arizona outlook gfoaz conference february 19, 2009

Arizona OutlookArizona OutlookGFOAz

ConferenceFebruary 19, 2009

Economic Outlook 2009-2010

• US Recession Watch• Arizona Jobs• Arizona People• Arizona Housing• Outlook Summary

US RECESSION WATCHUS RECESSION WATCH

• How long in duration?

• How severe in depth?

Is This a Repeat of theGREAT DEPRESSION?

Feb. 1930

Andrew MellonSecretary of the Treasury for Herbert Hoover

"There is nothing in the situation to be disturbed about."

1930 1931 1932 1933 1934

-8.6% -6.4% -13.0% -1.3% +10.8%

In the Great Depression real In the Great Depression real

GDPGDP

declined for 4 years & 27%declined for 4 years & 27%

Another Great Another Great Depression?Depression?

2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3

-0.5% -3.8% -4.9% -1.5% +0.8%

In the current downturn real In the current downturn real

GDP isGDP is

expected to fall for 4 quarters expected to fall for 4 quarters

& 2-3% & 2-3%

Blue Chip Consensus

Another Great Another Great Depression?Depression?

GDP Recovery in 2nd Half?

2008 2009

Percent Change in Real GDP at Annual Rate

Blue Chip Consensus

Survey of Leading Economists

• 90% say recession will end by Q4 2009

• 93% say unemployment will peak in 2010

Blue Chip Economic Indicators, February 2009

Blue ChipConsensus

_ _ _

50 TopEconomists

Longest Since The Longest Since The DepressionDepression

Post-War Recessions Months

Average: 10 Previous Post-War Recessions 10 mos.

Longest (1973-1975 & 1981-1982) 16 mos.

Current Recession (Duration since 12/07) 14 mos.

Current Recession Forecast (12/07 – 12/09) 24 mos.

The Great Depression (1929-1933) 43 mos.

Historical data: National Bureau of Economic Research

GDP Growth in Q4 2008Components Q3 08 Q4 08

Consumption -3.8% -3.5%

Exports 3.0% -19.7%

Residential Building -16.0% -23.6%

Non-Residential Building 9.7% -1.8%

Change in Real GDP -0.5% -3.8%

U.S. Bureau of Economic Analysis, January Report

3.9

2.0 2.01.0 0.9 1.2

-3.8 -3.5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Percent Growth In Consumer Spending at Annual Rate

U. S. Consumer SpendingNegative Again in Q 4

U. S. Consumer SpendingNegative Again in Q 4

20082007

First negative quarter since 1991

Consumer confidence sinks

Auto sales worst in 26 years

Neighborhood Banks Doomed to Fail?

1930: 1930: 744 Bank744 BankFailuresFailures

1930: 1930: 744 Bank744 BankFailuresFailures

2008: 2008: 25 Bank25 BankFailuresFailures

2008: 2008: 25 Bank25 BankFailuresFailures

8,500 Banks

171 on“Watch

List”

Problem banks: What you need to knowThe FDIC is keeping close tabs on 171 banks

-76 -83 -67 -67-127

-403

-524-583

-524

-100-47

-88

Jan. Feb. Mar. Apr. May June July Aug. Sept Oct. Nov. Dec.

Job Growth/Loss, ThousandsJob Growth/Loss, Thousands 12 Months of U.S. Job Loss 12 Months of U.S. Job Loss

2 million jobs lost

0.60.0

-0.2

-1.7 -1.9 -2.2-2.7

-3.8-4.3

-1.5

-0.6-0.4

-6

-5

-4

-3

-2

-1

0

1

2

Jan. Feb. Mar. Apr. May June July Aug. Sept Oct. Nov. Dec.

Monthly Percent Change vs Year AgoMonthly Percent Change vs Year Ago Arizona Job Losses in 2008 Arizona Job Losses in 2008

Worst since -4.6% June 1975Worst since -4.6% June 1975

12 Months Into 12 Months Into RecessionRecession

Arizona Weaker Than Arizona Weaker Than USUSNon-Farm Job Loss After 12 Months % Loss

Average 10 Post-War Recessions -2.0%

U.S. in Current Recession -2.0%

Arizona (Dec./Dec.) -4.3%

Wyoming (Dec./Dec.) +2.2%

-6

-4

-2

0

2

4

6

8

10

12

14

1970 1974 1978 1982 1987 1991 1995 1999 2004 2008

Arizona & US Move Together

(Employment Year/Year Percent Change 1970 - 2008)

ArizonaArizona

USAUSA You are here

-6

-4

-2

0

2

4

6

8

10

12

14

1970 1974 1978 1982 1987 1991 1995 1999 2004 2008

Five Recessions Since 1970

Arizona Follows U.S.Arizona Follows U.S.

EnergyStagflation

FedPolicy

S & LsEnergyLeverage

Tech Bubble

EnergyHousingLeverage

2008 2009 2010

Real GDP Growth 1.3% -2.0% 2.0%

Employment Growth -0.2% -2.5% 0.0%

Inflation (CPI) 3.8% -1.0% 1.8%

Housing Starts (000) 900 660 900

US Economic Forecast

W. P. Carey School of Business, ASU

(Percent Change Dec. 2008 vs Dec. 2007)

2

48

49

1

27

5

6

U. S. Bureau of Labor Statistics

16

14

41

3613

4

36

Red: 42 StatesLosing Jobs

Arizona Ranks Near Last in

Rate of Job Creation

8

20

Green = Growth 7

116,500 Arizona Jobs Lost

Sector Dec 08 vs Dec 07Overall -116,500Health Care +9,400Arts, Entertainment +1,200Government (Fed/Local) +3,600Employment Services -10,800Retail Trade -25,200Food Service -11,200Construction -43,800

Less Harmed by Recession

• Food, guns, alcohol

• Online commerce

• Repair & maintenance

• “Down market” retail

• Health care & related

Hit Hardest by Recession

• Discretionary & postponable

• Temporary worker agencies

• Retail outlets, restaurants

• Auto dealers, appliances

• Finance & insurance

• Construction, home stores

160

170

180

190

200

210

220

230

240

250

260

JAN JULY JAN JULY JAN JULY JAN DEC

Thousands of Jobs

80,000 Arizona Construction JobsLost Since Summer of 2006

2005 20072006 2008

Arizona Unemployment

Rates in Recession

1976 10.3% 1982 11.5% 1992 7.5% 2008 6.9% (Dec)

Unemployment at 7%?

1

7

2

3

5

4

6

US Census BureauUS Census Bureau

18

178

1114

9

Arizona 2Arizona 2ndnd in Population in Population Growth Among All StatesGrowth Among All States

Percent Change 2008 vs 2007Percent Change 2008 vs 2007

10

1216

36

• 14th Largest State

• 2nd Fastest Growth Rate

• 5th in New Resident Count

• 3rd in Domestic Migration Count

• 9th in International Migration Count

Arizona Population Rank 2008Arizona Population Rank 2008

Population in 2030Population in 2030

• Population 10.7 Million

• 2nd Largest State in West

• 10th Largest State in US

• Median Age 39.3 Yrs

• More Children than Seniors

U. S. Census Bureau

Every time the Arizona population increasesby 2.5 people, a new housing unit is needed.

Every time the Arizona population increasesby 2.5 people, a new housing unit is needed.

AZ Housing Slump AZ Housing Slump ContinuesContinues

Single Family Q3 ‘07

Permits - 30%Resales - 31%Prices (Phx) - 4.1%Source: National Assoc Realtors; US Census

Single Family 2008 Permits - 53%Resales +10%Resale Price -26%

Source: US Census, National Assoc. Realtors

2

3

4

5

6

7

8

9

10

11

12

1991 1994 1997 2000 2003 2006 2008

10 Months Supply of Housing for Sale in US Market

Months Supply

(Percent Change Dec. 2008 vs Dec. 2007)

U. S. Bureau of Labor Statistics

Red: Loss of10% or More

3 States Add Construction Jobs

Green = Growth

• Population growthPopulation growth• Employment growth Employment growth • Mortgage ratesMortgage rates• Mortgage standardsMortgage standards• Move-up buyersMove-up buyers• Investors Investors

Housing Market DriversHousing Market Drivers

Affordability ReboundsAffordability ReboundsShare of Phoenix home sales affordable at median incomeShare of Phoenix home sales affordable at median income

Phoenix AffordabilityPhoenix Affordability

National Association of Home Builders, 2008 Q3 National Association of Home Builders, 2008 Q3

Metro Phoenix Construction Single family Permits

Greater Phoenix Blue Chip Forecast, 2008 Q4

Economic Outlook, University of Arizona, December 2008

Metro Tucson Construction Single Family Permits

Arizona Public Arizona Public ServiceServiceASUASUAZ Dept. CommerceAZ Dept. CommerceDavidson Fixed Davidson Fixed IncomeIncomeEcon-LincEcon-LincEconLitEconLitElliott Pollack Co.Elliott Pollack Co.JLBCJLBC

Maguire Co.Maguire Co.Northern Arizona Northern Arizona Univ.Univ.Salt River ProjectSalt River ProjectStellar CapitalStellar CapitalS’west Growth S’west Growth PartnersPartnersUniv. of ArizonaUniv. of ArizonaVisionEconVisionEconWells FargoWells Fargo

Blue Chip Forecast Panel Blue Chip Forecast Panel

2008 2009 2010Annual Percent Change

Personal Income 3.5 2.5 4.0

Employment -1.6 -0.9 1.8

Single Family Units -53 -3.7 13.2

Retail Sales -5.0 0.2 3.7

Population 2.3 1.8 2.0

ARIZONABLUE CHIP ECONOMIC FORECAST

Arizona Employment: No Job Growth Until 2010

Annual Numeric Change In Arizona Employment

Annual Percent Change In Arizona Employment

Arizona Employment: No Job Growth Until 2010

1.3

5.3

9.0

13.2

7.9

0.5

-5.0

0.2

3.7

2002 2003 2004 2005 2006 2007 2008 2009 2010

Annual CY Percent Change

Source: Arizona Blue Chip Forecast Forecast

Arizona Retail Sales:Recession Level Growth

Source: US Bureau of Labor Statistics and AZ Dept of Commerce

Category CY2006 CY2008

Building Supplies +9.2 -10.8

Apparel +8.4 -8.3

Furniture +8.4 -10.3

Restaurant/Bar +10.3 -3.5

Motor Vehicles +2.8 -28.3

Arizona Retail Sales DeclinePercent Change Vs Previous Year

Source: Arizona Department of Revenue, collections

• Stagnant economy 2009Stagnant economy 2009

• No job growth until 2010No job growth until 2010

• Unemployment goes up Unemployment goes up

• Population growth is criticalPopulation growth is critical

• Wait for US economic recoveryWait for US economic recovery

Arizona Outlook SummaryArizona Outlook Summary

• Resale prices fall next 9 mos.Resale prices fall next 9 mos.

• New starts, resales up end 2009New starts, resales up end 2009

• Tighter lending standardsTighter lending standards

• Non residential building stopsNon residential building stops

• Watch population growthWatch population growth

Construction Outlook SummaryConstruction Outlook Summary

Anatomy of Recovery• National economy rebounds

• Population growth improves

• Home prices stabilize

• Housing inventory falls

• Job creation increases

• Unemployment declines

• General confidence restored

• Worse economic news aheadWorse economic news ahead

• Housing must bottom outHousing must bottom out

• Recovery late 2009?Recovery late 2009?

• Unemployment at 8%? 10%?Unemployment at 8%? 10%?

• Stimulus plan to boost growthStimulus plan to boost growth

National Outlook SummaryNational Outlook Summary

Economic Policy Options1. Monetary policy (credit & interest rates)

•Lenders must lend, borrowers must borrow•Works with a lag, no direct job impacts

2. Tax Cuts (give rebates & reduce rates)•Smaller impact but rate cuts keep on working•Rebates saved or pay off debt, one time impact

3. Spending on Infrastructure, state aid•Takes time to implement, larger multiplier•Job impacts end when projects end•But infrastructure may support growth

Stimulus Plan: A Hybrid

ComponentComponent 20092009 20102010 To 2019To 2019 TotalTotal

Tax Cuts/Aid $116 $245 $28 $389

Infrastructure $29 $83 $142 $254

State/Local Gov $40 $72 $32 $144

Total $185 $400 $202 $787

$787 Billion Program 2009 - 2019

http://www.cbo.gov/ftpdocs/99xx/doc9989/hr1conference.pdf

http://knowledge.wpcarey.asu.edu

Lee.mcpheters@asu.edu