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Elliott D. Pollack & Company
Extra Innings13th Annual 2020 IREM/CCIM
Economic Forecast
January 17, 2020
Presented By:Elliott D. Pollack
CEO, Elliott D. Pollack & Company
Elliott D. Pollack & Company
Questions and Answers
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If late last year was the 7th
inning,where are we now?
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Are we near the abyss?
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Is it time to panic?
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The answers are…..
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Extra innings. No, more of a mild dip.
No.
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Could there be a recession?
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Possibly, but not right now.The latest data suggests a recession
will not occur in 2020!
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When a recession does occur, will it look like 2007?
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Highly Unlikely!
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The economy is inherently cyclical
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Real GDP% Change a Year Ago
1960-2019*Source: Bureau of Economic Analysis
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%Recession
*Data through the third quarter 2019 13
Elliott D. Pollack & Company
But not all slowdowns are the same
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The next one is likely to be a mild slowdown compared to
2007-2009.
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We are very late in the game Synchronized global slowdown, especially in manufacturing
Chinese economy growing at the slowest rate in 28 years
Slowdown in velocity of money Fed is not getting much bang for the buck
Tax cuts have worked their way through the system Too much government debt
When we will pay the piper is unknown. Maybe 2 years. Maybe 20 years.
Election year could get Crazy
16
Where do we stand in the Cycle?
Elliott D. Pollack & Company
June 2009 - PresentMarch 1991 – March 2001
February 1961 – December 1969November 1982 – July 1990
November 2001 – December 2007March 1975 - January 1980
October 1949 – July 1953May 1954 – August 1957
November 1970 – November 1973April 1958 – April 1960July 1980 – July 1981
127120
10692
7358
4539
3624
12
U.S. BUSINESS CYCLE EXPANSIONSSource: National Bureau of Economic Research
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Recessions don’t die of old age
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But, they do become more vulnerable as the age
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The closer the U.S. Economy gets to full-employment, the less employment growth you can expect.
So employment growth will slow over the next year
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Consumer 69.6% of GDP Jobs plentiful, 7 million unfilled jobs available. Low unemployment Financially in good shape Confidence at high levels
22
Where do we stand in the Cycle?
Elliott D. Pollack & Company
Residential 3.1% of GDP Demographics outstanding for new housing Affordability okay in many cities. A problem on coasts. Problem is lack of supply
23
Where do we stand in the Cycle?
Elliott D. Pollack & Company
Trade Exports13.3% of GDP Imports 18.4% of GDP
USMCA newly approved Deal with China Value of the Dollar
24
Where do we stand in the Cycle?
Elliott D. Pollack & Company
Domestic Nonresidential Investment 14.5% of GDP Domestic investment is weak. Weakness is mainly in plant and equipment spending Structure 2.8% of GDP Equipment 6.7% of GDP Intellectual Property 5.1% of GDP
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Where do we stand in the Cycle?
Elliott D. Pollack & Company
Government spending is 17.3% of GDP Federal Spending 6.7% of GDP
Growing faster than the rate of inflation
State and Local 10.6% of GDP Growing slower than the rate of inflation
Deficit – Too high and growing
26
Where do we stand in the Cycle?
Elliott D. Pollack & Company
Growth will be around 2% or less in
2020
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Monetary Policy The Fed does not want a recession. Worldwide monetary policy is expansive. The Fed is entering a period of slower growth with few bullets
in its gun. Interest rates are likely to stay low by historic standards. FED will have to continue quantitative easing. But with interests rates so low and government’s high debt
levels, it will be less effective. Central Banks are worried about disinflation and deflation.
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1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4Recession
*Data through the third quarter 2019 29
Velocity of M2 Money Stock1960– 2019*
Source: Board of Governors of the Federal Reserve System
Elliott D. Pollack & Company
The fed is not getting the bang for the buck in money supply growth
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Recession Periods
0%2%4%6%8%
10%12%14%16%18%20%
*Data through December 2019
Effective Federal Funds Rate1960– 2019*
Source: Board of Governors of the Federal Reserve System
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Federal Surplus or DeficitFY 1989-2025
Source: U.S. Office of Management and Budget
32
-$1,600,000
-$1,400,000
-$1,200,000
-$1,000,000
-$800,000
-$600,000
-$400,000
-$200,000
$0
$200,000
$400,000
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
(Millions) Recession Periods
Elliott D. Pollack & Company
How Will We Pay for it?
Education Healthcare Fighting Climate Change
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Political Two major political parties Have completely different views of the world 2020 is an election year. It could get crazy
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Political
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PoliticalA lot of people think we have poor choices
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What can kick us into a Recession?
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The U.S. economy right now 70% Consumer – Strong Housing – Positive Capital spending – Weak Trade – seems to be moving towards a resolution
Dollar is strong Makes foreign goods less expensive here American goods more expensive abroad
Government – still going So the picture is still okay.
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What can kick us into a Recession?Remember expansions don’t die of old age
Need to stop inflation – Not now. Deteriorating global growth – No Trade War – No Slowdown in spending by consumer – Unlikely Externalities that affect consumer confidence
Oil Price Shock – not likely War – who knows Unknown Unknowns
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Recession indicators
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Recession Periods
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
*Data through December 2019Monthly Averages
Treasury Spread (10-year minus 3-month)
1959 – 2019* Source: Federal Reserve of New York
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Treasury Spread (10-year minus 3-month)March – December 2019
Source: U.S. Department of Treasury
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
3/1/2019 4/1/2019 5/1/2019 6/1/2019 7/1/2019 8/1/2019 9/1/2019 10/1/2019 11/1/2019 12/1/2019
42
5/23/2019 10/11/2019
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Recession Periods
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
100.0%
*Data through December 2020
New York Fed Recession IndicatorProbability of Recession in 12 Months
1960 – 2020* Source: Federal Reserve of New York
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Other Indicators
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Recession Periods
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
*Data through November 2019
Leading Economic Index(Year-over-Year % Change)
1960 – 2019* Source: The Conference Board
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Recession Periods
0%
2%
4%
6%
8%
10%
12%
*Data through November 2019
U.S. Unemployment Rate 1960– 2019*
Source: Bureau of Labor Statistics
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Consumer Confidence1978 – 2019*
Source: The Conference BoardRecession Periods
2030405060708090
100110120130140150
*Data through December 2019 49
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Employment Cost Index2002-2019*
Source: Bureau of Labor Statistics
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
50*Data through third quarter 2019
Recession Periods
Elliott D. Pollack & Company
Recession Periods
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Job Openings No. of Unemployed
*Data through October 2019
Job Openings/No. of Unemployed2001 – 2019*
Source: Bureau of Labor Statistics(1000’s)
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Consumer Price Index:U.S. All items less food and energy
Annual Percent Growth1970 – 2019*
Source: Bureau of Labor Statistics Recession Periods
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
*Data through December 2019 52
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Recession Periods
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
*Data through November 2019 53
Implicit Price Deflator:Personal Consumption Expenditures Excluding Food and Energy Index
Annual % Change1994-2019*
Source: U.S. Bureau of Economic Analysis
Elliott D. Pollack & Company
14.0%
15.0%
16.0%
17.0%
18.0%
19.0%
1980
Q1
1981
Q1
1982
Q1
1983
Q1
1984
Q1
1985
Q1
1986
Q1
1987
Q1
1988
Q1
1989
Q1
1990
Q1
1991
Q1
1992
Q1
1993
Q1
1994
Q1
1995
Q1
1996
Q1
1997
Q1
1998
Q1
1999
Q1
2000
Q1
2001
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Q1
2018
Q1
2019
Q1
Financial Obligation*1980 – 2019**
Source: Federal Reserve
Recession Periods
54* of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.
**Data through the third quarter 2019
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0%10%20%30%40%50%60%70%80%90%
100%Recession
*Data through the third quarter 2019 55
Households: debt as a percent of gross domestic product
1960– 2019* Source: Board of Governors of the Federal Reserve System
Elliott D. Pollack & Company
Share of Borrowers who took a higher rate in a cash-out refinancing?
Source: Black Knight
0%10%20%30%40%50%60%
*2019 data through September 56
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-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
1970
Q1
1971
Q1
1972
Q1
1973
Q1
1974
Q1
1975
Q1
1976
Q1
1977
Q1
1978
Q1
1979
Q1
1980
Q1
1981
Q1
1982
Q1
1983
Q1
1984
Q1
1985
Q1
1986
Q1
1987
Q1
1988
Q1
1989
Q1
1990
Q1
1991
Q1
1992
Q1
1993
Q1
1994
Q1
1995
Q1
1996
Q1
1997
Q1
1998
Q1
1999
Q1
2000
Q1
2001
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Q1
2018
Q1
2019
Q1
Recession
Mortgage Equity Withdrawal as a share of Disposable Income-Single Family
U.S.: 1970 – 2019* Source: Bureau of Economic Analysis
*Data through third quarter 2019 57
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Recession Periods
0%2%4%6%8%
10%12%14%16%18%20%
*Data through November 2019
U.S. Saving Rate1970 – 2019*
Source: Bureau Economic Analysis
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Student Loans
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Student Loans Many young people have been lured into large amounts
of student loan debt that their qualifications do not equip them to repay. In other words, they didn't receive the commensurate increase in skills to justify the debt.
Spending that would have occurred is not occurring because student loans are eating up that cash flow.
A huge transfer of spending from housing, durables, and optional non-durables to universities.
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Recession Periods
-60%
-40%
-20%
0%
20%
40%
60%
80%
*Data through November 2019
Housing Starts(Year-over-year % Growth, 6-month Average)
1960 – 2019* Source: U.S. Census Bureau
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Not all Recessions are the same
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Not all recessions are the Same
People don’t have long economic memories 2007-2009 was an aberration, not the norm. Most recessions are short and shallow At this point, any recession is likely to be mild Government?
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Overall
Probably a slowdown……. Odds of recession over next year are relatively Low Modestly Slower Economic Growth Modestly Slower Employment Growth Modestly Slower Consumer Spending Stronger Dollar Possible Downward Pressure on Exports
64
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Risks are on the downside
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Conclusion:Recession is possible but not now.
And, not like 2007!
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No Housing Bubble No consumer debt bubble Total unfilled jobs Fed and other central banks are trying to
prevent a recession and low inflation
It is not 2007
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Most likely economic growth is going to slow
next year.
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A recession before the election is possible but
unlikely.
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Depends on a shock, a trade war, or the government
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Don’t panic!!!!!
(at least not yet)71
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ARIZONA
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Area % Change% of Arizona
Growth2018
Annual Wages
United States 16.8% $57,198
Arizona 24.8% 100.0% $51,477
Greater Phoenix 30.4% 86.9% $53,760
Greater Tucson 11.2% 6.7% $45,352
Balance of State 11.0% 6.4% $38,911
Note: Wages for Private industriesBottom of Recession Sept. 2010 to November 2019
Arizona:Phoenix and the rest of the State
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3
19
15
14
11
1
6
2
Jobs growing
Jobs decliningTop 10
Hawaii
46
524
Alaska28
9
7
Job Growth 2019YTD November 2019 vs. YTD November 2018
Source: U.S. BLS
4
8
10
74
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Year Rank2009 492010 492011 282012 82013 92014 162015 112016 72017 42018 42019* 3
Arizona Employment GrowthArizona’s Rank Out of 50 States
Source: U.S. Bureau of Labor Statistics
Year Rank1998 11999 22000 52001 92002 92003 42004 22005 22006 22007 172008 46
75*YTD November 2019 vs YTD November 2018
Elliott D. Pollack & Company
Phoenix-Mesa-Scottsdale Employment Growth(Ranking among all metro areas greater than 1,000,000)
Source: U.S. Bureau of Labor Statistics
Year Rank # MSA’s
1998 1 221999 2 232000 6 242001 6 252002 5 242003 3 242004 2 242005 1 252006 1 262007 10 282008 24 28
Year Rank # MSA’s
2009 22 232010 22 222011 13 242012 10 272013 7 282014 15 302015 11 312016 7 332017 4 332018 3 352019* 3 36
76*YTD November 2019 vs YTD November 2018
Elliott D. Pollack & Company
Recession Periods
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
*Data through November 2019
Greater Phoenix Employment Growth (S/A)Annual Growth
2000– 2019* Source: Bureau of Labor Statistics
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Greater Phoenix PopulationSource: U.S. Bureau of Census; Office of Economic Opportunity; UofA Forecasting Project
Period Ending Population Change APR
1970 1,039,807 301,507 3.5%1980 1,600,093 560,286 4.4%1990 2,249,116 649,023 3.5%2000 3,275,362 1,026,246 3.8%2010 4,200,427 925,065 2.5%2015 4,482,906 282,479 1.3%2020* 4,904,811 421,905 1.8%2025* 5,314,821 410,010 1.6%
*Forecasts from UofA1970-2010 10 year period2010-2025 5 year period 78
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3%
4%
5%
6%
7%
8%
Note: Includes all movers except movers within same county
Total Movers as a % of Total U.S. Population
1981-2019Source: U.S. Census Bureau Recession Periods
80
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01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,000
Same State Different State Abroad
Movers from an Outside Area1981-2019
Source: U.S. Census BureauRecession Periods
81
(1,000’s)
Elliott D. Pollack & Company
Population Moving by AgeBase year=2005Source: American Community Survey
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Under 1818-3435-6465+
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0%
2%
4%
6%
8%
10%
12%
Arizona Capture RateSource: U.S. Census Bureau
Note: Does not include in-state movers;Net migration numbers.
Recession Periods
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4.3%
2.6% 2.7%3.1%
3.6%3.8% 3.7%
3.0%
1.9%
0.5%0.3%
0.7%
1.2%1.5% 1.6% 1.6% 1.7% 1.7%
1.9% 1.9% 1.9% 1.8%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Recession Periods
Greater Phoenix PopulationAnnual Percent Change 2000–2021*
Source: Office of Economic Opportunity, EDPCo
*Estimates for 2011, 2012, 2013, 2014, 2015 and 2016 and forecasts for 2020 from Elliott D. Pollack & Co. as of October 2019. 84
Elliott D. Pollack & Company
Greater Phoenix Natural Increase
Source: UofA Forecasting Project
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Natural Increase Births Deaths85
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Population: Greater Phoenix to U.S.Outgrowing the U.S.
2000-2018Source: U.S. Census Bureau; Office of Economic Opportunity; EDPCo
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
86
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Less population growth means less demand for housing,
other goods and services..
Therefore, less job growth than otherwise would’ve occur.
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3.5%
1.3%
0.0%
1.5%
3.9%
6.2%5.4%
1.7%
-2.5%
-7.8%
-1.9%
1.5%2.5% 2.9%
2.3%3.4% 3.4% 3.0% 3.3% 3.0% 2.5%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Greater Phoenix Employment*Annual Percent Change 2000–2020**
Source: Office of Economic Opportunity
Recession Periods
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
**2019 & 2020 forecasts from Elliot D. Pollack and Co. January 2020. 89
Elliott D. Pollack & Company
53.1
20.0
-0.1
24.2
64.0
104.2 96.6
31.7
-47.5
-146.8
-32.1
25.142.9 51.3 41.4
62.1 64.6 60.2 68.1 63.2 54.3
-150.0
-100.0
-50.0
0.0
50.0
100.0
150.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Greater Phoenix Employment*Net Annual Growth Change 2000–2020**
Source: Office of Economic OpportunityRecession Periods(000’s)
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
**2019 & 2020 forecasts from Elliot D. Pollack and Co. January 2020. 90
Elliott D. Pollack & Company
Employment: Greater Phoenix to U.S.Outgrowing the U.S.
2004-2018Source: Bureau of Labor Statistics
-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
91
Recession Periods
Elliott D. Pollack & Company
2019 Predictions & Recap
92
Prediction RecapThe economy was old but strong It was. After growing at 2.9% in 2018, the economy posted a Real GDP growth of
2.3% through the first three quarters of 2019.
The party isn’t over It wasn’t. The economy surpassed and continued its longest expansion, currently at 127 months.
Housing market would be strong It was. YTD Single Family: permits up over 7%, Resales 2%, and New homes 5%
Office market would remain strong It was. Vacancy rate dropped. Absorption outpaced new supply.
Industrial market would remain strong Stronger than anticipated. Already low vacancy rate dropped further. High levels of absorption, new supply and under construction.
Retail would remain weak It did. Slight decrease in vacancy rate. Low levels of new supply, under construction and absorption.
YTD through November, commercial data based on the latest available.
Elliott D. Pollack & Company
2020 Prediction
93
Subject PredictionEconomy Rate of growth to slow. But, it still positive.
Recession Chances are a lot less than 50/50.
Housing Market Will continue to do well.
Office Market Do well but not as well as 2019. Not enough in the pipeline to cause a problem.
Industrial Market Do well but not as well as 2019. There is a lot in the pipeline.
Retail Market Not great improvement.
Elliott D. Pollack & Company
Single Family Housing
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It’s all about Affordability
95
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Greater Phoenix SF Permits1967-2018
Source: U.S. Census Bureau
010,00020,00030,00040,00050,00060,00070,000
Recession Periods
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Greater Phoenix SF PermitsAnnual % Change
1967-2018Source: U.S. Census Bureau
-60.0%-40.0%-20.0%
0.0%20.0%40.0%60.0%80.0%
100.0%120.0%
Recession Periods
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% Change
1972 – 1975 -59.9%
1978 – 1981 -58.8%
1986 – 1990 -52.4%
1999 – 2000 -11.0%
2004 – 2010 -87.4%
Greater Phoenix SF PermitsSource: U.S. Census Bureau
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Demand too high Inventory too low Interests rates likely to stay low
99
Is it likely there will be a significant downturn in housing 2020 and 2021?
Elliott D. Pollack & Company
Greater Phoenix New Home SalesSource: Belfiore
7001,0001,3001,6001,9002,200
2016 2017 2018 2019
100
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Greater Phoenix Month’s Supply2002-2019*
Source: ARMLS
02468
101214161820
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09Ju
l-09
Jan-
10Ju
l-10
Jan-
11Ju
l-11
Jan-
12Ju
l-12
Jan-
13Ju
l-13
Jan-
14Ju
l-14
Jan-
15Ju
l-15
Jan-
16Ju
l-16
Jan-
17Ju
l-17
Jan-
18Ju
l-18
Jan-
19Ju
l-19
*Data through November 2019 101
Elliott D. Pollack & Company
Greater Phoenix Single FamilyMonths of Supply by Price Range
Source: Cromford Report
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan-
11A
pr-1
1Ju
l-11
Oct
-11
Jan-
12A
pr-1
2Ju
l-12
Oct
-12
Jan-
13A
pr-1
3Ju
l-13
Oct
-13
Jan-
14A
pr-1
4Ju
l-14
Oct
-14
Jan-
15A
pr-1
5Ju
l-15
Oct
-15
Jan-
16A
pr-1
6Ju
l-16
Oct
-16
Jan-
17A
pr-1
7Ju
l-17
Oct
-17
Jan-
18A
pr-1
8Ju
l-18
Oct
-18
Jan-
19A
pr-1
9Ju
l-19
Oct
-19
0k to 200k 200k to 300k 300k to 400k 400k plus
102
Elliott D. Pollack & Company
Active Listings to SF Units RatioSource: American Community Survey; AMLS
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
103
Elliott D. Pollack & Company
Millennials
104
Elliott D. Pollack & Company
75
80
85
90
95
100
105
110
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64
Arizona Population by Age(0-65)
2018Source: U.S. Census Bureau
105
(1,000’s)
Elliott D. Pollack & Company
Arizona Number of Persons vs. Home-Purchase Loan Applications2018
Source: U.S. Census Bureau; CoreLogic
0510152025303540
80.0
85.0
90.0
95.0
100.0
105.0
110.0
106
(1,000’s) Home-purchase loan application per 1,000 persons
Elliott D. Pollack & Company
Arizona Number of Persons vs. Home-Purchase Loan Applications2023
Source: U.S. Census Bureau; CoreLogic
0510152025303540
80.0
85.0
90.0
95.0
100.0
105.0
110.0
107
(1,000’s)Home-purchase loan application
per 1,000 persons
Elliott D. Pollack & Company
Greater PhoenixHomeownership Rates by Age Group
Source: 2018 American Community Survey 1-Year Estimates; AOEO
Householder Age% of Total Occupied 2018 2028
15 to 24 years 13.3% 691,958 780,642
25 to 34 years 38.4% 637,501 788,063
35 to 44 years 57.2% 627,464 697,957
45 to 54 years 67.2% 592,955 672,180
55 to 64 years 75.8% 542,487 634,457
65 to 74 years 82.1% 410,564 567,246
75 to 84 years 84.0% 209,332 332,066
85 years and over 71.9% 79,127 113,176
Total 63.9% 4,735,051 5,559,818
108
Elliott D. Pollack & Company
8.0%
10.0%
12.0%
14.0%
16.0%
Percent of 25-34 Year Olds Living With ParentsU.S.: 1983 – 2019
Source: US Census Bureau Recession Periods
Children of the householder are not living with a spouse or unmarried partner, and are residing in the household of a parent. In CPS unmarried college students living in dormitories are counted as living in the parental home. 109
Elliott D. Pollack & Company
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
25-34 Year Olds Living With ParentsU.S.: 1983 – 2019
Source: US Census Bureau Recession Periods
Children of the householder are not living with a spouse or unmarried partner, and are residing in the household of a parent. In CPS unmarried college students living in dormitories are counted as living in the parental home.
Millions
110
Elliott D. Pollack & Company
It’s all about Affordability
111
Elliott D. Pollack & Company
Housing Opportunity Index2019 Q3
Source: NAHB/Wells Fargo
73.4 72.9 68.0 63.6 62.8 59.4 55.346.5
20.111.5
01020304050607080
112
Elliott D. Pollack & Company
Housing Opportunity Index1992-2019
Source: NAHB/Wells Fargo
2030405060708090
U.S.Greater Phoenix
113
Elliott D. Pollack & Company
Greater PhoenixHomeownership Rate
Source: U.S. Census Bureau
54.0%56.0%58.0%60.0%62.0%64.0%66.0%68.0%70.0%72.0%74.0%
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
114
Elliott D. Pollack & Company
Greater Phoenix% of Renter Occupied 1-unit
Source: American Community Survey
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
115
Elliott D. Pollack & Company
Top selling subdivisions are mostly smaller-lot, lower-priced new home
communities- communities target entry-level and value–oriented buyers.
Source: Belfiore, KnowledgeBase Current and Future Market Insights 116
Elliott D. Pollack & Company
BalanceNumber of Borrowers
2017 Q1 2017 Borrower $1 and $5,000 8,547,500
28,250,100$5,000 and $10,000 7,425,400
$10,000 and $25,000 12,277,200
$25,000 and $50,000 8,609,700 8,609,700
$50,000 and $75,000 3,681,000
7,855,700
$75,000 and $100,000 1,612,600
$100,000 and $150,000 1,347,400
$150,000 and $200,000 604,900
$200,000+ 609,800
Student Debt Distribution Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax
117
Elliott D. Pollack & Company
Student Loan or Mortgage PaymentOriginal Amount Monthly
PaymentPotentialMortgage
$200,000 $2,121 $458,052 $150,000 $1,591 $343,539 $100,000 $1,061 $229,026 $75,000 $795 $171,770 $50,000 $530 $114,513 $29,000 $308 $66,418 $25,000 $265 $57,257 $10,000 $106 $22,903
118
Assumptions: Monthly Payment
10 years5% interest rate
Potential Mortgage30-year mortgage 3.75% Interest rate
Elliott D. Pollack & Company
Why the outlook for new housing is Positive!
• Demand should remain strong and steady • Demographics for millennials are excellent • Low interests rates which make affordability reasonable• Existing homeowners
• Are staying put longer• Baby Boomers are not moving to the “Home”
• Inventory will remain low
119
Elliott D. Pollack & Company
Why the outlook for new housing is Positive!
Negatives (and Positives): • Shortage of affordable homes both existing and new• Doubling up – living with parents or multiple roommates • Fewer people moving• Baby Boomers aging in place• Continued costly regulation• Lack of sufficient construction labor• Student loans• Millennials starting saving late for a down payment• Misconception regarding FICO scores and down payment needed to buy a home
120
Elliott D. Pollack & Company
Which of the following milestones do millennials consider top priority?
Source: 2018 Homebuyer Insights Report
Milestone %
Being able to retire 80%
Owning a home 72%
Travelling the world 61%
Getting Married 50%
Having Kids 44%
121
Elliott D. Pollack & Company
First-time millennial buyers plan to buy…?Source: 2018 Homebuyer Insights Report
• 57% with a spouse or partner• 37% solo• 8% with a friend sibling or other family member
122
Elliott D. Pollack & Company
What consumers (millennials) cite as a motivation to buy for the first time?
Source: 2018 Homebuyer Insights Report
Motivation %
Having enough money saved 53%
Having a higher salary 41%
Getting Married 21%
Having Kids 9%
123
Elliott D. Pollack & Company
When do millennials plan to buy?Source: 2018 Homebuyer Insights Report
• 38% in the next 2 years
• 36% in the next 3-5 years
• 16% in the next 6+ years
124
Elliott D. Pollack & Company
Owning Versus RentingSource: 2019 Homebuyer Insights Report
Does owning a home make you happier than renting did?• 93% Yes• 7% No
Could you go back to renting after owning?• 17% Yes• 83% No
125
Elliott D. Pollack & Company
9.311.8
23.8
31.0
22.0
13.012.713.8
21.421.123.123.818.4
15.312.111.3
14.319.4
23.228.228.629.5
32.236.638.4
34.237.2
40.0
47.3
57.454.3
36.3
26.4
12.78.67.27.3
11.913.011.616.618.420.5
23.525.126.025.6
0
10
20
30
40
50
60
70
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
# Permits(000)
Single Family Permits Greater Phoenix 1975–2020*
Source: U.S. Census Bureau
*2019, 2020 and 2021 forecast is from Greater Phoenix Blue Chip 126
Elliott D. Pollack & Company
Apartments
127
Elliott D. Pollack & Company
Year Absorption (sf) Chg in Inventory (sf)2004 4,348 3,612 2005 (275) (4,181)2006 (6,431) (3,798)2007 (3,058) 1,797 2008 960 8,484 2009 5,151 8,443 2010 10,021 1,441 2011 3,326 1,224 2012 2,756 1,573 2013 4,584 3,830 2014 5,823 6,351 2015 6,140 6,804 2016 5,731 8,018 2017 6,179 10,033 2018 8,905 8,462 2019 9,650 8,497
Multi-Family Housing Market Source: PMHS; RealData, Berkadia CBRE
128
Elliott D. Pollack & Company
Apartment Units Delivered2000-2021
Source: RealData; Various Sources
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,000
129
Elliott D. Pollack & Company
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Greater Phoenix Multi-Family Average Rent Percent Change a Year Ago
2004 – 2019* Source: RealData Inc.
Recession Periods
*Data through the fourth quarter 2019 130
Elliott D. Pollack & Company
6.2%
4.1%3.3%
2.8%
3.9%
6.1%
4.4%
6.1%6.9%
7.7%
10.1%10.6%
13.0%
14.1%13.4%
10.0%9.5%
8.0%
4.0%3.8%4.5%4.5%4.8%5.1%
5.9%
7.0%7.7%
9.5%10.0%
9.2%
7.5%6.9%
9.2%
11.3%
12.9%
11.2%
9.2%8.4%
7.3%
6.2%5.7%
5.2%5.8%5.7%5.4%5.6%5.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Multi-Family Year-End Vacancy RatesGreater Phoenix 1975–2020
Source: Various Sources
*2019, 2020 and 2021 Forecast from Greater Phoenix Blue Chip 131
Elliott D. Pollack & Company
Office, Industrial and Retail are a function of
Employment and population. a
Both of those look positive for 2020!
132
Elliott D. Pollack & Company
OFFICE
133
Elliott D. Pollack & Company
26.7%
22.8%24.0%
26.7%26.4%25.4%
22.7%
18.8%
14.8%
11.7%
9.5% 9.2% 9.5%10.0%9.9%
16.0%
18.8%18.3%
16.4%
12.6%11.1%
13.9%
19.1%
24.5%26.2%25.5%
23.9%22.4%
21.3%
19.4%
17.4%16.4%
15.2%14.1%13.9%13.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Office Space Year-End Vacancy RatesGreater Phoenix 1986–2021*
Source: CBRE
*2019, 2020 & 2021 are forecasts from CBRE. 134
Recession Periods
Elliott D. Pollack & Company
-1.00.01.02.03.04.05.0
New Supply Absorption Under Construction
(Millions)
Greater Phoenix Office MarketNew Supply versus Absorption
1998–2019*Source: CBRE
135*Data through Q3 2019
Elliott D. Pollack & Company
Greater Phoenix Office MarketSource: CBRE
136
Year Absorption (sf) Chg in Inventory (sf)
2005 3,119,293 7,987
2006 3,245,888 2,320,302
2007 1,500,704 4,905,374
2008 (603,112) 3,402,646
2009 (667,329) 1,798,415
2010 233,670 1,785,620
2011 1,857,433 3,370,694
2012 2,020,529 973,282
2013 1,721,366 (35,566)
2014 1,816,411 1,107,906
2015 3,704,039 3,763,828
2016 3,219,853 1,045,155
2017 2,839,559 1,912,217
2018 2,473,034 803,403
2019* 2,380,275 2,752,115 *All Leased multi-tenant space greater than 10,000 SF.
**Data through third quarter 2019
Elliott D. Pollack & Company
Current Office MarketSource: CBRE
• Over 91.6 million of sq. ft. • 13.1 million sq. ft. vacant
• Available by class• Class A 2.3 million sq. ft. • Class B 7.6 million sq. ft. • Class C 3.2 million sq. ft.
• 1.6 million sq. ft. under construction. • Under Construction by class
• Class A 1.3 million sq. ft. • Class B 0.2 million sq. ft.• Class C 0.0 million sq. ft.
137
Elliott D. Pollack & Company
INDUSTRIAL
138
Elliott D. Pollack & Company
-10.0
-5.0
0.0
5.0
10.0
15.0
New Supply Absorption Under Construction
(Millions)
Greater Phoenix Industrial Market1998–2019*
Source: CBRE
139*Data through Q3 2019
Elliott D. Pollack & Company
8.4%9.4%
11.1%
9.7%
12.8%13.2%
16.4%15.2%
14.6%
12.8%14.0%
14.8%13.6%
10.8%
7.4%6.6%
5.7%7.0%7.1%
8.1%7.4%
9.8%10.3%9.7%
8.5%
5.6%6.7%
8.4%
12.5%
16.1%
14.7%
12.4%
10.9%11.4%11.0%10.1%
8.0%6.8%6.5%6.3%6.6%7.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Industrial Space Vacancy RatesGreater Phoenix 1980 – 2020*
Source: CBRE
140
Recession Periods
*2019, 2020 & 2021 are forecasts from CBRE.
Elliott D. Pollack & Company
Greater Phoenix Industrial MarketSource: CBRE
*Data through third quarter 2019 141
Year Absorption (sf) Chg in Inventory (sf)
2005 12,361,368 7,072,477
2006 6,179,533 7,829,959
2007 8,359,835 13,914,181
2008 629,838 13,467,215
2009 (4,649,352) 4,753,218
2010 4,455,097 2,451,202
2011 7,745,111 1,954,037
2012 7,405,168 3,358,724
2013 8,783,982 8,902,571
2014 6,214,680 6,791,313
2015 7,046,663 3,966,434
2016 9,497,677 5,136,644
2017 9,898,883 6,988,240
2018 9,781,257 8,966,852
2019* 8,082,653 5,895,215
Elliott D. Pollack & Company
Current Industrial MarketSource: CBRE
Market Area ExistingVacancy
RateUnder
Construction
Northeast Valley 13,613,728 3.6% 0
Southeast Valley 75,346,683 6.0% 2,321,476
Airport Area 76,691,921 6.2% 320,700
Southwest Valley 108,365,309 6.9% 9,094,459
Northwest Valley 50,053,307 5.1% 170,179
Market 324,070,948 6.1% 11,906,784
142*Data through third quarter 2019
Elliott D. Pollack & Company
Current Industrial MarketSource: CBRE
143
2019* (millions)
Inventory 324.1Vacant 19.8Vacancy Rate 6.1%Under Construction 11.9
*Data through third quarter 2019
Elliott D. Pollack & Company
RETAIL
144
Elliott D. Pollack & Company
6.6%
8.9%
10.0%
11.8%
13.1%
14.2%13.5%
12.7%
11.1%
9.8%
8.7%7.9%7.5%
6.3%5.5%5.3%
6.6%7.3%7.4%
6.1%5.3%5.1%
6.2%
7.5%
11.4%12.2%12.2%
11.0%10.2%
9.6%9.1%8.9%
8.1%8.4%8.0%7.8%7.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Retail Space Vacancy RatesGreater Phoenix 1985–2020*
Source: CBRE**
*2019, 2020 & 2021 are forecasts from CBRE** Data prior to 1992 is from Grubb & Ellis 145
Recession Periods
Elliott D. Pollack & Company
-2.00.02.04.06.08.0
10.012.014.0
New Supply Absorption Under Construction
(Millions)
Greater Phoenix Retail Market1998–2019*
Source: CBRE
146*Data through Q3 2019
Elliott D. Pollack & Company
Greater Phoenix Retail MarketSource: CBRE
*Data through third quarter 2019 147
Year Absorption (sf) Chg in Inventory (sf)
2005 6,708,155 6,248,789
2006 5,244,597 4,582,618
2007 9,409,985 11,104,865
2008 3,395,986 6,229,205
2009 (1,117,100) 4,405,985
2010 (75,352) 902,380
2011 (152,647) 24,543
2012 1,879,005 184,932
2013 1,579,202 (325,959)
2014 1,487,313 (49,225)
2015 1,150,192 164,859
2016 1,321,833 1,204,766
2017 1,601,498 580,776
2018 147,471 997,933
2019* 888,564 (46,485)
Elliott D. Pollack & Company
Current Retail MarketSource: CBRE
• Over 151.7 million of sq. ft. • 12.7 million sq. ft. vacant• 883,000 sq. ft. under construction.
148*Data through third quarter 2019
Elliott D. Pollack & Company
Current Retail MarketSource: CBRE
Market Area Bldg. Sq. FtVacancy
RateUnder
Construction
Community Centers 20,455,254 9.7% 0
Freestanding Food 1,583,366 0.4% 0
Freestanding Non-Food 5,995,420 2.0% 160,000
Neighborhood Centers 42,014,113 7.7% 473,901
Power Centers 35,789,101 6.4% 78,296
Regional Centers 14,744,300 10.0% 0
Retail-Office 3,298,298 6.6% 121,215
Specialty 5,174,589 3.7% 50,000
Strip Centers 22,649,307 11.4% 0
Total 151,703,748 8.0% 883,412
149*Data through third quarter 2019
Elliott D. Pollack & Company 150
.
Rate of growth likely to slow somewhat in 2020.
But 2020 should still be a good year.The underline economics are still
strong.
Overall Conclusions:
Elliott D. Pollack & Company
Greater Phoenix is doing well compared to virtually
everyone else
151
Elliott D. Pollack & Company
Greater Phoenix will be affected by the business
cycle
152
Elliott D. Pollack & Company
If growth just slows, Greater Phoenix is likely
remain in the top 5 metropolitan areas
153
Elliott D. Pollack & Company
The impact of a recession this time around is likely to be milder in Greater Phoenix
than in most places
154
Elliott D. Pollack & Company
Slowdown or RecessionThis is the place you want to
be.
155
Elliott D. Pollack & Company 156
Elliott D. Pollack & Company
For a quick analysis of important economic data released
each week, subscribe to the Monday Morning Quarterback
www.arizonaeconomy.com(Click on Subscribe to MMQ)
157