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Arizona’s Economic Outlook - 2012

Arizona’s Economic Outlook - 2012. The High Cost of Doing Nothing: Arizona Institute of Management Consultants April 18, 2012 Beckie Holmes Director of Marketing Science Cox Communications. Summary . Global Outlook. National.

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Arizona’s Economic Outlook - 2012

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  1. Arizona’s Economic Outlook - 2012 The High Cost of Doing Nothing: Arizona Institute of Management Consultants April 18, 2012 Beckie Holmes Director of Marketing Science Cox Communications

  2. Summary

  3. Global Outlook

  4. National

  5. Recovery Widespread, But Growth is Modest 2011 Growth Estimated at 1.7%; 2012 Expected to be 2.4%

  6. Job Market Gaining Steam:Unemployment Claims Nearing Healthy Level • Unemployment claims peaked mid-09 • Decline is gradual, but steady; should continue through 2012 as labor market improves • US and AZ are tracking: AZ rose and fell farther than US; now falling slowly • US claims under 400k consistent with job market strength • Claims have been less than 400k since Oct ’11; now at 363k Source: US Department of Labor

  7. US Job Openings vs Employment: December 2011Jobs Being Created Different From Those Lost Source: US Bureau of Labor Statistics

  8. Dropping Out: Labor Force Participation at Decades Lows US -6 pts AZ -4 pts US Arizona Source: US Bureau of Labor Statistics, UA Forecasting Center

  9. National – Consumers and Households

  10. US and AZ Median Household Income: ’84-’10 Source: US Census Bureau

  11. Household Balance Sheets Healthy Source, US Federal Reserve, US Bureau of Economic Analysis

  12. National – Debt and Fiscal Policy

  13. Deleveraging? Source: US Federal Reserve

  14. Fiscal Policy Will Drag Growth • State government budget cuts have subtracted 0.3 to 0.4 pts from growth since 4Q10 • Fiscal cuts will equate to almost 2 pts of GDP but will be spread across government, consumption, and investment • This drag is a primary reason the recovery is expected to continue to deliver below average growth even as the private sector recovers • Obama’s proposed stimulus (not pictured) would add 2 points to GDP so that fiscal policy becomes neutral (from negative) in 2013

  15. Baseline Projections for Declining DebtExtension of Current Policy Results in Rising Debt Source: Congressional Budget Office Updated Budget Projections: Fiscal Years 2012 to 2022, March 2012

  16. Arizona Outlook

  17. Arizona Historically Grows over Twice US RateGrowth Has Lagged US In Current Recovery Source: US Bureau of Labor Statistics

  18. Employment

  19. Employment Forecast: Sluggish Recovery Source: UA Forecasting Project 1q12, AZ Department of Commerce, US Bureau of Labor Statistics, Cox

  20. Unemployment Rate Falling but Above Average Through ‘15 • Unemployment rate expected to remain elevated through 2015 • Unemployment rate expected to fall from 10% to 6% by 2017 • Even in 2017, unemployment rate will be well above historical averages • Structural unemployment and a sluggish economy responsible Source: US Department of Labor, University of Arizona Forecasting Project

  21. What Arizona Industries Outperform the US? 1980-2011: Population-Driven Sectors, Manufacturing, Logistics Arizona population growth ‘80-’11 was 3.6x United States’ rate: Arizona +135% ; United State +37%

  22. A Lost Decade for Most Industries • Overall Job Growth: 4.8% from 2007-2016, 134k Jobs gained. • 293k Jobs lost from 2007-2010 • 102k Jobs gained from 2010-2013 • 325k Jobs gained from 2013-2016 Source: UA Forecasting Project, US Bureau of Labor Statistics

  23. Job CreationLayoffs Down Sharply But Expansions, Firm Creation Remain Weak Source: US Bureau of Labor Statistics

  24. Housing and Population

  25. Household Growth At Decades Lows Source: University of Arizona Forecasting Project

  26. Housing Recovering Slowly • Vacancy rates are falling for the second year in a row; now at 9% • Multifamily vacancy rates at 11% and falling; less than 10% considered healthy • Single family rates now at 8%; under 5-6% is healthy • The number of vacant homes now at 133k; down 34k from ’09 peak • Approximately 40k excess vacant homes, down from peak of 74k • Occupied homes now at 1.43M, up 5k from 2008 peak Source: Phoenix Metro Housing Study, ASU Real Estate Center

  27. Resale Market Improving • Months supply below equilibrium • Inventory at low levels • Setting records for monthly sales • Prices starting to rise; still very low • Affordability at ‘95 levels – near record • Market dominated by investors: • Cash sales 30%-40%, (up from 10% • Investors: 25% (up from 10%-15%) • Foreclosures falling • Pending foreclosures down, cancelled up, new foreclosures down Source: ARMLS

  28. New Home Construction: Weak through 2014 • Housing permits expected to stay at extremely low levels: less than 20k/year in ’11 and ’12 • Gradual recovery in new home construction begins in 2013 • Construction activity back to average by 2015 Source: UA Forecasting Project 1Q12, US Department of Commerce

  29. Consumers, Income and Retail Sales

  30. Consumers: Confidence, Spending Weak Arizona Consumer Confidence Still At Recession Lows • Consumer confidence will not improve until jobs, housing does • Rising gas prices creating a drag • Prices nearing 2008 highs • Retail sales slow to recover; Arizona lags the nation • Arizona has yet to reach 2007 levels for retail sales • Auto sales still 30% below previous peaks Sources: US Census Bureau, Behavior Research Center, Moody’s Economy.com, Oil Price Information Service, AZ Department of Revenue, Bureau of Labor Statistics

  31. Personal Income Growth Weak Through 2014 • After-tax, inflation adjusted personal income fell in Arizona in 2009 • 2012-13 inflation-adjusted growth expected to be under 2% • Income growth does not approach historical averages until 2014 Source: UA Forecasting Project, US Department of Commerce

  32. Arizona Retail Sales and Income Tax • AZ Retail sales stabilizing, still weak • Down 14% from peak in 2007, but growing at 10% rate • Durable goods recovering fastest, but also fell the most • Tax collections up across all categories Growth Yr-Yr % Source: AZ Department of Revenue, JLBC

  33. Conclusions • The recovery weakened during late 2011 but is gaining momentum again • Tsunami, high oil prices, debt ceiling debate, European debt crisis, state budget tightening to blame for ’11 slowdown • ’12 will bring a recession in Europe and more debt ceiling debates in the US • Continued fiscal tightening will drag on growth • Fed has committed to continue monetary stimulus • Private job creation healthy; austerity unlikely to cause recession • State budget tightening cycles near completion and may begin to expand again • Jobs being created are very different from the ones that were lost; structural unemployment a problem • Entrepreneurship rates low for this phase of recovery • Lack of mobility will dampen Arizona’s recovery • Housing will continue its gradual recovery but population growth will be below average Despite all these challenges, baseline forecast is for continued improvement in 2012 as consumers and businesses begin to spend again

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