoreLogic


U.S. Foreclosure Lag2002–2021

Source: CoreLogicRecession Periods


Negative Equity Share2010–2014

Source: CoreLogic


Pent-up Demand?Millennials?


Is it a social shift or just the business cycle?


Homeownership Rates1990-2014*

Source: U.S. Census Bureau Recession Periods

*Data through second quarter 2014

Upward potential: Rates will get back to normal…


Percent of 18-34 Year Olds Living With ParentsU.S.: 1983 – 2013

Source: US Census BureauRecession Periods

18-34 year olds represent 23% of total population. (73.7 million persons)

Upward potential: Parents are currently going

insane…


Millennials – Economic or Social?

• 30-34 year olds in 2012 had the lowest homeownership rate of any similarly aged group before them.

• Five years prior, this exact same group (at 25-29 years old) had the highest homeownership rate than any group before them.


Total Residential Housing Building Permits2000-2013


Room to recover…


Single Family Housing Permits2000-2013



Single Family Housing PermitsAnnual Growth Rate

2001-2013Source: U.S. Census Bureau Recession Periods

50%/100%


Income by State


Per Capita Personal Income2000-2013

Source: Bureau of Economic Analysis Recession Periods


State Per Capita Personal IncomeAs a Percent of U.S.

2000-2013Source: Bureau of Economic Analysis

Recession Periods


Don’t lose the smile just yet…

From Pkdata Special report 2014


• Economy is improving.

• Businesses and consumers will be spending more.

• Demographics a moderate constraint.

• Millennials are not the same from state to state.

• “Getting back to normal” more than offsets demographics.


For a quick analysis of important economic data released

each week, subscribe to the Monday Morning Quarterback

www.arizonaeconomy.com

http://www.arizonaeconomy.com/

Documents

Elliott D. Pollack & Company Schizophrenia and Economists Paramount Pool and Spa Systems October 6th, 2014 Presented By: Jim Rounds Sr. VP, Elliott D