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
Elliott D. Pollack & Company
Paranoid about the economy?
Elliott D. Pollack & Company
Past “Headlines”
Elliott D. Pollack & Company
What The #$@&,I Thought It Was Getting
Better?
2010
By:Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
Elliott D. Pollack & Company
“The Not So Attractive Recovery”
(But it has a great personality!)
2011
By:Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
Elliott D. Pollack & Company
2012
By:Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
You Heard It Here First: Less
Dreadful Times Ahead!
Elliott D. Pollack & Company
2013
By:Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
Firming Up The Recovery…
Elliott D. Pollack & Company
How toAvoidthe…
Elliott D. Pollack & Company
Is there a story?
• Does the data make sense?
• If not, is there an explanation for why it is off?
• If not, then worry.
Elliott D. Pollack & Company
Let’s start with the
U.S.
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%
1.6%
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.”
Elliott D. Pollack & Company
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
Elliott D. Pollack & Company
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
+
-
Elliott D. Pollack & Company
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…
Elliott D. Pollack & Company
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…
Elliott D. Pollack & Company
S&P 5001980-2014*
Source: Standard & Poor's (S&P); Moody's Analytics (ECCA) Converted
*Data through July 31,2014
Recession Periods
Risk? Bubble?
Elliott D. Pollack & Company
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.”
Elliott D. Pollack & Company
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.
Elliott D. Pollack & Company
U.S. Average Household Incomeby Each Fifth Percentile & Top 5%
Source: U.S. Census Bureau
This is being ignored...
Elliott D. Pollack & Company
Grass always greener on other side, or did neighbor steal your grass?
Elliott D. Pollack & Company
Consumer Confidence is High
…and so is Colorado…munchies!
Elliott D. Pollack & Company
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…
Elliott D. Pollack & Company
Capacity Issues?
Elliott D. Pollack & Company
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
Elliott D. Pollack & Company
Demographics Still Matter
Elliott D. Pollack & Company
U.S. Birth Index1909-2012
Source: U.S. Census Bureau; Harvard Joint Center for Housing Studies
Baby Boomers1945-1964
78.7 M
Elliott D. Pollack & Company
Consumer Life CycleSource: U.S. Census Bureau; Dent Research; EDPCo
Age
Elliott D. Pollack & Company
Starter Homes Cycle31-32 year lag
1960-2043Source: U.S. Census Bureau
?
Elliott D. Pollack & Company
Trade Up Home Cycle41-43 year lag
1970-2053Source: U.S. Census Bureau
?
Elliott D. Pollack & Company
Vacation Home Cycle50 year lag1979-2062
Source: U.S. Census Bureau
?
Elliott D. Pollack & Company
Retirement Home Cycle65 year lag1994-2076
Source: U.S. Census Bureau
?
Elliott D. Pollack & Company
Federal Government
No, not an accident…
Elliott D. Pollack & Company
Federal Government ExpendituresPercent Change Year Ago
1970-2014*Source: U.S. Bureau of Economic Analysis
*Data through first quarter 2014.
Recession Periods
Elliott D. Pollack & Company
State and Local Government ExpendituresPercent Change Year Ago
1970-2014*Source: U.S. Bureau of Economic Analysis
*Data through first quarter 2014.
Recession Periods
Elliott D. Pollack & Company
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.
Elliott D. Pollack & Company
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
Elliott D. Pollack & Company
Population
Elliott D. Pollack & Company
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…
Elliott D. Pollack & Company
Population GrowthAnnual State Ranking
2005-2013Source: U.S. Census Bureau
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%
Elliott D. Pollack & Company
Population FlowsAnnual Growth Rate
2000-2013Source: U.S. Census Bureau Recession Periods
Elliott D. Pollack & Company
Distribution of Movers in U.S. by Type*1990-2013
Source: U.S. Census Bureau
*Excludes movers in the same county
Mov
ers
(in m
illio
ns)
Elliott D. Pollack & Company
Employment
Elliott D. Pollack & Company
2
1
323
9
4
5
Alaska
710
Job Growth 2006Source: US BLS
Jobs growing
Jobs declining
Top 10
Hawaii
6
8
13
40
Elliott D. Pollack & Company
49
4
7
40
Hawaii
1
Alaska 2 6
510
3
Jobs growing
Jobs declining
Top 10
8
9
14
Job Growth 2010Source: US BLS
Elliott D. Pollack & Company
10
3 4
5
6
7
1
2
Alaska
Jobs growing
Jobs decliningTop 10
Hawaii
9
25
Job Growth 2013Source: US BLS
8
Elliott D. Pollack & Company
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
Elliott D. Pollack & Company
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
Elliott D. Pollack & Company
U.S. Employment Losses – Recent RecessionsDuration in Months
Source: Bureau of Labor Statistics
2008
Elliott D. Pollack & Company
How hard did you get hit?
Elliott D. Pollack & Company
Percent of Jobs LostBy Select States
Source: Bureau of Labor Statistics
Elliott D. Pollack & Company
Employment Losses – Most Recent RecessionDuration in Months
Source: Bureau of Labor Statistics
Elliott D. Pollack & Company
Employment RecoveryDuration in Months
Source: Bureau of Labor StatisticsPre-Recession Peak Employment = 100
AZ
AZ & FL Have Yet to Regain All Lost Jobs
Elliott D. Pollack & Company
Housing?
Elliott D. Pollack & Company
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…
Elliott D. Pollack & Company
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…
Elliott D. Pollack & Company
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…
Elliott D. Pollack & Company
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
Elliott D. Pollack & Company
U.S. Foreclosure Lag2002–2021
Source: CoreLogicRecession Periods
Elliott D. Pollack & Company
Negative Equity Share2010–2014
Source: CoreLogic
Elliott D. Pollack & Company
Pent-up Demand?Millennials?
Elliott D. Pollack & Company
Is it a social shift or just the business cycle?
Elliott D. Pollack & Company
Homeownership Rates1990-2014*
Source: U.S. Census Bureau Recession Periods
*Data through second quarter 2014
Upward potential: Rates will get back to normal…
Elliott D. Pollack & Company
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…
Elliott D. Pollack & Company
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.
Elliott D. Pollack & Company
Total Residential Housing Building Permits2000-2013
Source: U.S. Census Bureau Recession Periods
Room to recover…
Elliott D. Pollack & Company
Single Family Housing Permits2000-2013
Source: U.S. Census Bureau Recession Periods
Elliott D. Pollack & Company
Single Family Housing PermitsAnnual Growth Rate
2001-2013Source: U.S. Census Bureau Recession Periods
50%/100%
Elliott D. Pollack & Company
Income by State
Elliott D. Pollack & Company
Per Capita Personal Income2000-2013
Source: Bureau of Economic Analysis Recession Periods
Elliott D. Pollack & Company
State Per Capita Personal IncomeAs a Percent of U.S.
2000-2013Source: Bureau of Economic Analysis
Recession Periods
Elliott D. Pollack & Company
Don’t lose the smile just yet…
From Pkdata Special report 2014
Elliott D. Pollack & Company
• 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.
Elliott D. Pollack & Company
For a quick analysis of important economic data released
each week, subscribe to the Monday Morning Quarterback
www.arizonaeconomy.com