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The Grind Continues Pinal Partnership December 14 th , 2012 Presented By: Elliott D. Pollack CEO, Elliott D. Pollack & Company. Economic Conditions. The economy we wanted…. What we got…. - PowerPoint PPT Presentation
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Elliott D. Pollack & Company
The Grind ContinuesPinal Partnership
December 14th, 2012
Presented By:Elliott D. Pollack
CEO, Elliott D. Pollack & Company
Elliott D. Pollack & Company
Economic Conditions
Elliott D. Pollack & Company
The economy we wanted…
Elliott D. Pollack & Company
What we got…
Elliott D. Pollack & Company
It is only because conditions have been so poor for so long
that we feel this mediocre recovery is OK.
Elliott D. Pollack & Company
NATIONAL ECONOMY –
Continued subpar growth. But, recovery should continue. (unless the Federal Gov’t does something stupid…)
Elliott D. Pollack & Company
Speaking of stupid…
Elliott D. Pollack & Company
FISCAL CLIFF
2013
Elliott D. Pollack & Company
Speaking of stupid…
Elliott D. Pollack & Company
FISCAL CLIFF• January 2, 2013:
• Bush-era tax cuts expire.o $3.3 trillion over 10 years
o $330 billion in 2013• Fiscal tightening measures agreed to
last year kick in… o $1.2 trillion in cuts over 9 years
o $500 billion in defense($55 billion in 2013)
Elliott D. Pollack & Company
FISCAL CLIFF
• Causes great uncertainty.• Cost of non-resolution would be a
recession in 2013 (CBO).• So, most likely some type of resolution
will occur in early 2013.
Elliott D. Pollack & Company
ObamaCare
Summed up in one sentence by:Barbara Bellar
(Candidate for Illinois State Senate)
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
“We are going to be gifted with a health care plan we are forced to purchase, and fined if we don’t…
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
…which reportedly covers at least 10 million more people, without adding a
single new doctor, but provides for 16,000 new IRS agents…
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
…written by a committee whose chairman says he doesn’t
understand it…
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
…passed by a congress that didn’t read it, but exempted
themselves from it…
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
…signed by a president (who smokes)…
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
…with funding administered by a treasury chief
(who didn’t pay his taxes)…
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
…for which we will be taxed for four years before any benefits take affect…
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
…by the government which has already bankrupted social security
and Medicare…
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
…all to be overseen by a surgeon general (who is obese),
and financed by a country that’s broke.”
Elliott D. Pollack & Company
ObamaCareSummed up in One Sentence
What could possibly go wrong?
Elliott D. Pollack & Company
ObamaCareSeriously, the issues are:
• Uncertainty over costs• Uncertainty over implementation
Elliott D. Pollack & Company
United States Real Gross Domestic Product* Annual Growth 1970 - 2013**
Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators
0.2%
3.4%
5.3%
5.8%
-0.6%-0.2%
5.4%
4.6%
5.6%
3.1%
-0.3%
2.5%
-1.9%
4.5%
7.2%
4.1%3.5%
3.2%
4.1%
3.6%
1.9%
-0.2%
3.4%2.9%
4.1%
2.5%
3.7%
4.5%4.4%4.8%
4.1%
1.1%1.8%
2.5%
3.5%3.1%2.7%
1.9%
-0.3%
-3.5%
3.0%2.5%
2.2%2.0%
-4%
-2%
0%
2%
4%
6%
8%
* Based on chained 2005 dollars.
** 2012 - 2013 are forecasts from the Blue Chip Economic Indicators, November 2012Recession Periods
Elliott D. Pollack & Company
At least we’re growing!
And growth should continue,
BUT…
Elliott D. Pollack & Company
…growth will remain weak because of the following:
• Consumer spending modest, but up (Additional jobs and hours worked).
• Business spending up • Excess industrial capacity.• Continued housing recovery in 2013. Large
percent gain. Small numerical gain.• Limited commercial construction.• Continued pressure on state
and local government.• Limited policy options on part of
Federal government.
Elliott D. Pollack & Company
Consumers
Elliott D. Pollack & Company
Consumer debt has declined by $1.7 trillion over the last 4 years.
Elliott D. Pollack & Company
Financial Obligation Ratio**1980 – 2012*
Source: Federal Reserve
15.0%
16.0%
17.0%
18.0%
19.0%
20.0%
1980
Q1
1981
Q2
1982
Q3
1983 Q
4
1985
Q1
1986
Q2
1987 Q
3
1988
Q4
1990 Q
1
1991
Q2
1992 Q
3
1993
Q4
1995
Q1
1996 Q
2
1997 Q
3
1998 Q
4
2000
Q1
2001
Q2
2002
Q3
2003 Q
4
2005
Q1
2006
Q2
2007 Q
3
2008
Q4
2010 Q
1
2011
Q2
*Data through second quarter 2012**Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.
Recession Periods
Elliott D. Pollack & Company
Consumer Credit OutstandingPercent Change Year Ago
1970 – 2012* Source: The Federal Reserve Bank of St. Louis
-5%
0%
5%
10%
15%
20%
Jan-70Jan
-71Jan
-72Jan
-73Jan
-74Jan
-75Jan
-76Jan
-77Jan
-78Jan
-79Jan
-80Jan
-81Jan
-82Jan
-83Jan
-84Jan
-85Jan
-86Jan
-87Jan
-88Jan
-89Jan
-90Jan
-91Jan
-92Jan
-93Jan
-94Jan
-95Jan
-96Jan
-97Jan
-98Jan
-99Jan
-00Jan
-01Jan
-02Jan
-03Jan
-04Jan
-05Jan
-06Jan
-07Jan
-08Jan
-09Jan
-10Jan
-11Jan
-12
*Data through October 2012
Recession Periods
Elliott D. Pollack & Company
US New Job Data Change from Prior Month (S/A)June 2010 – November 2012
Source: Bureau Labor of Statistics
-167
-58 -51-27
220
121120110
220246251
5484 96 85
202
112
157
223
275259
143
6887
45
181192
132138
(250)
(200)
(150)
(100)
(50)
0
50
100
150
200
250
300
(000’s)
Elliott D. Pollack & Company
Hours WorkedPercent Change from Year Ago
1976 – 2012* Source: Bureau of Labor Statistics
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Recession Periods
*Data through third quarter 2012
Elliott D. Pollack & Company
Consumer Confidence1978 – 2012*
Source: The Dismal Scientist
2030405060708090
100110120130140150
*Data through November 2012
Recession Periods
Normal NormalNormal New Normal?
Approval of medical marijuana...
Elliott D. Pollack & Company
Number of Monthly Residential RefinancesGreater Phoenix
Source: CoreLogic
0
2,000
4,000
6,000
8,000
10,000
12,000
4,019 4,480
5,194 5,398 5,200 5,052
6,263
7,516 8,101
9,915 10,604
11,518
Elliott D. Pollack & Company
Refinancing will free up money…
Elliott D. Pollack & Company
WEALTH EFFECT
Housing prices are up.
Stock market is up from a year ago.
Elliott D. Pollack & Company
Jobs are being created at a slow rate.
Those that have jobs are spending a little more but will remain cautious.
Unemployment to remain high, but should trend lower.
Wealth levels are improving.
Will the additional uncertainty translate into reduced consumer spending?
Consumer Summary:
Elliott D. Pollack & Company
Business
Elliott D. Pollack & Company
Business debt has declined by $2.9 trillion over the last 4 years.
Elliott D. Pollack & Company
Corporate Profit (Billions of Dollars, SA)
1975-2012*Source: BEA
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
*Data through third quarter 2012
Recession Periods
Elliott D. Pollack & Company
Business Spending on EquipmentPercent Change from Prior Quarter
2005 – 2012* Source: Bureau of Economic Analysis
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%Recession Periods
*Data through third quarter 2012
Elliott D. Pollack & Company
Business Spending on Plant Percent Change from Prior Quarter
2005 – 2012* Source: Bureau of Economic Analysis
-14.0%-12.0%-10.0%
-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%
10.0%Recession Periods
*Data through third quarter 2012
Elliott D. Pollack & Company
Capacity Utilization Rate1970 – 2012*
Source: The Federal Reserve Bank of St. Louis
65
70
75
80
85
90
Jan-70Jan
-71Jan
-72Jan
-73Jan
-74Jan
-75Jan
-76Jan
-77Jan
-78Jan
-79Jan
-80Jan
-81Jan
-82Jan
-83Jan
-84Jan
-85Jan
-86Jan
-87Jan
-88Jan
-89Jan
-90Jan
-91Jan
-92Jan
-93Jan
-94Jan
-95Jan
-96Jan
-97Jan
-98Jan
-99Jan
-00Jan
-01Jan
-02Jan
-03Jan
-04Jan
-05Jan
-06Jan
-07Jan
-08Jan
-09Jan
-10Jan
-11Jan
-12
*Data through October 2012
Recession Periods
This is when investment occurs.
Elliott D. Pollack & Company
Businesses are in better shape.
Spending on equipment to continue to grow.
Spending on plant will lag until capacity utilization goes higher…getting close.
Employment to continue to grow.
Business Summary:
Elliott D. Pollack & Company
Government
Elliott D. Pollack & Company
Speaking of stupid…
Elliott D. Pollack & Company
Gross Government debt has INCREASED by $5.8 trillion
over the last 4 years.
Elliott D. Pollack & Company
Balanced Budget
We are borrowing $0.34 of every dollar we spend and can’t collect
enough in taxes to make it up.
Elliott D. Pollack & Company
Balanced Budget
RECEIPTS $ trilIndividual income taxes 1.165
Corporate income taxes 0.237
Social insurance & medicare taxes 0.775
Unemployment insurance 0.066
Other 0.226
TOTAL $2.469
Elliott D. Pollack & Company
Balanced Budget
EXPENDITURES $ trilDiscretionary (security – military, defence, homeland security, FBI, CIA and non-security – departments of education, energy, etc.)
1.319
Mandatory (Programs such as Medicare, Medicaid, SS, TARP) 2.252
Interest on debt 0.225
TOTAL $3.796
Elliott D. Pollack & Company
Balanced Budget
EXPENDITURES $3.796 trillionRECEIPTS $2.469 trillion= DEFICIT $1.327 trillion
Discretionary Expenditures = $1.319 trillion
Elliott D. Pollack & Company
So, even if we completely shut down government, including the military, we still wouldn’t have a
balanced budget.
Balanced Budget
Elliott D. Pollack & Company
Balanced Budget
The federal debt scheduled to be:
$16.2 trillion in 2013$25.9 trillion in 2022
Source: U.S. Treasury; FY 2013 U.S. Budget
Elliott D. Pollack & Company ---- Obama Administration proposed budget, Aug. 2012
U.S. Gross National Debt ($tril)Source: U.S. Treasury; FY 2013 U.S. Budget
Elliott D. Pollack & Company
What is the
tipping point?
Elliott D. Pollack & Company
It WILL happen but no one can tell when.
Elliott D. Pollack & Company
You won’t know what
you’re gettinguntil it’s
TOO LATE.
Elliott D. Pollack & Company
What does the government need to do?
First, admit there is a problem
Second, deal with the problem.
It will be painful and there is no easy way out.
Elliott D. Pollack & Company
What does the government need to do?
• Need significant cuts in the rate of increase for long term fiscal health.
• Modest tax increases designed not to hurt incentives.
• But, significant cuts or tax increases will hurt the economy next year.
• Therefore, they need to phase it in!!!
Elliott D. Pollack & Company
State & local under pressure.
But, more revenues available in FY2013.
Federal spending up but more slowly.
Need to avoid a self imposed “cliff.”
Government Summary:
Elliott D. Pollack & Company
Question:Can Europe cause a recession in the U.S.?
Elliott D. Pollack & Company
Conclusion:
Europe unlikely to cause any significant problems for U.S.
Elliott D. Pollack & Company
NATIONAL SUMMARY Consumers still restructuring Confidence low, but spending will
continue to grow Business in good shape but not
confident because of: Low capacity utilization Cost of Obama Care Potential for Fiscal Cliff
Federal government, no leadership whatsoever.
CommandButton1
Elliott D. Pollack & Company
ARIZONA
HappyBirthday!!
CommandButton1
Elliott D. Pollack & Company
Arizona & US Move Together (Non-farm Emp. Percent Change 1980 – October 2012)
-9%
-7%
-5%
-3%
-1%
1%
3%
5%
7%
9%
11%
U.S. Arizona Recession Periods
Elliott D. Pollack & Company
9
4
15
2
10
3
7
Job Growth 2006
11
15
6
228
Source: US BLS
13
Jobs growing
Jobs declining
Top 10
Hawaii
Alaska
Elliott D. Pollack & Company
5
49
24
3645
4
30
825
46
50
441
3
Alaska 2
2034
Job Growth 2009Source: US BLS
Jobs growing
Jobs declining
Top 10
Hawaii
6
7
910
Elliott D. Pollack & Company
23
25
29 6
344
22
3438
1
2
Alaska 17
50 10
Jobs growing
Jobs decliningTop 10
Hawaii
30
4
12
9
8
Job Growth 2011Source: US BLS
5
7
Elliott D. Pollack & Company
5
6
30
9 10
347
33
3512
1
4
Alaska 43 29
Jobs growing
Jobs decliningTop 10
Hawaii
16
11
2
8
Job Growth 2012YTD October 2012 vs YTD October 2011
Source: US BLS
507
Elliott D. Pollack & Company
There is little that isn’t transitory…
…It is mostly cyclical
Elliott D. Pollack & Company
How did AZ go from 2nd to 49th? Financial meltdown. Credit crunch/freeze. Overextended consumer. Excess single family inventory. Housing prices decline.
Loss of wealth including home equity. Can’t sell homes or retire. Homebuilding and home prices crash. Population inflows weaken in AZ. Household size increases. Household formations decline.
Excess commercial construction
“Growth” job losses. All sector job loses.
Elliott D. Pollack & Company
How does AZ go from 49th to 2nd? Overall US economic recovery improves. Stock market improves. Credit frees up. Consumers more confident. People start to move to AZ again, slowly. Investors help absorb excess housing.
Excess housing absorbed Housing prices rise. Construction kicks in. Construction job gains.
All sector job gains. More people move to AZ.
Elliott D. Pollack & Company
But the local recovery will be slow because…
Slow national recovery Consumers still restructuring Low levels of confidence Winding down of defense sector Population flows slow:
40% of U.S. households are not mortgage creditworthy.
More than 39% in Arizona and 22% nationally have no equity in their homes.
CommandButton1
Elliott D. Pollack & Company
Year Rank2000 52001 102002 122003 42004 22005 22006 22007 162008 462009 492010 492011 232012* 6
Year Rank1991 201992 211993 51994 21995 21996 21997 21998 11999 2
Arizona Employment GrowthSource: Arizona State University, U.S. Bureau of Labor Statistics
*YTD October 2012 vs YTD October 2011
Elliott D. Pollack & Company
Arizona Employment* Annual Percent Change 1975–2013**
Source: Department of Commerce, Research Administration
-2.3%
4.1%
6.7%
10.6%9.4%
3.5%
2.7%
-1.1%
4.7%
9.7%8.2%
4.6%3.6%
2.4%2.5%
2.0%
0.5%
1.7%
4.4%
6.8%6.0%5.5%4.9%4.5%
4.3%3.7%
1.0%
0.1%
1.4%3.7%
5.4% 5.0%
1.5%
-2.1%
-7.3%
-1.9%
1.0%2.0%
3.0%
-10%-8%-6%-4%-2%0%2%4%6%8%
10%12%14%
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
** 2012 & 2013 forecast is from Elliott D. Pollack & Co.
Recession Periods
Elliott D. Pollack & Company
FISCAL CLIFF
Elliott D. Pollack & Company
Speaking of stupid…
Elliott D. Pollack & Company
What will be the impact of defense cutbacks in Arizona?
Elliott D. Pollack & Company
Projected Net Job Growth:2012 = 48,000 2013 = 73,6002014 = 88,500
FISCAL CLIFF IN ARIZONA?
Elliott D. Pollack & Company
If the mandated spending cuts take place, total loss to Arizona is projected at:
45,000 to 50,000 jobs.
(This does not take into account any slowdown caused by tax increases.)
We will still grow, but very slowly.
FISCAL CLIFF IN ARIZONA?
Elliott D. Pollack & Company
Greater Phoenix Employment* Annual Percent Change 1975–2013**
Source: Department of Commerce, Research Administration
-3.7%
4.9%
8.7%
13.3%
10.4%
3.7%
3.0%
-0.1%
5.8%
11.2%9.3%
4.8%3.5%
5.9%2.5%
2.2%
-0.3%
1.1%
4.9%
6.6%7.2%7.3%
5.4%5.4%
4.6%3.5%
1.2%
-0.1%
1.5%3.9%
6.2% 5.4%
1.6%
-2.5%
-7.9%
-1.9%
1.4%2.0%
3.0%
-10%-8%-6%-4%-2%0%2%4%6%8%
10%12%14%
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
** 2012 & 2013 forecast is from Elliott D. Pollack & Co.
Recession Periods
Elliott D. Pollack & Company
Greater Phoenix Employment* Source: Bureau of Labor Statistics
Sectors in DeclineNet
Change
Other Services -1,100
Information -500
*Oct. 2012/ Oct. 2011
Sectors ImprovingNet
ChangeProfessional & Bus Services 13,100
Education & Health Services 6,700
Trade, Transp, Utilities 7,900
Financial Activities 4,400
Government 4,200
Construction 3,200
Leisure & Hospitality 1,700
Manufacturing 1,200
Mining 100
Elliott D. Pollack & Company
Greater Phoenix- Jobs Finally in the Black
Over last 12 months: 40,800 12 months before that: 34,200
12 months before that: 1,30012 months before that:
(149,700)12 months before that:
(83,300) * As of October 2012
Elliott D. Pollack & Company
Greater Phoenix JobsSource: BLS
Jobs lost Peak to Trough:302,500
(Dec-07) (Jul-10)
Jobs gained Trough to Current:133,500
(Jul-10) (Oct-12)
***We are 44% of the way back****Based on not seasonally adjusted monthly data
Elliott D. Pollack & Company
Employment Levels: Greater Phoenix back to Peak in 2015?
Source: ADOC
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2,000.0
2,200.0
2,400.0Recession Periods
Peak
Elliott D. Pollack & Company
Greater Phoenix Non-Farm Employment Gains 3 Years After Recession End
Source: BLS
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
1961 1970 1975 1982 1991 2001 2009
Elliott D. Pollack & Company
Year Rank # MSA’s2000 9 252001 7 262002 5 252003 3 252004 3 252005 1 262006 1 272007 9 282008 24 282009 24 252010 24 242011 12 242012* 3 25
Year Rank # MSA’s1991 4 191992 4 191993 2 191994 1 191995 1 201996 1 211997 1 221998 1 231999 3 24
Phoenix-Mesa Employment Growth(Ranking among all metro areas greater than 1,000,000)
Source: Arizona State University, U.S. Bureau of Labor Statistics
*Year-to-date, October 2012
Elliott D. Pollack & Company
Maricopa County PopulationSource: U.S. Bureau of Census; Arizona Department of Economic Security; University of Arizona Forecasting Project
Year Population1950 331,7701960 663,5101970 971,2281980 1,509,1751990 2,122,1012000 3,072,1492010 3,817,1172020(forecast) 4,831,137
Elliott D. Pollack & Company
Greater Phoenix EmploymentSource: U.S. Bureau of Census; Arizona Department of Administration; University of Arizona Forecasting Project
YEAR EMPLOYMENT
1950 74,4001960 181,7001970 327,2001980 636,2001990 1,013,3002000 1,578,4002010 1,686,8002020 2,312,700
Elliott D. Pollack & Company
0%
2%
4%
6%
1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
2.1%
3.7%
4.2%
4.7%
3.9%
3.3%
3.0%
3.1%
4.3%
5.1%
4.2%4.4%
2.9%
2.5%
1.3%
2.4%
2.8%
3.5%
4.3%
4.6%
4.2%4.2%
3.8%
4.3%4.3%
2.6%2.7%
3.1%
3.6%3.8%
3.7%
3.0%
1.9%
0.5%0.3%
0.6%1.1%
1.8%
Greater Phoenix Population Annual Percent Change 1976–2013*
Source: Arizona State University & Department of Commerce, Research Administration
.
* 2012 & 2013 forecast is from Elliott D. Pollack & Co.
Recession Periods
Elliott D. Pollack & Company
School Enrollment Growth2001-2012
Source: Arizona Department of Education
2.8%3.2%
6.1%
3.5%3.1%
4.9%
2.4% 2.5%
0.7%
-0.7%
0.4%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
N/A
*Collection methodology changed in 2009, rendering 2009/2008 comparisons null.
Elliott D. Pollack & Company
Pinal County
Elliott D. Pollack & Company
Pinal County Employment Annual Percent Change 1975–2012*
Source: Workforce AZ
-8%-6%-4%-2%0%2%4%6%8%
10%12%
-0.1%-1.6%
-2.9%
-1.3%
7.8%
-2.8%
6.2%
-7.0%
-3.0%
3.3%
1.5%
11.0%
6.0%
0.7%
2.6%
-0.4%
2.0%
1.3%
7.4%
9.4%
3.9%4.6%
1.3%
-3.1%
-1.9%-1.2%
2.2%2.7%3.1%
4.5%
5.8%
7.5%8.6%
3.7%
-4.9%
0.1%
1.8%1.4%
*Data through October 2012
Recession Periods
Elliott D. Pollack & Company
Pinal County Employment* Source: Workforce AZ
Sectors in Decline
Information -5.9%
Financial Activities -5.5%
Manufacturing -0.8%
Sectors in Growing
Prof. & Business Services 7.6%
Leisure & Hospitality 6.3%
Education & Health Services 4.3%
Government 3.9%
Mining & Construction 0.9%
Trade, Transp., & Utilities 0.3%
*October 2012/October 2011
Elliott D. Pollack & Company
Pinal County Retail Sales Percent Change Year Ago*
1999 – 2012**Source: Arizona Department of Revenue
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
*Data through September 2012**3-month moving average
Note: January 2010 and March 2010 retail sales are estimates.
Recession Periods
Elliott D. Pollack & Company
0.8 1.0 1.31.8 1.5
1.9
3.4
5.5
8.7
9.6
5.5
4.2
1.91.3 0.9
0.60.8
-1
1
3
5
7
9
11
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Pinal County Single Family Permits1996–2012*
Source: Census Bureau
Recession Periods
*YTD September 2012
Elliott D. Pollack & Company
The real estate market we wanted…
Elliott D. Pollack & Company
The real estate marketwe got…
Elliott D. Pollack & Company
It’s hard not to be optimistic about HOUSING
Elliott D. Pollack & Company
US Total Vacant Housing Units1965-2012*
Source: US Census Bureau
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
*Data through 2012 Q3
Recession Periods
Longer term trend
(000)
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A dimmer switch…
Not a light switch… Bad
Good
Bad
Not great OK
Good
Great
Mediocre
Terrible
Housing
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• Think of what the housing market is going through as the same as any manufacturer that finds themselves with excess inventory…
• Prices are cut until the excessis sold.
• Then prices rise.
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Price gains are largely in distressed properties.
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Total Single Family Units Occupied by Renters2000-2011
Greater PhoenixSource: American Community Survey
0%
5%
10%
15%
20%
25%
11.73% 12.41%11.60% 11.30%
11.75%11.75%
14.10%15.25%
16.37%18.08%
20.32%21.83%
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U.S. Homeownership Rate1994-2012*
Source: Census Bureau
63
64
65
66
67
68
69
70
*Data through 2012 Q2
Recession Periods%
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Percent of Homeownersby Market Status
Source: CoreLogic
Homeowners that could be in resale market: 57.6% (Free & clear or LTV less than 80%)
Homeowners not in resale market: 42.4% (Little or no equity)
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Also, 40% of Households are not credit worthy.
Source: CoreLogic
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Until this gets resolved locally and nationally,
the rate of population growth
will be anemic.
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This will limit the rate of growth in jobs.
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As housing prices go up, more and more people will be able to sell their homes because they aren’t underwater.
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Household FormationsLower during recessions (doubling up, living at home with mom & dad, etc)
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Percent of 25-34 Year Olds Living With Parents vs. Homeownership Rate, Under 35 Years Old
U.S.: 1983 – 2011 Source: US Census Bureau
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
% L
ivin
g w
/ Par
ents
36%
37%
38%
39%
40%
41%
42%
43%
44%
Hom
eow
ners
hip
Rat
e
% Living w/ parents Homeownership Rate
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In a weak economy, population growth fails to
translate into household growth, but when the economy begins to
strengthen, there is pent-up demand for housing.
Source: Linneman Letter
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As new housing and housing prices recover, the entire economy is helped.
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There are still issues…
• Population flows• Interest rates
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So, we are on the right track.
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But, we are recovering, we are not recovered.
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OFFICE
More lights on?
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As of third quarter 2012, there are 300,975 square feet
of office space under construction.
Source: CBRE
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Under any reasonable employment growth scenario,
we believe it will be 2016 before any significant office construction occurs
(although some sub-markets will be sooner).
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INDUSTRIAL
Slowly filling up?
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As of third quarter 2012, there are 5.4 million square feet
of industrial space under construction.
Source: CBRE
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RETAIL
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As of third quarter 2012, there are 0.9 million square feet
of retail space under construction.
Source: CBRE
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CONCLUSIONS:How will it all turn out?
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The Result….
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The economy is improving in both absolute and
relative terms.
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Is the Glass Still Half Full?
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Growth is slow by historic standards because the U.S. economyis slow and incentives are perverse.
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The economy should gain some momentum
(unless the Federal government does something stupid)
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Speaking of Stupid…
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There is a BOOM
for Arizona out there
somewhere.
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But not in 2013.
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ARIZONA– Slow but mildly accelerating recovery.
2013 will be better than 2012
2014 will be better than 2013
2015 should be a good year.
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ELLIOTT D. POLLACK & Company
7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251
480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / [email protected]
• Economic and Fiscal Impact Analysis/Modeling• Real Estate Market and Feasibility Studies• Litigation Support• Revenue Forecasting• Keynote Speaking• Public Finance and Policy Development• Land Use Economics• Economic Development