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Arizona Update & Outlook Long Road To Recovery. ACMA Conference Sedona, Arizona February 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%).

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Arizona Update & Outlook Long Road To Recovery

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Arizona update outlook long road to recovery

Arizona Update & Outlook

Long Road To Recovery

ACMA Conference

Sedona, Arizona

February 4, 2010


Arizona update outlook long road to recovery

Update & Outlook

  • Is the Recession Over?

  • Why Consumers Worry

  • Arizona Budget Basics

  • Arizona Outlook


Arizona update outlook long road to recovery

Is Recession Over?

  • Yes - it’s over (19%)

  • No - not over (64%)

  • Don’t know (17%)


Arizona update outlook long road to recovery

Is Recession Over?

  • Recession is a contraction

  • Ends when indicators turn up

  • At the bottom of the cycle

  • When conditions are worst!


Arizona update outlook long road to recovery

But…Current Recession

Longest in Post-War

National Bureau of Economic Research


Arizona update outlook long road to recovery

End in Sight? Return to PreviousEmployment Peak Takes Longer

(Months required for U.S. employment to recover from recession

and return to previous peak before recession began)


Arizona update outlook long road to recovery

ISM Index Is Back Above 50

(Manufacturing)

Institute for Supply Management, Report on Business


Arizona update outlook long road to recovery

Truck Tonnage Up Since Summer

2005 2006 2007 2008 2009

American Trucking Association


Arizona update outlook long road to recovery

Retail Sales Up After Dec. 2008 Bottom

$ billions of U. S. Retail Sales

2009 sales 7% below 2008

2004 2005 2006 2007 2008 2009

U. S. Census Bureau


Arizona update outlook long road to recovery

Arizona Retail Sales Fall Since 2007(Monthly Percent Change Yr/Yr)

Arizona Department of Revenue


Arizona update outlook long road to recovery

GDP Rebounds in Fourth Quarter:

Expect Smaller Gains In Q1

5.7%

1.5%

2.2%

-6.4%

U. S. Bureau of Economic Analysis


Arizona update outlook long road to recovery

GDP: How Strong in Q4?

Percent Change in Real GDP at Annual Rate

2010

2008

2009


Arizona update outlook long road to recovery

Beware the double dip

GDP

1980-82

“W”

Recovery

1979 1980 1981 1982 1983 1984


Arizona update outlook long road to recovery

End of stimulus may bring

double dip recession


Arizona update outlook long road to recovery

Stiglitz Says U.S. Recovery

May Not Be ‘Sustainable’


Arizona update outlook long road to recovery

Buy & Hold? How’s That Been For You?

S & P 500

1999 & 2009


Arizona update outlook long road to recovery

1% rise in saving cuts

spending by $100 bil.

Consumers Stopped Buying & Borrowing – Savings Rate Up

5.9%


Why consumer is key

Why Consumer is Key

  • 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?”


Arizona update outlook long road to recovery

How Long Will Deleveraging Last?


Arizona update outlook long road to recovery

Worry Meter

Why Consumers Worry

  • Job Losses Continue

  • Unemployment Up

  • Home Values Down

  • No End in Sight?


Arizona update outlook long road to recovery

Why Consumers Worry

Arizona consumers &

businesses are in the

state’s worst downturn

(by far) in modern times.


Arizona update outlook long road to recovery

7.3 Mil. U. S. Jobs Lost

in Past Two Years


Arizona update outlook long road to recovery

Fewer U. S. Jobs Now than 9 Years Ago

Dec. 2000

132.5 mil

Jobs

Dec. 2009

131.8 mil

Jobs

U. S. Bureau of Labor Statistics, seasonally adjusted data


Arizona update outlook long road to recovery

U.S. Job Losses Slowing

4,000 jobs added in November

US Bureau of Labor Statistics, thousands of U. S. nonfarm jobs


Arizona update outlook long road to recovery

Western Job Growth Is Weak

(Percent Change Dec. 2009 vs Dec. 2008)

25

26

1

44

30

22

50

49

8

38

39

41

47

28

18

Alaska #2

U. S. Bureau of Labor Statistics


Arizona update outlook long road to recovery

123,800 Arizona Jobs Lost

SectorJobs: 12 Mos.

Overall Nonfarm -123,800

Construction -31,100

Government -20,500

Prof/Biz Services -19,100

Retail Trade -15,000

Manufacturing -11,200

Health Care +6,400

Arizona Dept. of Commerce, Dec. 2009 vs. Dec. 2008


Arizona update outlook long road to recovery

Two Years of Arizona Job Loss

(305,000 Jobs Lost Since Dec. 2007)

% Change Yr/Yr

Source: Arizona Department of Commerce, not seasonally adjusted


Arizona update outlook long road to recovery

Worst Big Metro Economies

Job Loss – Dec. 2009 vs Dec. 2008 – Labor Force > 1 Million

W. P. Carey School of Business & U. S. Bureau Labor Statistics


Arizona update outlook long road to recovery

“Bermuda Triangle” of Economic Troubles

(Phoenix – Riverside – Las Vegas)


Arizona update outlook long road to recovery

Triangle of Economic Troubles

*Las Vegas labor force < 1 million

Job loss, U. S. Bureau Labor Statistics, Dec. 2009

Home values from National Association Realtors, third quarter 2009

Foreclosure rate from RealtyTrac, third quarter 2009

Negative equity from First American CoreLogic, third quarter 2009


Arizona update outlook long road to recovery

AZ Unemployment Rate Below U.S.

US Bureau of Labor Statistics and AZ Dept of Commerce


Arizona update outlook long road to recovery

What Factors Keep Arizona’sUnemployment Rate Lower?

  • Discouraged workers

  • Fewer hours per job

  • Out migration

Arizona 7th Greatest in Labor

Underutilization at 17.2% (US BLS)


Arizona update outlook long road to recovery

Stimulus Impact Peaks in 2010


Arizona update outlook long road to recovery

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

Recovery.gov website


Arizona update outlook long road to recovery

Evaluating the Stimulus

Has The Stimulus Helped or Hurt?

Rasmussen Poll, December 2009


Arizona update outlook long road to recovery

Evaluating the Stimulus

  • Only 599,000 jobs created?

  • The Stimulus program failed!

  • Only 599,000 jobs created?

  • The funding was too small!


Arizona update outlook long road to recovery

Too Small? Not Exactly!


Arizona update outlook long road to recovery

Some States Over/Under

Funded by Stimulus Act

Stimulus jobs from Recovery.gov website


Arizona update outlook long road to recovery

Arizona Fiscal Woes Second to California


Arizona update outlook long road to recovery

Arizona

Budget

Basics


Arizona update outlook long road to recovery

Budget Basics: 3 Major

Revenue Sources Decline

  • Sales taxes (-31%)

  • Individual income taxes (-36%)

  • Corporate income taxes (-46%)

  • These are 90% of General Fund

Office of Strategic Planning & Budgeting, FY 2007 – FY 2010 data


Arizona update outlook long road to recovery

Arizona Retail Sales Outlook:

2009 Will be 10 – 15% Below 2008

Annual Percent Change

Forecast

Arizona Dept. of Revenue & W. P. Carey School


Arizona update outlook long road to recovery

Arizona Personal Income: First

Decline Since Records Kept

Annual Percent Change

Forecast

U.S. Dept. Commerce & W. P. Carey School


Arizona update outlook long road to recovery

Budget Basics: Much of

Spending is Formula Based

  • K-12 Education

  • Corrections

  • AHCCCS & Health Care

  • These are 2/3 of General Fund

Office of Strategic Planning & Budgeting


Arizona taxable retail sales and personal income yr yr growth 1985 1 2009 2

Arizona Taxable Retail Sales and Personal Income(YR/YR Growth 1985:1-2009:2)

Taxable Sales


Arizona s future fiscal crisis

Arizona’s Future Fiscal Crisis

The cumulative gap between expenditures and revenue from FY10 to FY14 is $15.4 Billion

47


Arizona update outlook long road to recovery

United StatesEconomic Forecast

W. P. Carey School of Business, ASU


Arizona update outlook long road to recovery

U.S. Outlook Summary

  • Recession is over, pain remains

  • “U” shaped recovery begins

  • Unemployment stays near 10%

  • Stimulus/bailouts unpopular

  • but support recovery


Arizona update outlook long road to recovery

ARIZONA Economic Forecast

W. P. Carey School of Business, ASU; based on data available as of Feb. 1, 2010


Arizona update outlook long road to recovery

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


Arizona update outlook long road to recovery

No AZ Job Growth Until 2011

Annual Numeric Change In Arizona Employment


Properties in the foreclosure process maricopa county 2002 2009 source the information market

Properties in the Foreclosure Process Maricopa County 2002 – 2009 Source: The Information Market

*Data through October 2009.


Arizona update outlook long road to recovery

Option ARM Resets: Next Shoe To Drop


Single family vacant units greater phoenix 1993 2009q2 source pmhs

Single-Family Vacant UnitsGreater Phoenix 1993–2009q2Source: PMHS


Arizona update outlook long road to recovery

Home Building Hits Bottom in 2009

Arizona Single Family Permits

U. S. Census Bureau and W. P. Carey School of Business


Arizona update outlook long road to recovery

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 update outlook long road to recovery

Arizona Housing Affordable Again

Percent Families That Can Afford Median Priced Home

National Association of Home Builders, Phoenix MSA


Arizona update outlook long road to recovery

Hurdles On Road To Recovery

Commercial Real Estate Poses

A Major Risk to Recovery

“If future defaults follow current delinquency

patterns, we should expect an acceleration

of bank failures.”

Economy.com


Office space vacancy rates u s versus greater phoenix source cb richard ellis and marcus millichap

Office Space Vacancy RatesU.S. versus Greater PhoenixSource: CB Richard Ellis and Marcus & Millichap


Arizona update outlook long road to recovery

Hurdles On Road To Recovery

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


Arizona update outlook long road to recovery

Why Arizona Recovers: Population Growth is “Ace in the Sleeve”


Arizona update outlook long road to recovery

Arizona 2nd Fastest Growth

State for 25 Years

Percent Change: 1980 - 2005

10

1

4

9

7

2

5

8

6 Alaska

3

US Census Bureau


Arizona update outlook long road to recovery

Arizona Comes Back From Recession

(Employment Growth Rate & Ranking)

Percent

#2

#1

#2

#2

#20

#12

#47

#18

U. S. Bureau of Labor Statistics


Arizona update outlook long road to recovery

The Long Road to Recovery:

Arizona Jobs Return in 2013

Arizona Employment

2.7 million

2.7 million

2.4 million

Arizona Department of Commerce and W. P. Carey School of Business, ASU


Arizona update outlook long road to recovery

You are here

U.S. Rebound Will Lift Arizona (Employment Year/Year Percent Change 1970-2009)

Arizona Job Growth

US Job Growth

U. S. Bureau of Labor Statistics


Arizona update outlook long road to recovery

Arizona Outlook Summary

  • 2009 - ugly

  • 2010 - homely

  • Weak job gains

  • Unemployment high

  • Population growth is critical

  • Wait for US economic recovery


Arizona update outlook long road to recovery

Arizona Update & Outlook

Long Road To Recovery

Lee McPheters

W. P. Carey School of Business

Arizona State University


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