Jim Rounds - Economic Outlook for Maricopa Event

Elliott D. Pollack & Company

A Precise and Absolutely Error Free Forecast of Future

Conditions

To:

City of Maricopa5th Annual Economic Development Event

December 8, 2011

By:Jim Rounds

Senior V.P., Elliott D. Pollack & Company


Going from Economic to

Psychological?

“Tell me about your mother”


Going from Economic to

Political?


Going from Forecasting to

Guessing?

Many are not looking at the right

numbers.

Ben Bernanke – Fall 2011


U.S. Conditions


??


Signs of a Double Dip – Look for Declines in these Main

Economic Categories

Real GDP Real Income Employment Industrial Production Wholesale – Retail Sales


Real Gross Domestic ProductPercent Change Quarter Ago, Annualized

1971 – 2011* Source: Bureau of Economic Analysis

-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%

1971 Q

1

1972 Q

3

1974 Q

1

1975 Q

3

1977 Q

1

1978 Q

3

1980 Q

1

1981 Q

3

1983 Q

1

1984 Q

3

1986 Q

1

1987 Q

3

1989 Q

1

1990 Q

3

1992 Q

1

1993 Q

3

1995 Q

1

1996 Q

3

1998 Q

1

1999 3

2001 Q

1

2002 Q

3

2004 Q

1

2005 Q

3

2007 Q

1

2008 Q

3

2010 Q

1

2011 q

3

* Data through 3rd quarter 2011

Recession Periods

No


Real Disposable Personal IncomePercent Change Year Ago

1971 – 2011* Source: Bureau of Economic Analysis

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1971 Q

1

1972 Q

3

1974 Q

1

1975 Q

3

1977 Q

1

1978 Q

3

1980 Q

1

1981 Q

3

1983 Q

1

1984 Q

3

1986 Q

1

1987 Q

3

1989 Q

1

1990 Q

3

1992 Q

1

1993 Q

3

1995 Q

1

1996 Q

3

1998 Q

1

1999 3

2001 Q

1

2002 Q

3

2004 Q

1

2005 Q

3

2007 Q

1

2008 Q

3

2010 Q

1

* Data through second quarter 2011

Recession Periods

No


US New Job Data Change from Prior Month (S/A)

June 2010 – November 2011Source: Bureau Labor of Statistics

-49 -59-29

171

93

152

68

235

194217

5320

127104

210

100120

-192(250)

(200)

(150)

(100)

(50)

0

50

100

150

200

250

300

(000’s)

No


Industrial ProductionPercent Change Year Ago

1973 – 2011* Source: The Conference Board

-16%-14%-12%

-10%-8%-6%-4%-2%0%

2%4%6%8%

10%

12%14%16%

*Data through July 2011

Recession Periods

No


Real Retail Sales U.S. Percent Change Year Ago

1973 – 2011* Source: Federal Reserve

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

*Data through August 2011**Three-month moving average

Recession Periods

No


Recession Indicators Summary:Still Moving Upward(Just VERY Slowly)

Real GDP (watch closely early 2012)

Real Income Employment (watch closely now)

Industrial Production Wholesale – Retail Sales


OR SAFE ?OR SAFE ?


Other Measures…


Hours WorkedPercent Change from Year Ago

1976 – 2011* Source: Bureau of Labor Statistics

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Recession Periods

*Data through second quarter 2011


Capacity Utilization Rate1970 – 2011*

Source: The Conference Board

65

70

75

80

85

90

Jan-

70

Jan-

71

Jan-

72

Jan-

73

Jan-

74

Jan-

75

Jan-

76

Jan-

77

Jan-

78

Jan-

79

Jan-

80

Jan-

81

Jan-

82

Jan-

83

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

*Data through August 2011

Recession Periods


Corporate Profit (Billions of Dollars, SA)

1975-2011*Source: BEA

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

*Data through second quarter 2011

Recession Periods

But…


Corporate Profit By Industry ($Billions)2011 q2

Source: BEA

438.9

249.9

112.7 103.690.8

26.8 15.2

0

50

100

150

200

250

300

350

400

450

500

550

Financial Manufacturing Retail Trade Information Wholesale Trade Transp. &Warehousing

Utilities

?


No Joke: Times Getting Tough for U.S. Bankersby Francesco Guerrera

Tuesday, October 25, 2011

THE WALL STREET JOURNAL

…After a brief, if spectacular, rebound in profits in 2009—largely due to government aid received during the crisis and the unleashing of pent-up investor demand after it—banks' fortunes have taken a turn for the worse.

Some executives have even begun to wonder whether the industry is entering its own Great Depression—not a "normal" cyclical downturn but a prolonged slump that will leave a lasting mark on the sector's structure…


Jobs are being created but not quickly enough.

Those that have jobs are spending a little more but will remain cautious.

Most of those that don’t have jobs probably won’t anytime soon.

Wealth levels are improving but people still feel poor.

Consumer Summary:


Profits are high, but…

Business spending on plant will be slow for now, but getting closer to seeing some limited investment.

Hiring will still be relatively slow, but more pressure to hire soon.

Lots of money sitting on the sidelines. Why?

Business Summary:


Consumers (& businesses) are worried, Thus, they are saving more and trying to get

out of debt, So, spending less than normal, Means less demand for products/services, Means less demand for labor and capital,

and falling profits, Means more worry for the employed (aka

consumers/businesses).

Deleveraging & Liquidity Traps


Federal Government was already borrowing and spending too much,

“Stimulus” has also been inefficient, Thus, cannot afford more (so no Keynesian

spending opportunity), Monetary policy is now of limited benefit as well, Interest rates are low and little borrowing/lending. Need more certainty. How?

Deleveraging & Liquidity Traps


What not to look at just yet…


Consumer Confidence1978 – 2011*

Source: The Dismal Scientist

20

30

40

50

60

70

80

90

100

110

120

130

140

150

*Data through September 2011

Recession Periods

1985 Benchmark = 100


U.S. Unemployment Rate1980 – 2011*

Source: Bureau of Labor Statistics

0%

2%

4%

6%

8%

10%

12%

*Data through Sep 2011

Recession Periods


Current State and

Local Basics


There is some good

news…


…And some bad news.


9

4

15

2

10

3

7

Job Growth 2006

11

15

6

22

8

Source: US BLSSource: US BLS

13

Jobs growing

Jobs declining

Top 10

Hawaii

Alaska


5

49

23

3545

4

32

8

24

47

50

44

1

16

3

Alaska 2

13

1830

Job Growth 2009Source: US BLSSource: US BLS

46

Jobs growing

Jobs declining

Top 10

Hawaii


11

8

October YTD 2011 vs October YTD 2010

30

4

13 32

2

45

9

Job Growth Update: Arizona Ranked 30th

47

28

1

3

34

Alaska 7

49

2126

36Jobs growing

Jobs decliningTop 10

Hawaii

14

10

18

6

20

5

17


Rank State 2011 YTD 2010 YTD Growth1 North Dakota 390.5 373.4 4.6%2 Texas 10546.6 10309.9 2.3%3 Utah 1201.9 1177.6 2.1%4 Wyoming 288.1 282.7 1.9%5 Vermont 301.8 296.2 1.9%6 Oklahoma 1551.6 1523.1 1.9%7 Alaska 332.1 326.1 1.8%8 Nebraska 953.3 937.3 1.7%9 Oregon 1620.9 1596.0 1.6%

10 Michigan 3910.9 3850.8 1.6%11 Kentucky 1789.1 1764.8 1.4%12 Ohio 5087.8 5019.2 1.4%13 California 14043.8 13862.6 1.3%14 Hawaii 592.3 584.8 1.3%15 Louisiana 1905.7 1881.5 1.3%16 New Hampshire 629.1 621.1 1.3%17 Massachusetts 3219.6 3180.3 1.2%18 Washington 2808.2 2774.0 1.2%19 Pennsylvania 5667.4 5600.0 1.2%20 Illinois 5658.6 5598.0 1.1%21 Montana 432.5 428.0 1.0%22 Connecticut 1618.0 1602.0 1.0%23 South Carolina 1820.4 1803.0 1.0%24 Iowa 1478.7 1465.2 0.9%25 Wisconsin 2755.9 2730.9 0.9%26 Minnesota 2656.4 2632.8 0.9%27 Arkansas 1171.1 1160.8 0.9%28 Idaho 607.3 602.1 0.9%29 Tennessee 2627.1 2605.3 0.8%30 Arizona 2391.2 2371.8 0.8%31 New York 8598.7 8529.0 0.8%32 Colorado 2233.0 2216.6 0.7%33 Maine 595.6 591.3 0.7%34 South Dakota 405.4 402.5 0.7%35 West Virginia 749.3 744.3 0.7%36 Florida 7209.7 7163.5 0.6%37 Mississippi 1094.4 1087.7 0.6%38 Rhode Island 460.7 457.9 0.6%39 Virginia 3643.0 3621.6 0.6%

YTD State Rank - October


What to focus on during the coming

years…


1) Jobs2) Population3) Economic Base


AZ New Job Data Change from Prior Month (S/A)

May 2010 – October 2011Source: Bureau Labor of Statistics

(20)

(15)

(10)

(5)

0

5

10

15

20

(000’s)

?


Greater Phoenix Employment* Annual Percent Change 1975–2012**

Source: Department of Commerce, Research Administration

-3.7%

4.9%

8.7%

13.3%

10.4%

3.7%

3.0%

-0.1%

5.8%

11.2%9.3%

4.8%3.5%

5.9%

2.5%

2.2%

-0.3%

1.1%

4.9%

6.6%7.2%7.3%

5.4%5.4%

4.6%3.5%

1.2%

-0.1%

1.5%

3.9%

6.2%5.4%

1.6%

-2.5%

-7.9%

-2.1%

1.0%

2.0%

-10%-8%-6%-4%-2%0%2%4%6%8%

10%12%14%

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.

** 2011& 2012 forecast is from Elliott D. Pollack & Co.

Recession Periods

YTD Phx = 1.0%; AZ = 0.7%

Y/Y Phx = 2.3%; AZ = 2.2%


2.1%

3.7%

4.2%

4.7%

3.9%

3.3%

3.0%

3.1%

4.3%

5.1%

4.2%4.4%

2.9%

2.5%

1.3%

2.4%

2.8%

3.5%

4.3%

4.6%

4.2%4.2%

3.8%

4.3% 4.3%

3.1%

3.2%3.3%

3.4% 3.4%

2.7%2.5%

1.6%

1.0%1.0%

1.5%

2.0%

0%

2%

4%

6%

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

Greater Phoenix Population Annual Percent Change 1976–2012*

Source: Arizona State University & Department of Commerce, Research Administration

2008 and 2009 are estimates put out by ADES and may be subject to substantial revision.

* 2011 & 2012 forecast is from Elliott D. Pollack & Co. Recession Periods

*2000-2010 estimates based on 2010 Census release

?


U.S. Single-Family Starts1978–20111/

Source: Census Bureau

1.4

1.2

0.9

0.7 0.7

1.1 1.1 1.1

1.2 1.11.1

1.00.9

0.8

1.01.1

1.2

1.1

1.21.1

1.3 1.31.2 1.3

1.4

1.5

1.6

1.7

1.5

1.0

0.6

0.4 0.50.4

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

(Millions)

1/ Through June 2011

Recession Periods

Over-supply

Under-supply

LTA: 1.2


Single-Family Permits vs. Population DemandGreater Phoenix 1975–2015

Source: PMHS / RL Brown

8,705

11,081

22,281

28,851

18,843

11,485

10,64911,625

19,44718,125

22,598

23,222

17,94415,085

12,00010,61413,698

18,379

22,652

27,426

28,54329,609

31,715

36,001

35,30834,701

36,151

38,914

47,720

60,892

63,570

42,423

31,172

12,582

8,0276,822

5,000

7,0008,000

15,000

25,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

# Permits Recession Periods

* 2011 - 2015 forecast is from Elliott D. Pollack & Co.

?


Home Prices Indices 2000 – 2011 (July)

Source: Macro Markets, LLC; AMLS

70

90

110

130

150

170

190

210

230

250

MLS Index Case-Shiller Index Trendline (4.0%)

Recession Periods

Weak Pop/Emp

Investors

?


Negative Equity in Homes Affects Ability to Sell or Buy

Source: First American Core Logic

50% of homes with mortgages in Arizona have negative equity.


Weak population numbers for now.

Weak employment numbers for now (rates to lead the country soon though).

Based on current activity, the full recovery is still a ways away.

But…what’s ahead?

Arizona Current Conditions Summary:


We are who we are……for now


9

4

15

2

10

3

7

Job Growth 2006 2014/2015?

11

15

6

22

8

Source: US BLSSource: US BLS

13

Jobs growing

Jobs declining

Top 10

Hawaii

Alaska


But, can we also grow in terms of quality?


Positives?


This is NOT a multi decade recovery…

Think 2015 for full recovery for most, but growth before

then.


Greater Phoenix Employment* Source: Bureau of Labor Statistics

Sectors in Decline

Net

Change

Other Services -300

Federal Government -400

Prof. & Bus. Services -4,100

*September 2011/September 2010

Sectors Improving

Net

Change

Education & Health Services 16,400

Transp, Trade, & Utilities 7,700

Leisure & Hospitality 6,700

Construction 4,900

Local Government 2,700

Financial Activities 2,600

Manufacturing 1,900

State Government 600

Mining 0

Information 0


Phoenix-Mesa Employment Growth(Ranking among all metro areas greater than 1,000,000; 2011 October/October)

Source: Arizona State University, U.S. Bureau of Labor Statistics

YEAR RANK # of MSAs

1991 4 20 1992 5 20 1993 2 20 1994 1 20 1995 1 21 1996 1 23 1997 2 23 1998 1 24 1999 3 26 2000 8 26 2001 6 28 2002 5 28 2003 3 29 2004 4 29 2005 1 30 2006 1 31 2007 10 32 2008 29 32 2009 31 32 2010 31

32 2011 9 32


Rank State 2011 YTD 2010 YTD Growth1 North Dakota 390.5 373.4 4.6%2 Texas 10546.6 10309.9 2.3%3 Utah 1201.9 1177.6 2.1%4 Wyoming 288.1 282.7 1.9%5 Vermont 301.8 296.2 1.9%6 Oklahoma 1551.6 1523.1 1.9%7 Alaska 332.1 326.1 1.8%8 Nebraska 953.3 937.3 1.7%9 Oregon 1620.9 1596.0 1.6%

10 Michigan 3910.9 3850.8 1.6%11 Kentucky 1789.1 1764.8 1.4%12 Ohio 5087.8 5019.2 1.4%13 California 14043.8 13862.6 1.3%14 Hawaii 592.3 584.8 1.3%15 Louisiana 1905.7 1881.5 1.3%16 New Hampshire 629.1 621.1 1.3%17 Massachusetts 3219.6 3180.3 1.2%18 Washington 2808.2 2774.0 1.2%19 Pennsylvania 5667.4 5600.0 1.2%20 Illinois 5658.6 5598.0 1.1%21 Montana 432.5 428.0 1.0%22 Connecticut 1618.0 1602.0 1.0%23 South Carolina 1820.4 1803.0 1.0%24 Iowa 1478.7 1465.2 0.9%25 Wisconsin 2755.9 2730.9 0.9%26 Minnesota 2656.4 2632.8 0.9%27 Arkansas 1171.1 1160.8 0.9%28 Idaho 607.3 602.1 0.9%29 Tennessee 2627.1 2605.3 0.8%30 Arizona 2391.2 2371.8 0.8%31 New York 8598.7 8529.0 0.8%32 Colorado 2233.0 2216.6 0.7%33 Maine 595.6 591.3 0.7%34 South Dakota 405.4 402.5 0.7%35 West Virginia 749.3 744.3 0.7%36 Florida 7209.7 7163.5 0.6%37 Mississippi 1094.4 1087.7 0.6%38 Rhode Island 460.7 457.9 0.6%39 Virginia 3643.0 3621.6 0.6%

YTD State Rank - October


Rank State 2010 2011 Growth1 North Dakota 387.3 405.9 4.8%2 Oklahoma 1537.4 1584.2 3.0%3 Utah 1195.2 1226.8 2.6%4 Louisiana 1895.8 1939.9 2.3%5 Texas 10449.4 10681.9 2.2%6 Nebraska 948.4 967.3 2.0%7 Arizona 2388.8 2433.5 1.9%8 Montana 432.4 440.4 1.9%9 Wyoming 287.4 292.5 1.8%

10 California 13987.2 14227.7 1.7%11 Vermont 303.5 308.6 1.7%12 Massachusetts 3224.4 3274.9 1.6%13 Washington 2806.5 2848.8 1.5%14 Oregon 1621.2 1645.5 1.5%15 Colorado 2229.2 2261.2 1.4%16 Florida 7169.0 7261.9 1.3%17 Ohio 5102.6 5166.6 1.3%18 Michigan 3940.0 3987.6 1.2%19 Illinois 5681.1 5743 1.1%20 New Hampshire 629.8 636.6 1.1%21 Nevada 1118.0 1130 1.1%22 Hawaii 590.7 597 1.1%23 Kentucky 1792.8 1811.8 1.1%24 Pennsylvania 5693.3 5748.4 1.0%25 Mississippi 1093.9 1104.4 1.0%

State Rank Month October


Properties in the Foreclosure Process Maricopa County 2002 – 2011*

Source: The Information Market

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

*Data through August 2011.

Recession Periods


Housing Opportunity Index* Greater Phoenix vs. US

1992-2011** Source: NAHB

0

10

20

30

40

50

60

70

80

90

100

Phoenix MSA U.S.*Data through Q2 2011.** Years 2002 & 2003 only have one data figure


One survey shows that over 80% of current single family RENTERS would like to soon

own.

Some of these homes are thus permanently absorbed.


Benefiting from basic demographic changes…


5

910

Benefits of the “SUNBELT”

Alaska

Hawaii

Industrial Northwest


Negative Equity in Homes Affects Ability to Sell or Buy

Source: First American Core Logic

50% of homes with mortgages in Arizona have negative equity.

(National average about 25%)


Retirement Home Buying CycleNet Change in Maricopa County Population Ages 55 to 69

1991-2030Source: U.S. Bureau of the Census, Arizona Department of Economic Security

0

5,000

10,000

15,000

20,000

25,000

30,000


Trade-Up Home Buying CycleNet Change in Maricopa County Population Ages 34 to 44


-5,000

0

5,000

10,000

15,000

20,000

25,000


Starter Home Buying CycleNet Change in Maricopa County Population Ages 25 to 34


0

5,000

10,000

15,000

20,000

25,000


Back to Normal Vacancy – Overall Region?

• Office = 2015?

• Industrial = 2014?

• Retail = 2015?


Tax Revenues?


Gains Needed to Reach Previous Peak

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 6 11 16 21 26 31 36 41 46

Realized Percent Loss

Re

qu

ire

d P

erc

ent

Ga

in

Sales Tax: -23% / 30%

Corporate Income Tax: -58% / 139%

Individual Income Tax: -36% / 55%

STILL

APPLIES

State forecast revisions in our future?


Economic Competitiveness


Figure out who we are…

Then try to improve the situation.


Old Competitiveness Map – AZ will be Moving Up(???)


What about the bad national press?

Yes, SB1070


• Governor impeached• Real estate depression• Defense cutbacks• AZ Scam• Martin Luther King Holiday Crisis• Keating• Keating 5• Every S&L taken over by RTC

Between 1987 and 1992


Related worker shortages won’t hit us until 2014/2015 or so.


We will continue to grow faster than the rest of the country over the long run.

If we do things right we might even grow in terms of quality.

Coordination among all of the E.D. entities will be critical.

Economic Development Summary:


Something still needs to be done about statewide tourism

promotion.



Future Conditions Summary


Performance Measures?

Falling far results in: - Strong rates of growth that seemingly don’t match the reported “levels” of activity. - Strong rankings that seemingly don’t match what we read in the paper. - Panic and opinions that the world is 100% different than before. Not necessarily true, we need to maintain some perspective.


“A Lost Decade,” but what does this tell us about the

future?


a) Underlying fundamentals remain, we will grow, but we will need to try harder.

b) Break in underlying fundamentals, flat decade means no future.

Basic Question:


1) Jobs2) Population3) Economic Base


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]

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