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Arizona Economic Outlook 2009: Tucson Small Business Commission

Arizona Economic Outlook 2009: Tucson Small Business Commission . Beckie Holmes Director of Market Intelligence, Cox Arizona September 18, 2008. Outline. US Outlook Who’s doing well right now? Inflation and the consumer outlook Financial markets and credit conditions

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Arizona Economic Outlook 2009: Tucson Small Business Commission

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  1. Arizona Economic Outlook 2009:Tucson Small Business Commission Beckie Holmes Director of Market Intelligence, Cox Arizona September 18, 2008

  2. Outline • US Outlook • Who’s doing well right now? • Inflation and the consumer outlook • Financial markets and credit conditions • Arizona and Tucson Outlook • Business outlook • Job market trends • State budget and retail sales • Housing and migration trends 2009 Tucson Economic Outlook

  3. US Job Growth Not Yet At Recession LevelsArizona Job Growth Is Signaling Recession is Underway 2009 Tucson Economic Outlook

  4. How is this NOT a recession? 2009 Tucson Economic Outlook

  5. GDP Growth Remains StrongRecession Underway? 2009 Tucson Economic Outlook

  6. Exports Are Driving Business Growth 2009 Tucson Economic Outlook

  7. Strong Exports Helping BusinessesExport-driven sectors healthiest 2009 Tucson Economic Outlook

  8. A weaker dollar is doing its job 2009 Tucson Economic Outlook

  9. Trade Gap Closing as Dollar Weakens Stronger Dollar Weaker Dollar 2009 Tucson Economic Outlook

  10. Can consumers hold up? 2009 Tucson Economic Outlook

  11. Consumer Spending Slower, but Holding UpHousing in free fall 2009 Tucson Economic Outlook

  12. An Increasingly Consumer-Driven Nation 2009 Tucson Economic Outlook

  13. Can Consumers Afford To Keep Spending? 2009 Tucson Economic Outlook

  14. Why economists aren’t worried about inflation…and why that isn’t necessarily a good thing 2009 Tucson Economic Outlook

  15. Wage Pressures Building? • Inflation pressures growing: Headline CPI inflation rate has been above 4% for all of 2008 • CPI inflation has outpaced wage and salary inflation for most of the last 4 years • Consumer purchasing power falling • Weak labor market means not much wage pressure; this will keep inflation in check • Negative business impacts regardless of result: higher costs or slower sales 2009 Tucson Economic Outlook

  16. Budget Pressures Growing Relative Price Shifts • Consumers facing the weak nominal wage growth and rising inflation • Above-average price increases remain contained to food, medicine, energy • Service and goods-producers have so far kept prices stable • Lack of pricing power eroding profit margins • Food and energy budget share nearing 1990’s peak 2009 Tucson Economic Outlook

  17. The Regional Picture 2009 Tucson Economic Outlook

  18. Regional Performance: Job GrowthAuto, Housing Driven Weakness, Export, Energy-Driven Strength SD 1.5% WY 2.2% MI -1.1% NV -0.6% RI: -2.6% CO 1.3% AZ -1.6% TX: 2.4% LA 1.6% FL -1.2% Source: US Bureau of Labor Statistics 2009 Tucson Economic Outlook

  19. Regional Performance: Real Income GrowthIncome Weakness Spread More Widely ND +8.9% ID -2.3% SD +3.9% NE +1.7% DE -2.5% NC -1.6% AZ -3.1% OK +1.3% GA -2.5% LA +1.6% Source: Cox Estimates, US Bureau of Economic Analysis 2009 Tucson Economic Outlook

  20. Housing and Credit 2009 Tucson Economic Outlook

  21. Housing Outlook Housing • Until 1980, housing followed household formation • 2000: increase in second, investment homes • ‘00-’06: about 2M permits issued above demand • Current slowing sharpest in postwar history; not yet as deep as 70s cycle • Nearing cyclical bottom • Activity to dip below, then stabilize around 1M permits, 50% off peak • Average peak-trough decline: 35 mths (currently 28) 2009 Tucson Economic Outlook

  22. Credit Tighter EverywhereDysfunctional Financial Markets Hurt Business Outlook Source: FRB Senior Loan Officer Opinion Survey on Bank Lending Practices 2009 Tucson Economic Outlook

  23. Local Outlook 2009 Tucson Economic Outlook

  24. AZ Businesses Conditions Deteriorating • Arizona businesses growing pessimistic • Arizona Business Leaders Conditions Index has indicated a contracting economy since 4Q07 • Arizona Business Conditions Index has indicated a contracting economy since Feb-07 • US business conditions better than AZ: Institute for Supply Managers Non-Manufacturing Index still above 50 2009 Tucson Economic Outlook

  25. Job market continues to weaken…Surprisingly, Tucson not helped by industry mix 2009 Tucson Economic Outlook

  26. Tucson Job Market Weaker than ’01 Recession Weaker Than Phoenix, Arizona 2009 Tucson Economic Outlook

  27. Tucson Dependent on Education, Government JobsLess Construction and Finance Than Phoenix 2009 Tucson Economic Outlook

  28. Employment By SectorWeakness Spreading out of Housing-Related Sectors 2009 Tucson Economic Outlook

  29. Tax Collections Signal RecessionExpect Continued State Budget Weakness 2009 Tucson Economic Outlook

  30. Sharp Consumer Retrenchment 2009 Tucson Economic Outlook

  31. Bankruptcies Up Phoenix Increase Exceeds Tucson • Phoenix total bankruptcies +92% for year ending August-08, Tucson +57% • Increase in business bankruptcies more equal • Phoenix +64% • Tucson +50% • Total increase accelerating since March as housing downturn deepens • Business filings don’t show this pattern 2009 Tucson Economic Outlook

  32. Housing…When does it stop getting worse? 2009 Tucson Economic Outlook

  33. Housing Prices: How overvalued? Price To Fall More • Prices rose 57% in Tucson, 77% in Phoenix between ’04-’06 (16% in a “normal” market) • Overvaluation peaked 3Q06: 46% Tucson, 59% Phoenix • Now (2Q08): 27% Tucson, 30% Phoenix • Previous cycle (1980s): 45% Tucson, 43% Phoenix • Recovery: 132 months of below average appreciation; prices fell for about 30 months • We are 15 months into the current correction 2009 Tucson Economic Outlook

  34. Housing Construction ActivityPermits Dropping Faster Than National Average 2009 Tucson Economic Outlook

  35. WA #4 0.6% NY #8 -8.2% MI #5 4.5% NV #9 -8.1% IL #3 -7.3% CO #6 -4.3% CA #1 -6.8% Total Domestic -4.6% NM#10 -2.4% TX #2 -3.1% FL #7 -2.5% Gross In-Migration FallingLack of Mobility Hurting Arizona Source: Arizona Department of Commerce and MVD 2009 Tucson Economic Outlook

  36. Conclusions • US downturn will eventually be named a recession • Strong global growth and weak dollar helping some businesses • Consumers are the wild card…will they keep spending? • Arizona now in recession that ends during ’08; ‘09 is weak • Job losses continue into 2009 • Housing prices continue to fall but sales activity stabilizes • Commercial real estate weakens as slowing deepens • Tucson’s performance worse than Phoenix despite larger housing bubble in Phoenix • Dependency on state government a negative as budget cuts deepen • Smaller economy is more volatile • Housing downturn has been more severe than Phoenix; should recover sooner 2009 Tucson Economic Outlook

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