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Sun Corridor Projections Base and Alternative Scenarios

Sun Corridor Projections Base and Alternative Scenarios. Prepared for Central Arizona Association of Governments January 8, 2009. Study Outline. Joint effort ASU’s WP Carey School of Business UA’s Eller College of Management Review economic & demographic research

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Sun Corridor Projections Base and Alternative Scenarios

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  1. Sun Corridor ProjectionsBase and Alternative Scenarios Prepared for Central Arizona Association of Governments January 8, 2009

  2. Study Outline • Joint effort • ASU’s WP Carey School of Business • UA’s Eller College of Management • Review economic & demographic research • Development of Sun Corridor (3-county) model • Base forecast highlights • Population and demographic outlook • Employment outlook • Earnings, income and sales outlook • High & low scenario results

  3. Economic & Demographic Research

  4. Introduction • The Economic and Demographic Research portion examines/identifies long-term economic and demographic forces that could affect economic development in 3-county “megapolitan” area (Pinal, Maricopa and Pima counties combined)

  5. Economic & Demographic Topics • Population, demographics and net migration analysis • Industry mix and basic industries in the region • Target industry recommendations • Interviews with “experts” • Case study: Riverside vs. Pinal County

  6. Population, Demographics and Net Migration Analysis • Historical population growth • Natural increase • Domestic migration • Immigration • Comparison of long-term forecasts • Expert interview summary

  7. Population, Demographics and Net Migration Analysis • Use Census Bureau estimates of population • By age, sex, ethnicity • Domestic migration to AZ is much larger than immigration • Undocumented immigration surged in mid-90s, peaked in 2000, and has declined since • Largest migration flows from Los Angeles • And other So. California metros (55% of total) • Chicago (during the 1980s, 6% in 2006)

  8. Industry Mix and Basic Industries, 2004 • Manufacturing is a key driver of the megapolitan economy (33,000 excess jobs) • Electronic components (11,000) • Instruments (4,300) • Aerospace (17,700) • 2 Wholesale trade industries tied to high tech mfg. (6,000) • Tourism (30,000 excess jobs) – low wage • Administrative support and finance (16,000 excess jobs) • Copper mining and smelting (2,000 excess jobs)

  9. TARGET INDUSTRY SECTORS • Aerospace/Avionics/Defense/Homeland Security • Healthcare and Health Industries • Bioscience/Bioindustries/Biotechnology/Biomedical • Transportation and Logistics • Agriculture/Food Processing/Agricultural Technology • Sustainability/Environmental Technology/Renewable Energy • Solar Energy • Environmental Technologies • Water Management • Waste Treatment • Other Renewable Energy (Wind, Biofuels) • General Manufacturing • Industrial Machinery • Business and Professional Services • Communication Services • Engineering Services Research and Testing • Financial Services • Information Tech./Computer Software & Systems • High Tech Industry • High-tech Instruments • Medical Devices • Electronics/Semiconductor • Nanotechnologies • Analytical Instruments

  10. Economic Interview Summary • Global competitiveness Issues • Workforce and education • Infrastructure • Labor costs • Geographic location • Constraints to economic development • K-12 education quality • Transportation system • Water and waste water systems • Availability of high skilled workforce • Access to local employment opportunities • Funding is the key to avoiding constraints • Water issues • With proper management there will be enough water in Arizona in the long-run • AZ will have to develop incremental water supplies to extend life of resources • There could be temporary localized water shortages • Water will become more expensive

  11. Case Study: Riverside vs. Pinal County • Population Growth • Population growth in Riverside County has remained rapid over extended period of time, indicating Pinal County population growth could remain rapid for many years • Employment Growth • The strong economies in Phoenix and Tucson are providing jobs for Pinal County residents and are likely retarding the job creation in Pinal County • Pinal County’s ability to create high wage jobs is limited by its relatively low skilled workforce, and lack of arterial transportation infrastructure within the County • Payroll per employee (PPE) • If the example of Riverside County is any indication, the PPE in Pinal County will stay below the U.S. average and below Maricopa and Pima Counties average PPE • Employment to Population Ratio (E/P) • Pinal County needs to increase the number of jobs. Over time the E/P will improve, but not to Pima or Maricopa County levels

  12. Sun Corridor Model

  13. The Sun Corridor Model • The Sun Corridor model was developed using data for the 3-county megapolitan area that includes Pinal, Maricopa and Pima Counties • The model consists of an econometric general equilibrium structural model with an embedded cohort survival model

  14. Assumptions • Economic drivers for model are from Global Insight, “U.S. Economic Outlook” (ST), and “U.S. Economy” (LT), Oct. 2008. • Short-term • Real GDP will decline for three quarters in a row, starting 3Q ’08 Growth will be just 0.2% in 2009. • Inflation has peaked and will fall close to zero in mid-2009. • Long-term • CPI rises at modest 2.0% rate • Real oil prices fall, but remain high by historical standards (no oil embargos in forecast) • Federal budget deficit average 4.4% of GDP • Real consumption grows at 2.1% annual rate • Productivity grows at 2.0% annual rate

  15. Assumptions • The Sun Corridor Forecasting Model used the following demographic assumptions • Birth rates are held constant • Survivorship rates are constant • The distribution of net migrants by age/sex/ethnicity reflects the recent proportions • Total net migration is driven by relative housing prices and economic activity

  16. Assumptions • Gasoline prices in the Phoenix area remain high and drift upward from current levels to near $4.00 per gallon in 2015 • Housing prices in the Sun Corridor have fallen significantly • Relative to prices in Los Angeles, the Sun Corridor remains “cheap” • Prices in LA will remain nearly twice those in the Sun Corridor

  17. Determinants of Growth • In the long term, supply factors matter • Labor force • Capital stock (infrastructure AND human) • Technological progress • For the 3-county area, population growth is the most important • Migration flows • Natural increase

  18. Base Scenario Results

  19. Highlights: Year 2040 • 10.1 million people will live in the Sun Corridor • The Sun Corridor will grow into one of the nation’s 10 “megapolitan” areas • Growth rates for both population and jobs moderate to near 2% annually

  20. Forecasts to 2040, Sun Corridor

  21. Population Dynamics • Natural increase (births – deaths) • Birth rates remain relatively constant • Death rates trend upward as population ages • Calculated relative to total population • Migration (net) • On average, provides twice the number of natural increase • As a percent of population, continues on downward trend

  22. Population Dynamics • Retirement-related migration will double as boomers retire • but the numbers are small compared 0-64 age group • Work-related migration returns to “average” (90-100 thousand per year) by 2015

  23. Population Dynamics • Once the economy recovers from current downturn, annual population growth returns to roughly 160,000 per year in 2015 • Then drifts slowly upward

  24. Highlights: Year 2040 • The proportion of the population age 65+ • will increase significantly, but remain less than nationwide • AZ will remain one of the youngest states • School age population remains flat at 21% • Hispanics share of the total population rises from 33% to 48% • Hispanic share of school age population increases from 42% to 58%

  25. Highlights: Year 2040 • 2.25 mil new nonfarm jobs will be created during the next 32 years • 4.75 mil total • Most will be in services sectors

  26. Changes in Employment, 3-Co.

  27. Growth Leaders Professional & Business Services Leisure & Hospitality Financial Activities Information Other services Health Care & Social Assistance Growth Laggards Government Construction Manufacturing Mining Employment Sector Growth

  28. Highlights: Year 2040 • Employment to population ratio recovers after the recession and drifts slowly upward • Nationwide, the ratio remains flat at 0.46 • An alternative measure using BEA employment relative to working-age population (15-64) is significantly higher and moves upward more quickly over the forecast period

  29. Highlights: Year 2040 • PCPI relative to US stabilizes at 88% after ratcheting down during the current recession

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