arizona update & outlook long road to recovery acma conference sedona, arizona february 4, 2010
TRANSCRIPT
Arizona Update & OutlookLong Road To Recovery
ACMA ConferenceSedona, ArizonaFebruary 4, 2010
Update & Outlook• Is the Recession Over?
• Why Consumers Worry
• Arizona Budget Basics
• Arizona Outlook
Is Recession Over?
Yes - it’s over (19%) No - not over (64%) Don’t know (17%)
• Recession is a contraction
• Ends when indicators turn up
• At the bottom of the cycle
• When conditions are worst!
Is Recession Over?
But…Current Recession Longest in Post-War10 Previous Post-War Recessions Months
Average Post-War Recession 10 mos.
Longest (1973-1975 & 1981-1982) 16 mos.
Current Recession (Dec 07 – Sept 09?) 21 mos.
The Great Depression (1929-1933) 43 mos.
National Bureau of Economic Research
End in Sight? Return to PreviousEmployment Peak Takes Longer
(Months required for U.S. employment to recover from recessionand return to previous peak before recession began)
Recession Jobs Recovery
8 from 1947 - 1982 11 months
1990 - 1991 24 months
2001 36 months
2007 - 2009 48 months (?)
ISM Index Is Back Above 50
(Manufacturing)
20
25
30
35
40
45
50
55
60
2005 2006 2007 2008 2009 2010
Institute for Supply Management, Report on Business
American Trucking Association
2005 2006 2007 2008 2009
Truck Tonnage Up Since Summer
Retail Sales Up After Dec. 2008 Bottom
2004 2005 2006 2007 2008 2009
$ billions of U. S. Retail Sales
2009 sales 7% below 2008
U. S. Census Bureau
Arizona Retail Sales Fall Since 2007(Monthly Percent Change Yr/Yr)
Arizona Department of Revenue
-8
-6
-4
-2
0
2
4
6
8
Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09
Pe
rce
nt
Gro
wth
Re
al G
DP
GDP Rebounds in Fourth Quarter:Expect Smaller Gains In Q1
1.5%
U. S. Bureau of Economic Analysis
-6.4%
5.7%
2.2%
GDP: How Strong in Q4?
2008 2009
Percent Change in Real GDP at Annual Rate
2010
1979 1980 1981 1982 1983 1984
1980-82“W”
Recovery
GDP
Beware the double dip
End of stimulus may bringdouble dip recession
Stiglitz Says U.S. RecoveryMay Not Be ‘Sustainable’
Buy & Hold? How’s That Been For You?
1999 & 2009
S & P 500
-2
0
2
4
6
8
10
12
14
1970 1976 1983 1989 1996 2002 2009
5.9%
1% rise in saving cuts
spending by $100 bil.
Consumers Stopped Buying & Borrowing – Savings Rate Up
• Accounts for 70% of GDP• But 2010 spending will be weak• New borrowing is down• Saving rate up as debt reduced• Will this be the “new normal?”
Why Consumer is Key
How Long Will Deleveraging Last?
Why Consumers Worry
Worry Meter
• Job Losses Continue• Unemployment Up • Home Values Down• No End in Sight?
Arizona consumers &businesses are in thestate’s worst downturn(by far) in modern times.
Why Consumers Worry
7.3 Mil. U. S. Jobs Lost in Past Two Years
Time Period Job LossDec. 2007 – Dec. 2008 3.1 Mil
Dec. 2008 – Dec. 2009 4.2 Mil
Two Year Total 7.3 Mil
115,000
125,000
135,000
1996 1997 1999 2001 2003 2005 2007 2009
Jo
bs
(th
ou
sa
nd
s)
Fewer U. S. Jobs Now than 9 Years Ago
Dec. 2000132.5 mil
Jobs
Dec. 2009 131.8 mil
Jobs
U. S. Bureau of Labor Statistics, seasonally adjusted data
-380
-597
-681-741
-681 -652
-519
-303
-463
-304
-154 -139 -127
4
-85
Oct.
Nov.Dec
.Ja
n.Feb
.M
ar.
AprilM
ayJu
neJu
lyAug
Sept
OctNov
Dec Jan
US Bureau of Labor Statistics, thousands of U. S. nonfarm jobs
U.S. Job Losses Slowing
4,000 jobs added in November
(Percent Change Dec. 2009 vs Dec. 2008)
30
47
841
18
1
U. S. Bureau of Labor Statistics
50
28
44
493938
Western Job Growth Is Weak
25
Alaska #2
22
26
123,800 Arizona Jobs Lost Sector Jobs: 12 Mos.Overall Nonfarm -123,800Construction -31,100Government -20,500Prof/Biz Services -19,100Retail Trade -15,000Manufacturing -11,200Health Care +6,400
Arizona Dept. of Commerce, Dec. 2009 vs. Dec. 2008
Source: Arizona Department of Commerce, not seasonally adjusted
% Change Yr/Yr
Two Years of Arizona Job Loss
(305,000 Jobs Lost Since Dec. 2007)
Metro Area Percent Job LossDetroit -6.2% -114,500
Phoenix -5.0% -92,100
Atlanta -4.4% -105,300
Riverside -4.3% -51,100
Tampa -4.2% -51,000
Worst Big Metro EconomiesJob Loss – Dec. 2009 vs Dec. 2008 – Labor Force > 1 Million
W. P. Carey School of Business & U. S. Bureau Labor Statistics
“Bermuda Triangle” of Economic Troubles
(Phoenix – Riverside – Las Vegas)
Phoenix Riverside Las Vegas
Job Loss (yr/yr) -5.0% (2nd) -4.3%(4th) -7.4% (1st)*
Home Value Decline 36% (9th) 39% (4th) 40% (2nd)
Foreclosure Rate 2.4% (12th) 3.3% (6th) 5.0% (1st)
Under Water Homes 54% (2nd) 54% (2nd) 70% (1st)
Triangle of Economic Troubles
Job loss, U. S. Bureau Labor Statistics, Dec. 2009Home values from National Association Realtors, third quarter 2009Foreclosure rate from RealtyTrac, third quarter 2009Negative equity from First American CoreLogic, third quarter 2009
*Las Vegas labor force < 1 million
AZ Unemployment Rate Below U.S.
US Bureau of Labor Statistics and AZ Dept of Commerce
Region Unemployment Rate
USA 10.0% (Dec.)
Arizona 9.1%
Phoenix Metro 8.4%
Tucson Metro 8.1%
Flagstaff Metro 8.2%
• Discouraged workers
• Fewer hours per job
• Out migration
What Factors Keep Arizona’sUnemployment Rate Lower?
Arizona 7th Greatest in LaborUnderutilization at 17.2% (US BLS)
Component 2009 2010 2011 2012
Personal Tax Cuts/Aid $105 $136 $67 $5
Corporate Tax Cuts $58 $31 $-4 $-14
Infrastructure/Other $27 $55 $44 $34
State/Local Govt. $62 $88 $22 $2
Total $252 $309 $129 $27
Percentage 32% 39% 16% 3%
Stimulus Impact Peaks in 2010
Recovery.gov website
How Many Jobs Has Stimulus Created?
• 305,000 Arizona jobs lost since December, 2007 employment peak
• 6,810 Arizona jobs funded by U.S. Recovery Act (Q4 2009)
• $1.1 billion received in contracts, grants & loans
Helped Economy 30%
Hurt Economy 38%
No Impact 28%
Don’t Know 5%
Has The Stimulus Helped or Hurt?
Rasmussen Poll, December 2009
Evaluating the Stimulus
Evaluating the Stimulus
•Only 599,000 jobs created? The Stimulus program failed!
• Only 599,000 jobs created? The funding was too small!
Too Small? Not Exactly!
Some States Over/UnderFunded by Stimulus Act
StateShare of Stimulus
Funds
Share of U.S. Unemployed
Arizona 1.7% 1.9%
California 11.0% 14.9%
Florida 4.6% 7.2%
Washington 4.0% 2.2%
District Columbia 1.6% 0.3%
Average 2.0% 2.0%
Stimulus jobs from Recovery.gov website
Arizona Fiscal Woes Second to California
Arizona Budget Basics
• Sales taxes (-31%)
• Individual income taxes (-36%)
• Corporate income taxes (-46%)
• These are 90% of General Fund
Budget Basics: 3 Major
Revenue Sources Decline
Office of Strategic Planning & Budgeting, FY 2007 – FY 2010 data
Annual Percent Change
Arizona Dept. of Revenue & W. P. Carey School Forecast
Arizona Retail Sales Outlook:2009 Will be 10 – 15% Below 2008
Annual Percent Change
U.S. Dept. Commerce & W. P. Carey School Forecast
Arizona Personal Income: FirstDecline Since Records Kept
• K-12 Education
• Corrections
• AHCCCS & Health Care
• These are 2/3 of General Fund
Budget Basics: Much of Spending is Formula
Based
Office of Strategic Planning & Budgeting
Arizona Taxable Retail Sales and Personal Income
(YR/YR Growth 1985:1-2009:2)
Taxable Sales
47
Arizona’s Future Fiscal Crisis
The cumulative gap between expenditures and revenue from FY10 to FY14 is $15.4
Billion 4,114
3,783
3,4792,2361,781
1,0811,323
7,000
9,000
11,000
13,000
15,000
FY05 FY06 FY07 FY08 FY09Est.
FY10Est.
FY11Est.
FY12Est.
FY13Est.
FY14Est.
Expenditures Revenue Federal
2008 2009 2010
Real GDP Growth 0.4% -2.5% 2.5%
Employment Growth -0.4% -3.8% -0.5%
Inflation (CPI) 3.8% -0.5% 1.5%
Housing Starts (000) 900 600 750
United States Economic Forecast
W. P. Carey School of Business, ASU
• Recession is over, pain remains
• “U” shaped recovery begins
• Unemployment stays near 10%
• Stimulus/bailouts unpopular but support recovery
U.S. Outlook Summary
2008 2009 2010Job Gain (Loss) -57,400 -183,000 -24,000
Percent Change -2.1% -7.0% -1.0%
Single Family Units 19,153 11,500 17,250
Percent Change -49% -40% +50%
Population Growth 2.3% 1.5% 1.8%
W. P. Carey School of Business, ASU; based on data available as of Feb. 1, 2010
ARIZONA Economic Forecast
Arizona Employment: 3rd Year of Job Losses
Annual Percent Change In Non-Farm Employment
Forecast
Arizona Department of Commerce and W. P. Carey School of Business, ASU
031,200
85,000127,500 125,700
39,200
-57,500
-183,000
-24,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
No AZ Job Growth Until 2011Annual Numeric Change In Arizona Employment
Properties in the Foreclosure Process Maricopa County 2002 – 2009
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 October 2009.
Option ARM Resets: Next Shoe To Drop
Single-Family Vacant UnitsGreater Phoenix 1993–2009q2
Source: PMHS
13,68115,42514,975
13,72513,75014,72517,525
19,80017,525
23,825 24,450 17,125 19,325
29,775
51,650
58,050
102,275
0
20,000
40,000
60,000
80,000
100,000
120,000
80,778 80,804
55,633
37,666
19,15311,500
17,250
29,000
40,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
Arizona Single Family Permits
U. S. Census Bureau and W. P. Carey School of Business
Home Building Hits Bottom in 2009
Balance between supply and demand will not be fully achieved until about 2014.
But home building will get progressively better
between now and then.
Elliott D. Pollack & Company
Arizona Housing Affordable Again
Percent Families That Can Afford Median Priced Home
National Association of Home Builders, Phoenix MSA
Hurdles On Road To Recovery
Economy.com
Commercial Real Estate Poses A Major Risk to Recovery
“If future defaults follow current delinquencypatterns, we should expect an accelerationof bank failures.”
Office Space Vacancy RatesU.S. versus Greater Phoenix
Source: CB Richard Ellis and Marcus & Millichap
18.3%16.9%
16.4% 16.1%
12.6%14.0%
11.1%
12.8%13.9%
13.0%
19.1%
14.7%
23.7%
16.0%
0%
5%
10%
15%
20%
25%
30%
2003 2004 2005 2006 2007 2008 2009q2
Greater Phoenix National
Tight Credit Hurts Small Business Job Creation
• Small business provides 25% of all jobs in U.S.
• But…small business has accounted for 40% of jobs lost in current recession
Hurdles On Road To Recovery
Why Arizona Recovers: Population
Growth is “Ace in the Sleeve” Decade
Growth Rank
1970 - 1980 2nd
1980 - 1990 3rd
1990 - 2000 2nd
2000 - 2008 2nd
Year 2008 2nd
1
8
2
4
5
3US Census Bureau
6 Alaska
9 7
10
Arizona 2nd Fastest GrowthState for 25 Years
Percent Change: 1980 - 2005
-10
-5
0
5
10
15
1974 1978 1982 1987 1991 1996 2000 2004 2009
Arizona Comes Back From Recession(Employment Growth Rate & Ranking)
#2
#18
#1
#20
#2
#12
#2
#47
Percent
U. S. Bureau of Labor Statistics
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
The Long Road to Recovery:Arizona Jobs Return in 2013
2.7 million
2.4 million
2.7 million
Arizona Department of Commerce and W. P. Carey School of Business, ASU
Arizona Employment
-10
-5
0
5
10
15
1970 1974 1978 1983 1987 1991 1996 2000 2004 2009
Arizona Job Growth
US Job Growth
You are here
U. S. Bureau of Labor Statistics
U.S. Rebound Will Lift Arizona
(Employment Year/Year Percent Change 1970-2009)
• 2009 - ugly
• 2010 - homely
• Weak job gains
• Unemployment high
• Population growth is critical
• Wait for US economic recovery
Arizona Outlook Summary
Arizona Update & OutlookLong Road To Recovery
Lee McPhetersW. P. Carey School of Business
Arizona State University