Arizona OutlookArizona OutlookACMA Winter

ConferenceFebruary 5, 2009

• Recession WatchRecession Watch• Arizona JobsArizona Jobs• Arizona PeopleArizona People• Outlook SummaryOutlook Summary

Economic Update & Economic Update & OutlookOutlook

• How long in How long in durationduration??

• How severe in How severe in depthdepth??

USA RECESSION WATCHUSA RECESSION WATCH

Is This a Repeat of theIs This a Repeat of the

GREAT DEPRESSION?GREAT DEPRESSION?

Feb. 1930Feb. 1930

Andrew MellonAndrew MellonSecretary of the Treasury Secretary of the Treasury

for Herbert Hooverfor Herbert Hoover

"There is nothing"There is nothing

in the situation to be in the situation to be

disturbed about." disturbed about."

Is This a Repeat of theIs This a Repeat of the

GREAT DEPRESSION?GREAT DEPRESSION?

1930 1931 1932 1933 1934

-8.6% -6.4% -13.0% -1.3% +10.8%

In the Great Depression real In the Great Depression real

GDPGDP

declined for 4 consecutive declined for 4 consecutive

yearsyears

Is This a Repeat of theIs This a Repeat of the

GREAT DEPRESSION?GREAT DEPRESSION?

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

-0.5% -3.8% -3.3% -0.8% +1.2%

In the current downturn real In the current downturn real

GDPGDP

expected to decline for 4 expected to decline for 4

quartersquarters

Blue Chip Consensus

GDP Recovery in 2nd Half?

2008 2009

Blue Chip: Consensus Percent Change in Real GDP at Annual Rate

Survey of Leading EconomistsSurvey of Leading Economists• 85% believe recession will end by Q3 2009

• 72% believe home prices will bottom out by Q4 2009

• 56% believe unemployment will peak in 2010

Blue Chip Economic Indicators, January 2009

Blue ChipConsensus

_ _ _

50 TopEconomists

But…Current Recession But…Current Recession Will be Longest Post-Will be Longest Post-

WarWar10 Previous Post-War Recessions Months

Average Post-War Recession 10 mos.

Longest (1973-1975 & 1981-1982) 16 mos.

Current Recession (Since 12/07) 14 mos.

The Great Depression (1929-1933) 43 mos.

National Bureau of Economic Research

GDP Growth in Q4 2008Components Q3 08 Q4 08

Consumption -3.8% -3.5%

Exports 3.0% -19.7%

Residential Building -16.0% -23.6%

Non-Residential Building 9.7% -1.8%

Change in Real GDP -0.5% -3.8%

U.S. Bureau of Economic Analysis, January Report

3.9

2.0 2.01.0 0.9 1.2

-3.8 -3.5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Percent Growth In Consumer Spending at Annual Rate

U. S. Consumer SpendingNegative Again in Q 4

U. S. Consumer SpendingNegative Again in Q 4

20082007

First negative quarter since 1991

-76 -83 -67 -67-127

-403

-524-583

-524

-100-47

-88

Jan. Feb. Mar. Apr. May June July Aug. Sept Oct. Nov. Dec.

Job Growth/Loss, ThousandsJob Growth/Loss, Thousands 12 Months of U.S. Job Loss 12 Months of U.S. Job Loss

2 million jobs lost

12 Months Into 12 Months Into RecessionRecession

Arizona Weaker Than Arizona Weaker Than USUSNon-Farm Job Loss After 12 Months % Loss

Average 10 Post-War Recessions -2.0%

U.S. in Current Recession -2.0%

Arizona (Dec./Dec.) -4.3%

Wyoming (Dec./Dec.) +2.2%

-6

-4

-2

0

2

4

6

8

10

12

14

1970 1974 1978 1982 1987 1991 1995 1999 2004 2008

Arizona & US Move Together

(Employment Year/Year Percent Change 1970 - 2008)

ArizonaArizona

USAUSA You are here

-6

-4

-2

0

2

4

6

8

10

12

14

1970 1974 1978 1982 1987 1991 1995 1999 2004 2008

Five Recessions Since 1970

Arizona Follows U.S.Arizona Follows U.S.

EnergyStagflation

FedPolicy

S & LsEnergyLeverage

Tech Bubble

EnergyHousingLeverage

(Percent Change Dec. 2008 vs Dec. 2007)

2

48

49

1

27

5

6

U. S. Bureau of Labor Statistics

16

14

41

3613

4

36

Red: 42 StatesLosing Jobs

Arizona Ranks Near Last in

Rate of Job Creation

8

20

Green = Growth 7

0.60.0

-0.2

-1.7 -1.9 -2.2-2.7

-3.8-4.3

-1.5

-0.6-0.4

-6

-5

-4

-3

-2

-1

0

1

2

Jan. Feb. Mar. Apr. May June July Aug. Sept Oct. Nov. Dec.

Monthly Percent Change vs Year AgoMonthly Percent Change vs Year Ago Arizona Job Losses in 2008 Arizona Job Losses in 2008

Worst since -4.6% June 1975Worst since -4.6% June 1975

116,500 Arizona Jobs Lost

Sector Dec 08 vs Dec 07Overall -116,500Health Care +9,400Arts, Entertainment +1,200Government (Fed/Local) +3,600Employment Services -10,800Retail Trade -25,200Food Service -11,200Construction -43,800

Less Harmed by Recession

• Food, guns, alcohol

• Health care & related

• Online commerce

• Repair & maintenance

• Basic consumer goods

Hit Hardest by Recession

• Discretionary & postponable

• Temporary worker agencies

• Construction, home stores

• Retail outlets, restaurants

• Auto dealers, trucking

• Finance & insurance

160

170

180

190

200

210

220

230

240

250

260

JAN JULY JAN JULY JAN JULY JAN DEC

Thousands of Jobs

80,000 Arizona Construction JobsLost Since Summer of 2006

2005 20072006 2008

Arizona Unemployment

Rates in Recession

1976 10.3% 1982 11.5% 1992 7.5% 2008 6.9% (Dec)

Unemployment at 7%?

Housing Market DriversHousing Market Drivers

• Population growthPopulation growth• Employment growth Employment growth • Mortgage ratesMortgage rates• Mortgage standardsMortgage standards• Move-up buyersMove-up buyers• Investors Investors

1

7

2

3

5

4

6

US Census BureauUS Census Bureau

18

178

1114

9

Arizona 2Arizona 2ndnd in Population in Population Growth Among All StatesGrowth Among All States

Percent Change 2008 vs 2007Percent Change 2008 vs 2007

10

1216

36

• 14th Largest State

• 2nd Fastest Growth Rate

• 5th in New Resident Count

• 3rd in Domestic Migration Count

• 9th in International Migration Count

Arizona Population Rank 2008Arizona Population Rank 2008

Population in 2030Population in 2030

• Population 10.7 Million

• 2nd Largest State in West

• 10th Largest State in US

• Median Age 39.3 Yrs

• More Children than Seniors

U. S. Census Bureau

Affordability ReboundsAffordability ReboundsShare of Phoenix home sales affordable at median incomeShare of Phoenix home sales affordable at median income

Phoenix AffordabilityPhoenix Affordability

National Association of Home Builders, 2008 Q3 National Association of Home Builders, 2008 Q3

2008 2009 2010Annual Percent Change

Personal Income 3.5 2.5 4.0

Employment -1.6 -0.9 1.8

Single Family Units -53 -3.7 13.2

Retail Sales -5.0 0.2 3.7

Population 2.3 1.8 2.0

ARIZONABLUE CHIP ECONOMIC FORECAST

Arizona Employment: No Job Growth Until 2010

Annual Numeric Change In Arizona Employment

Annual Percent Change In Arizona Employment

Arizona Employment: No Job Growth Until 2010

1.3

5.3

9.0

13.2

7.9

0.5

-5.0

0.2

3.7

2002 2003 2004 2005 2006 2007 2008 2009 2010

Annual Percent Change

Source: Arizona Blue Chip Forecast Forecast

Arizona Retail Sales:Recession Level Growth

• Stagnant economy 2009Stagnant economy 2009

• No job growth until 2010No job growth until 2010

• Unemployment goes up Unemployment goes up

• Population growth is criticalPopulation growth is critical

• Wait for US economic recoveryWait for US economic recovery

Arizona Outlook SummaryArizona Outlook Summary

• Worse economic news aheadWorse economic news ahead

• Housing must bottom outHousing must bottom out

• Recovery late 2009?Recovery late 2009?

• Unemployment at 8%? 10%?Unemployment at 8%? 10%?

• Stimulus plan to boost growthStimulus plan to boost growth

National Outlook SummaryNational Outlook Summary

Economic Policy Options1. Monetary policy (credit & interest rates)

•Lenders must lend, borrowers must borrow•Works with a lag, no direct job impacts

2. Tax Cuts (give rebates & reduce rates)•Smaller impact but rate cuts keep on working•Rebates saved or pay off debt, one time impact

3. Spending on Infrastructure, state aid•Takes time to implement, larger multiplier•Job impacts end when projects end•But infrastructure may support growth

Stimulus Plan: A Hybrid

ComponentComponent 20092009 20102010 20112011 20122012

Tax Cuts $120 $130 $75 $10

State/Local Aid $75 $75 $10 0

Infrastructure $25 $85 $85 $50

Total $220 $290 $170 $60

Billions of Dollars Spending 2009 - 2012

http://knowledge.wpcarey.asu.edu

Lee.mcpheters@asu.edu