1. Arizona Update & Outlook Long Road To Recovery ACMA Conference Sedona, Arizona February 4, 2010

2. Update & Outlook Is the Recession Over? Why Consumers Worry Arizona Budget Basics Arizona Outlook

3. Is Recession Over?  Yes - it’s over (19%)  No - not over (64%)  Don’t know (17%)

4. Recession is a contraction Ends when indicators turn up At the bottom of the cycle When conditions are worst! Is Recession Over?

5. But…Current Recession Longest in Post-War 10 Previous Post-War RecessionsMonths Average Post-War Recession10 mos. Longest (1973-1975 & 1981-1982)16 mos. Current Recession (Dec 07 – Sept 09?)21 mos. The Great Depression (1929-1933)43 mos. National Bureau of Economic Research

6. End in Sight? Return to Previous Employment Peak Takes Longer (Months required for U.S. employment to recover from recession and return to previous peak before recession began) RecessionJobs Recovery 8 from 1947 - 1982 11 months 1990 - 1991 24 months 2001 36 months 2007 - 2009 48 months (?)

7. ISM Index Is Back Above 50 (Manufacturing) Institute for Supply Management, Report on Business

8. American Trucking Association 2005 2006 2007 2008 2009 Truck Tonnage Up Since Summer

9. Retail Sales Up After Dec. 2008 Bottom 2004 2005 2006 2007 2008 2009 $ billions of U. S. Retail Sales 2009 sales 7% below 2008 U. S. Census Bureau

10. Arizona Retail Sales Fall Since 2007 (Monthly Percent Change Yr/Yr) Arizona Department of Revenue

11. GDP Rebounds in Fourth Quarter: Expect Smaller Gains In Q1 1.5% U. S. Bureau of Economic Analysis -6.4% 5.7% 2.2%

12. GDP: How Strong in Q4? 20082009 Percent Change in Real GDP at Annual Rate 2010

13. 1979 1980 1981 1982 1983 1984 1980-82 “W” Recovery GDP Beware the double dip

14. End of stimulus may bring double dip recession

15. Stiglitz Says U.S. Recovery May Not Be ‘Sustainable’

16. Buy & Hold? How’s That Been For You? 1999 & 2009 S & P 500

17. 5.9% 1% rise in saving cuts spending by $100 bil. Consumers Stopped Buying & Borrowing – Savings Rate Up

18. Accounts for 70% of GDP But 2010 spending will be weak New borrowing is down Saving rate up as debt reduced Will this be the “new normal?” Why Consumer is Key

19. How Long Will Deleveraging Last?

20. Why Consumers Worry Worry Meter Job Losses Continue Unemployment Up Home Values Down No End in Sight?

21. Arizona consumers & businesses are in the state’s worst downturn (by far) in modern times. Why Consumers Worry

22. 7.3 Mil. U. S. Jobs Lost in Past Two Years Time PeriodJob Loss Dec. 2007 – Dec. 20083.1 Mil Dec. 2008 – Dec. 20094.2 Mil Two Year Total7.3 Mil

23. Fewer U. S. Jobs Now than 9 Years Ago Dec. 2000 132.5 mil Jobs Dec. 2009 131.8 mil Jobs U. S. Bureau of Labor Statistics, seasonally adjusted data

24. US Bureau of Labor Statistics, thousands of U. S. nonfarm jobs U.S. Job Losses Slowing 4,000 jobs added in November

25. (Percent Change Dec. 2009 vs Dec. 2008) 30 47 8 41 18 1 U. S. Bureau of Labor Statistics 50 28 44 49 39 38 Western Job Growth Is Weak 25 Alaska #2 22 26

26. 123,800 Arizona Jobs Lost Sector Jobs: 12 Mos. Overall Nonfarm -123,800 Construction -31,100 Government -20,500 Prof/Biz Services -19,100 Retail Trade -15,000 Manufacturing -11,200 Health Care +6,400 Arizona Dept. of Commerce, Dec. 2009 vs. Dec. 2008

27. Source: Arizona Department of Commerce, not seasonally adjusted % Change Yr/Yr Two Years of Arizona Job Loss (305,000 Jobs Lost Since Dec. 2007)

28. Metro AreaPercentJob Loss Detroit -6.2%-114,500 Phoenix -5.0% -92,100 Atlanta -4.4%-105,300 Riverside -4.3% -51,100 Tampa -4.2% -51,000 Worst Big Metro Economies Job Loss – Dec. 2009 vs Dec. 2008 – Labor Force > 1 Million W. P. Carey School of Business & U. S. Bureau Labor Statistics

29. “Bermuda Triangle” of Economic Troubles (Phoenix – Riverside – Las Vegas)

30. PhoenixRiversideLas Vegas Job Loss (yr/yr)-5.0% (2 nd )-4.3%(4 th ) -7.4% (1 st )* Home Value Decline36% (9 th ) 39% (4 th )40% (2 nd ) Foreclosure Rate2.4% (12 th )3.3% (6 th )5.0% (1 st ) Under Water Homes54% (2 nd ) 70% (1 st ) Triangle of Economic Troubles Job loss, U. S. Bureau Labor Statistics, Dec. 2009 Home values from National Association Realtors, third quarter 2009 Foreclosure rate from RealtyTrac, third quarter 2009 Negative equity from First American CoreLogic, third quarter 2009 *Las Vegas labor force < 1 million

31. AZ Unemployment Rate Below U.S. US Bureau of Labor Statistics and AZ Dept of Commerce RegionUnemployment Rate USA 10.0% (Dec.) Arizona 9.1% Phoenix Metro 8.4% Tucson Metro 8.1% Flagstaff Metro 8.2%

32. Discouraged workers Fewer hours per job Out migration What Factors Keep Arizona’s Unemployment Rate Lower? Arizona 7 th Greatest in Labor Underutilization at 17.2% (US BLS)

33. Component2009201020112012 Personal Tax Cuts/Aid$105$136 $67$5 Corporate Tax Cuts $58 $31$-4$-14 Infrastructure/Other$27$55$44$34 State/Local Govt. $62 $88 $22$2 Total$252$309$129$27 Percentage32%39%16%3% Stimulus Impact Peaks in 2010

34. Recovery.gov website How Many Jobs Has Stimulus Created? 305,000 Arizona jobs lost since December, 2007 employment peak 6,810 Arizona jobs funded by U.S. Recovery Act (Q4 2009) $1.1 billion received in contracts, grants & loans

35. Helped Economy30% Hurt Economy38% No Impact28% Don’t Know 5% Has The Stimulus Helped or Hurt? Rasmussen Poll, December 2009 Evaluating the Stimulus

36. Only 599,000 jobs created? The Stimulus program failed! Only 599,000 jobs created? The funding was too small!

37. Too Small? Not Exactly!

38. Some States Over/Under Funded by Stimulus Act State Share of Stimulus Funds Share of U.S. Unemployed Arizona1.7%1.9% California11.0%14.9% Florida4.6% 7.2% Washington4.0% 2.2% District Columbia1.6%0.3% Average2.0% Stimulus jobs from Recovery.gov website

40. Arizona Fiscal Woes Second to California

41. Arizona Budget Basics

42. Sales taxes (-31%) Individual income taxes (-36%) Corporate income taxes (-46%) These are 90% of General Fund Budget Basics: 3 Major Revenue Sources Decline Office of Strategic Planning & Budgeting, FY 2007 – FY 2010 data

43. Annual Percent Change Arizona Dept. of Revenue & W. P. Carey School Forecast Arizona Retail Sales Outlook: 2009 Will be 10 – 15% Below 2008

44. Annual Percent Change U.S. Dept. Commerce & W. P. Carey School Forecast Arizona Personal Income: First Decline Since Records Kept

45. K-12 Education Corrections AHCCCS & Health Care These are 2/3 of General Fund Budget Basics: Much of Spending is Formula Based Office of Strategic Planning & Budgeting

46. Arizona Taxable Retail Sales and Personal Income (YR/YR Growth 1985:1-2009:2) Taxable Sales

47. 47 Arizona’s Future Fiscal Crisis The cumulative gap between expenditures and revenue from FY10 to FY14 is $15.4 Billion

48. 200820092010 Real GDP Growth 0.4%-2.5% 2.5% Employment Growth -0.4%-3.8%-0.5% Inflation (CPI) 3.8%-0.5%1.5% Housing Starts (000) 900600750 United States Economic Forecast W. P. Carey School of Business, ASU

49. Recession is over, pain remains “U” shaped recovery begins Unemployment stays near 10% Stimulus/bailouts unpopular but support recovery U.S. Outlook Summary

50. 200820092010 Job Gain (Loss)-57,400-183,000-24,000 Percent Change-2.1%-7.0% -1.0% Single Family Units19,15311,50017,250 Percent Change-49%-40% +50% Population Growth2.3%1.5%1.8% W. P. Carey School of Business, ASU; based on data available as of Feb. 1, 2010 ARIZONA Economic Forecast

51. Arizona Employment: 3 rd Year of Job Losses Annual Percent Change In Non-Farm Employment Forecast Arizona Department of Commerce and W. P. Carey School of Business, ASU

52. No AZ Job Growth Until 2011 Annual Numeric Change In Arizona Employment

53. Properties in the Foreclosure Process Maricopa County 2002 – 2009 Source: The Information Market *Data through October 2009.

54. Option ARM Resets: Next Shoe To Drop

55. Single-Family Vacant Units Greater Phoenix 1993–2009q2 Source: PMHS

56. Arizona Single Family Permits U. S. Census Bureau and W. P. Carey School of Business Home Building Hits Bottom in 2009

57. Balance between supply and demand will not be fully achieved until about 2014. But home building will get progressively better between now and then. Elliott D. Pollack & Company

58. Arizona Housing Affordable Again Percent Families That Can Afford Median Priced Home National Association of Home Builders, Phoenix MSA

59. Hurdles On Road To Recovery Economy.com Commercial Real Estate Poses A Major Risk to Recovery “If future defaults follow current delinquency patterns, we should expect an acceleration of bank failures.”

60. Office Space Vacancy Rates U.S. versus Greater Phoenix Source: CB Richard Ellis and Marcus & Millichap

61. Tight Credit Hurts Small Business Job Creation Small business provides 25% of all jobs in U.S. But…small business has accounted for 40% of jobs lost in current recession Hurdles On Road To Recovery

62. Why Arizona Recovers: Population Growth is “Ace in the Sleeve” Decade Growth Rank 1970 - 1980 2 nd 1980 - 1990 3rd 1990 - 2000 2 nd 2000 - 2008 2 nd Year 2008 2 nd

63. 1 8 2 4 5 3 US Census Bureau 6 Alaska 9 7 10 Arizona 2nd Fastest Growth State for 25 Years Percent Change: 1980 - 2005

64. Arizona Comes Back From Recession (Employment Growth Rate & Ranking) #2 #18 #1 #20 #2 #12 #2 #47 Percent U. S. Bureau of Labor Statistics

65. The Long Road to Recovery: Arizona Jobs Return in 2013 2.7 million 2.4 million 2.7 million Arizona Department of Commerce and W. P. Carey School of Business, ASU Arizona Employment

66. Arizona Job Growth US Job Growth You are here U. S. Bureau of Labor Statistics U.S. Rebound Will Lift Arizona (Employment Year/Year Percent Change 1970-2009)

67. 2009 - ugly 2010 - homely Weak job gains Unemployment high Population growth is critical Wait for US economic recovery Arizona Outlook Summary

68. Arizona Update & Outlook Long Road To Recovery Lee McPheters W. P. Carey School of Business Arizona State University