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Economic Review And Outlook Brian Cary Manager of Forecasting, Archives & Research

Economic Review And Outlook Brian Cary Manager of Forecasting, Archives & Research Salt River Project. Arizona Financial Professionals Association June 11, 2014. June 2014: Economic Review. United States :

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Economic Review And Outlook Brian Cary Manager of Forecasting, Archives & Research

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  1. Economic Review And Outlook Brian Cary Manager of Forecasting, Archives & Research Salt River Project Arizona Financial Professionals Association June 11, 2014

  2. June 2014: Economic Review United States: • The U.S. economy slowed in early 2014 – due in part to severe winter weather – but recent statistics reflected stronger growth in the second quarter • The job market created jobs at a stronger pace while the unemployment rate trended downward • The impact on the global and U.S. economies from the turmoil in Ukraine remains uncertain Metropolitan Phoenix: • Employment gains in financial activities, education and health services were offset somewhat by job losses in manufacturing • Phoenix area housing prices have leveled off while multi-family construction accelerated AFPA Meeting , 06/11/2014, B. Cary 2

  3. IMF Predicts Stronger Global Economic GrowthWorld Economic Output – Spring 2014 Forecast Percent Change 06/11/2014 AFPA Meeting , B. Cary • U.S. economic growth is projected to improve gradually • Europe has improved but forecasted growth remains weak • China and India are expected to lead the global economy 3 Source: International Monetary Fund

  4. U.S. Economy Contracted For The First Time In Three Years U.S. Gross Domestic Product (GDP) Growth (seasonally adjusted annual rate, 2009 dollars) Annual Growth Rate (%) Forecast 06/11/2014 AFPA Meeting , B. Cary 2008 2009 2010 2011 2012 2013 2014 2007 2015 • Q1 2014 GDP declined (1.0)% (annualized) — down from 2.6% growth in Q4 2013 • Personal consumption spending increased at a 3.1% annual rate — down from 3.3% in Q4 2013 • Decrease was driven primarily by reduced inventories and exports 4 Sources: U.S. Bureau of Economic Analysis; Moody’s Analytics

  5. U.S. Household Net Worth Reaches New Record HighFirst Quarter 1986 – First Quarter 2014(non-seasonally adjusted basis) $ Billions 06/11/2014 AFPA Meeting , B. Cary • Household net worth increased with improved home prices, more jobs and higher stock prices • Grew 2.0% from the fourth quarter 2013 – reached $81.8 trillion 5 Source: Board of Governors of the Federal Reserve System 06/11/2014 AFPA Meeting , B. Cary

  6. U.S. Stock Prices Hit Record Levels S&P 500 Index and Dow Jones Industrial Average Last Day Of The Month Closing Price S & P 500 DJIA 06/11/2014 AFPA Meeting , B. Cary • In May, the S & P 500 index closed 18.0% higher than a year ago • The closing price of the Dow Jones was 10.6% higher than last year 6 Source: Standard & Poor’s and Moody’s Analytics

  7. Long-Term Interest Rates May Be On The Rise Again Monthly Averages Through May 2014 Percent 06/11/2014 AFPA Meeting , B. Cary • Although interest rates began moving upward, they remain relatively low • The Fed continues to “taper” its bond purchases 7 Source: Board of Governors of the Federal Reserve System

  8. U.S. Consumer Prices: Still Stable • Year-Over-Year Percent Change Percent Change 06/11/2014 AFPA Meeting , B. Cary • CPI rose 0.3% in April — up 2.0% on a year-over-year basis • Core CPI maintained its 0.2% pace from last month — up 1.8% from a year ago • Higher food and gasoline costs led to higher consumer prices 8 Source: U.S. Bureau of Labor Statistics

  9. U.S. Employment Returns To Pre-Recession Levels Total Non-Farm Employment – Net Change From Prior Month & UnemploymentRate Unemployment Rate Thousands 06/11/2014 AFPA Meeting , B. Cary • 217,000 jobs were added in May; the jobless rate was unchanged at 6.3% • Professional/business services and health care posted the largest increases • March and April data revisions showed 6,000 fewer jobs than originally reported 9 Source: U.S. Bureau of Labor Statistics

  10. 06/11/2014 AFPA Meeting , B. Cary 10

  11. Employment Trends Index StrengthensThe Conference Board Employment Trends Index (ETI) 1996 = 100 06/11/2014 AFPA Meeting , B. Cary • Correlated with employment & provides a leading indication of employment’s direction • Consists of 8 labor market indicators, with 7 indicators showing positive results • Index signaling continued employment growth in the months ahead 11 Source: The Conference Board

  12. ISM Surveys Show The Economy Is Still Expanding Institute for Supply Management Manufacturing Index Index 06/11/2014 AFPA Meeting , B. Cary • Manufacturing index was 55.4 in May — up for the fifth consecutive month • New orders index rose 1.8 points from the previous month • Non-manufacturing index was 56.3 in May– up 1.1 points from April 12 Source: ISM

  13. Global Semiconductor Sales Increased Steadily Semiconductor Sales (3-month moving average) $ Billions $ Billions 06/11/2014 AFPA Meeting , B. Cary • Sales in the Americas dropped 1.6% from last month but climbed 13.6% from last year • Worldwide billings were up 0.7% from the previous month & increased 11.5% from last year • Demand for electronics & cloud-based computing are expected to increase semiconductor growth 13 Source: Semiconductor Industry Association

  14. Semiconductor Orders Dipped Slightly U.S. Semiconductor Book-to-Bill Ratio Ratio 06/11/2014 AFPA Meeting , B. Cary • Book-to-bill ratio = new orders divided by current shipments • Ratio was 1.03 in April — ratio above 1.0 for seventh consecutive month • Demand for mobile devices and servers for cloud computing are expected to drive steady semiconductor growth 14 Source: SEMI

  15. Leading Index Signals Continued Economic Growth U.S. Index Of Leading Economic Indicators — Net Change From Prior Month Percent Change 06/11/2014 AFPA Meeting , B. Cary • Index is designed to signal the economy’s performance in the next 6-12 months • LEI increased 0.4% in April – up 11 of the last 12 months • Higher interest rate spread and rising building permits led to the increase 15 Source: The Conference Board

  16. Confidence Grows With A More Favorable Employment Outlook U.S. Consumer Confidence Index Index 06/11/2014 AFPA Meeting , B. Cary • In May, the index rose to 83.0 — April’s index level was revised downward to 81.7 • Consumers were more optimistic in May about current and future business conditions • Labor market expectations improved from April as more respondents felt jobs were plentiful 16 Source: The Conference Board

  17. Greater Phoenix Job Growth Remains SteadyMetropolitan Phoenix Non-Farm Employment Net Change From A Year Ago And Unemployment Rate Unemployment Rate Thousands 06/11/2014 AFPA Meeting , B. Cary • Non-farm employment grew 2.2% from a year ago in April (39,100 positions) • Gains were led by the financial, education and health services sectors • Manufacturing was down by 700 jobs from a year ago 17 Source: Arizona Office of Employment & Population Statistics

  18. 06/11/2014 AFPA Meeting , B. Cary Percent Change From Peak Employment 18 Number of Months After Peak Employment (seasonally adjusted)

  19. Unemployment Insurance Claims Fell Over The Year Arizona Total Unemployment Insurance Claims4-week moving average Total Claims 06/11/2014 AFPA Meeting , B. Cary 19 • Total weekly UI claims were 1.1% lower than a year ago on a moving average basis Source: U.S. Department of Labor

  20. Unemployment Rate For Arizona CountiesUnemployment Rate, N.S.A.(April 2014) 06/11/2014 AFPA Meeting , B. Cary 20 Source: Arizona Department of Administration

  21. State Individual Income Tax Receipts Dipped in AprilIndividual Income Tax Collections (12-month moving average) $ Millions Percent Change 06/11/2014 AFPA Meeting , B. Cary • Individual income tax collections were 0.1% lower than a year ago on a moving average basis • April withholding tax collections were 0.2% higher than a year ago 21 Source: Arizona Joint Legislative Budget Committee (JLBC)

  22. Arizonans More Confident About Future Economic Conditions Arizona Consumer Confidence Index (April 2014) 1985=100 06/11/2014 AFPA Meeting , B. Cary 22 • Index increased from 68.9 to 75.1 in the latest survey – its highest level in six years • Both consumers’ current assessment and expectations for the future improved Source: Behavior Research Center

  23. Phoenix Area Home Prices: Leveling OffResale and New Home Median Sales Prices In Maricopa County6-month moving average Sales Volume Price 06/11/2014 AFPA Meeting , B. Cary • Median prices rose 14.2% from last year but were unchanged from the prior month • The number of homes sold in April fell 13.3% over the year but grew 2.9% from last month 23 Sources: The Cromford Report; AMLS

  24. Phoenix Area Home Prices: Leveling Off Standard & Poor’s / Case-Shiller Home Price Index Jan 2000 = 100 06/11/2014 AFPA Meeting , B. Cary • Phoenix area: up +11.1% from last year, down (36.3)% from the June 2006 peak • Phoenix area prices posted a slight monthly gain for the first time in three months • U.S. Composite: up +12.4% from a year ago, down (19.2)% from the July 2006 peak 24 Source: Standard & Poor’s

  25. U.S. and Arizona Home Prices Improved In The Last Two Years Federal Housing Finance Agency House Price Index – Purchase Only Quarterly, seasonally adjusted 1991 = 100 06/11/2014 AFPA Meeting , B. Cary • Arizona home prices increased 2.1% over the quarter and 14.7% from a year ago • Phoenix area home prices were up 2.0% from last quarter and 16.6% from last year • Tucson MSA home prices grew 1.0% from Q4 2013 and 8.4% from a year ago • Prices were up 1.3% from last quarter and 6.6% from last year 25 Source: Federal Housing Finance Agency

  26. Distressed Home Inventories Are Down From The Peak Maricopa County Notices of Trustee Sales and Total Pending NOTS Pending 06/11/2014 AFPA Meeting , B. Cary • Inventory of properties in foreclosure peaked in December 2009 • Total active notices are 91.4% lower than December 2009 peak level • Initial notices & total foreclosures pending continue to fall – dropped 44.3% & 47.2% Y-O-Y 26 Source: Information Market

  27. Phoenix New Home Construction Still Sluggish Metropolitan Phoenix Housing Permits (6-month moving average) Permits 06/11/2014 AFPA Meeting , B. Cary 27 • Single-family permits are at the highest level since July 2013 • Growth in total permits decelerated slightly after two consecutive months of strong gains Source: U.S. Census Bureau

  28. Arizona Housing Permits Have Improved From Last Year Arizona, Phoenix MSA and Tucson MSA Total Home Permits 6 — month moving average, not seasonally adjusted Total Permits 06/11/2014 AFPA Meeting , B. Cary • Statewide housing permits are up 21.8% from last year on a moving average basis • Phoenix permits were up 26.0% from last year & 9.4% from last month on a moving average basis • Tucson home permits were down 10.2% on a moving average basis 28 Source: U.S. Census Bureau

  29. Commercial RE Vacancies Are Trending LowerMetro Phoenix Office, Industrial And Retail Real Estate Vacancy Rate 06/11/2014 AFPA Meeting , B. Cary • Office vacancy rate declined to 22.1% in Q1 2014 – net absorption dipped to 253,845 SF • Industrial vacancies fell to 11.3%, with net absorption of 1.6 MSF in Q1 2014 • Retail vacancy rate decreased to 10.0% – net absorption was 387,226 SF 29 Source: CBRE

  30. Phoenix Sky Harbor Passenger Count Reached A Record Level Phoenix Sky Harbor Airport Statistics — Year-Over-Year Percent Change % Change Millions 06/11/2014 AFPA Meeting , B. Cary • Total passenger traffic climbed 28.0% and total cargo jumped 43.3% from the prior month • March marked the busiest month ever with over 4 million passengers • Passenger traffic was 3.2% higher over the year & total cargo soared 34.0% from last year 30 Source: Phoenix Sky Harbor Airport

  31. Arizona Highway Traffic Is Gradually Increasing Total Vehicle Miles Driven in Arizona(12-month moving average, % change from year ago) Miles driven (Millions) % Change 06/11/2014 AFPA Meeting , B. Cary • After climbing in 2010, mileage started declining again in the summer of 2011 • Traffic has slowly picked up the pace since October 2012 on a moving average basis • Arizona traffic rose 1.2% on a year-over-year moving average basis in March 31 Source: U.S. Department of Transportation

  32. Exports From Arizona To Mexico Are At An All Time High $ Millions % Change 06/11/2014 AFPA Meeting , B. Cary 32 Source: International Trade Administration, Global Patterns of a State’s Exports. 32

  33. Metropolitan Phoenix Employment Forecast University of Arizona Forecasting Project (May 2014) Percent Change 06/11/2014 AFPA Meeting , B. Cary • Greater Phoenix employment is expected to increase 3.2% in 2014 (57,400 jobs) • Job growth is predicted to improve in 2015 and beyond 33 Source: University of Arizona Forecasting Project, Arizona Office of Employment & Population Statistics

  34. Metropolitan Phoenix Population Forecast University of Arizona Forecasting Project (May 2014)Net Change In Population and Percent Change From A Year Ago Percent Change Net Change (thousands) 06/11/2014 AFPA Meeting , B. Cary • Forecast expects steady gains in the near term with stronger growth by 2017 • Greater Phoenix predicted to add nearly 68,000 people in 2014 34 Source: University of Arizona Forecasting Project

  35. Statewide Population Forecast University of Arizona Forecasting Project (May 2014)Net Change In Population Net Change (thousands) 06/11/2014 AFPA Meeting , B. Cary • Arizona predicted to add more than 87,000 people in 2014 35 Source: University of Arizona Forecasting Project

  36. Arizona Personal Income Expected To Accelerate In 2014 Arizona, Phoenix MSA and Tucson MSA Personal Income Personal Income (thousands) 06/11/2014 AFPA Meeting , B. Cary • Personal income growth is expected to improve this year • Growth is expected to pick up from 2015 through 2018 36 Source: University of Arizona Forecasting Project

  37. Arizona Home Building Predicted To Rise In The Next Three Years Arizona, Phoenix MSA and Tucson MSA Total Residential Building Permits Total Permits (thousands) 06/11/2014 AFPA Meeting , B. Cary • Home permits are expected to accelerate in 2015 across the state, especially in the Phoenix area 37 Source: U.S. Census Bureau, University of Arizona Forecasting Project

  38. Summary and Outlook • U.S. economic growth is expected to accelerate this year as household incomes and credit conditions improve • Job creation is expected to continue at a solid pace while the unemployment rate should continue its downward trend • Home prices in the greater Phoenix area are predicted to remain relatively flat in the months ahead • The Arizona job market is projected to post modest gains in 2014 before trending higher in 2015 06/11/2014 AFPA Meeting , B. Cary 38

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