arizona outlook gfoaz conference february 19, 2009
TRANSCRIPT
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
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