1. Elliott D. Pollack & Company Schizophrenia and Economists Paramount Pool and Spa Systems October 6th, 2014 Presented By: Jim Rounds Sr. VP, Elliott D. Pollack & Company

2. Elliott D. Pollack & Company Paranoid about the economy?

3. Elliott D. Pollack & Company Past “Headlines”

4. Elliott D. Pollack & Company What The #$@&, I Thought It Was Getting Better? 2010 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company

5. “The Not So Attractive Recovery” (But it has a great personality!) 2011 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company

6. 2012 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company You Heard It Here First: Less Dreadful Times Ahead!

7. Elliott D. Pollack & Company 2013 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company Firming Up The Recovery…

8. Elliott D. Pollack & Company How to Avoid the…

9. Elliott D. Pollack & Company Is there a story? Does the data make sense? If not, is there an explanation for why it is off? If not, then worry.

10. Elliott D. Pollack & Company Let’s start with the U.S.

11. Elliott D. Pollack & Company United States Real Gross Domestic Product* Annual Growth 1970 - 2015** Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators * Based on chained 2009 dollars. ** 2014 and 2015 are a forecast from the Blue Chip Economic Indicators, September 2014. Recession Periods 3.8% = 40-year avg during expansion 3.2% = 20-year avg during expansion Underlying = 2.2% Act: -2.0, 4.6, 2.8, 3.3% But, next year hit “average.”

12. Elliott D. Pollack & Company U.S. Leading Indicators 1971 – 2014* Source: The Conference Board Recession Periods *Data through August 2014

13. Elliott D. Pollack & Company 10 Components of U.S. Leading Indicators – August 2014 Interest rate spread Manuf. new order index Leading credit index (inverted) Consumer expectations Manuf. new orders – consumer goods Manuf. hours Manuf. new orders – capital goods Stock Prices Claims for unemployment (inverted) Building permits + -

14. Elliott D. Pollack & Company U.S. Consumer Debt 1999 - 2014* Source: Federal Reserve Overall, borrowing remains more than $1 trillion below its 2008 peak. (Trillions) Recession Periods Debt down from peaks but level still high with no adjustment…

15. Elliott D. Pollack & Company Financial Obligation Ratio** 1980 – 2014 * Source: Federal Reserve *Data through first quarter 2014 **Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income. Recession Periods Consumers have less “relative” debt compared to income…

16. Elliott D. Pollack & Company S&P 500 1980-2014* Source: Standard & Poor's (S&P); Moody's Analytics (ECCA) Converted * Data through July 31,2014 Recession Periods Risk? Bubble?

17. Elliott D. Pollack & Company U.S. Household Net Worth (Billions of Dollars, NSA) 1970 - 2014* Source: Board of Governors of the Federal Reserve System *Data through first quarter 2014 Recession Periods But, people are focusing policy discussions on narrowing the “gap.”

18. Elliott D. Pollack & Company U.S. Average Household Income by Each Fifth Percentile & Top 5% Source: U.S. Census Bureau Every group has been somewhat flat since downturn and “gap” has been growing for a while.

19. Elliott D. Pollack & Company U.S. Average Household Income by Each Fifth Percentile & Top 5% Source: U.S. Census Bureau This is being ignored...

20. Elliott D. Pollack & Company Grass always greener on other side, or did neighbor steal your grass?

21. Elliott D. Pollack & Company Consumer Confidence is High …and so is Colorado…munchies!

22. Elliott D. Pollack & Company Consumer Confidence 1978 – 2014* Source: The Conference Board *Data through August 2014. Recession Periods Disenfranchised Weary Worried P.O.’d So people will be spending more…

23. Elliott D. Pollack & Company Capacity Issues?

24. Elliott D. Pollack & Company Capacity Utilization Rate 1970 – 2014* Source: The Federal Reserve Bank of St. Louis *Data through June 2014. Recession Periods Front end of accelerated investment; 10% in Q2

25. Elliott D. Pollack & Company Demographics Still Matter

26. Elliott D. Pollack & Company U.S. Birth Index 1909-2012 Source: U.S. Census Bureau; Harvard Joint Center for Housing Studies Baby Boomers 1945-1964 78.7 M

27. Elliott D. Pollack & Company Consumer Life Cycle Source: U.S. Census Bureau; Dent Research; EDPCo Age

28. Elliott D. Pollack & Company Starter Homes Cycle 31-32 year lag 1960-2043 Source: U.S. Census Bureau ?

29. Elliott D. Pollack & Company Trade Up Home Cycle 41-43 year lag 1970-2053 Source: U.S. Census Bureau ?

30. Elliott D. Pollack & Company Vacation Home Cycle 50 year lag 1979-2062 Source: U.S. Census Bureau ?

31. Elliott D. Pollack & Company Retirement Home Cycle 65 year lag 1994-2076 Source: U.S. Census Bureau ?

32. Elliott D. Pollack & Company Federal Government No, not an accident…

33. Elliott D. Pollack & Company Federal Government Expenditures Percent Change Year Ago 1970-2014* Source: U.S. Bureau of Economic Analysis *Data through first quarter 2014. Recession Periods

34. Elliott D. Pollack & Company State and Local Government Expenditures Percent Change Year Ago 1970-2014* Source: U.S. Bureau of Economic Analysis *Data through first quarter 2014. Recession Periods

35. Elliott D. Pollack & Company Summary U.S.: Economic conditions improving, hard to tell when things will better slope up (but soon), demographics not fully in our favor but manageable.

36. Elliott D. Pollack & Company 201020112012201320142015 Real GDP2.5%1.6%2.3%2.2%2.1%3.0% Consumer Price Index 1.6%3.2%2.1%1.5%1.9%2.1% Industrial Production 5.7%3.3%3.8%2.9%4.0%3.6% Disposable Personal Income 1.0%2.5%3.0%-0.2%2.6%2.8% Corporate Profits 25.0%4.0%11.3%4.2%0.3%6.4% Unemployment Rate 9.6%9.0%8.1%7.4%6.2%5.7% Housing Starts0.590.610.780.921.011.20 U.S. Blue Chip Economic Indicators Forecasts as of September 2014 Year-over-year % change Total Units Annual Average Forecasts

37. Elliott D. Pollack & Company Population

38. Elliott D. Pollack & Company 5 2 7 1 Population Growth 2013 Source: U.S. Census Bureau 8 3 9 6 Growing Declining Top 10 10 Alaska Hawaii 4 31 19 Part growth, part math related to base size…

39. Elliott D. Pollack & Company Population Growth Annual State Ranking 2005-2013 Source: U.S. Census Bureau 200520062007200820092010201120122013 Arizona225819141278 % change3.3% 2.3%1.8%1.0%1.1%0.9%1.3%1.2% California191722252824283036 % change0.7%0.5%0.6%1.0% 1.1%0.9% Florida41019273117697 % change2.5%1.8%1.1%0.9%0.7%1.0%1.3%1.2% New York4947 40393831 % change-0.2%-0.1%0.1%0.4%0.5%0.4%0.5%0.4% Texas968533134 % change1.7%2.6%2.0% 1.8%1.6% 1.5%

40. Elliott D. Pollack & Company Population Flows Annual Growth Rate 2000-2013 Source: U.S. Census Bureau Recession Periods

41. Elliott D. Pollack & Company Distribution of Movers in U.S. by Type* 1990-2013 Source: U.S. Census Bureau *Excludes movers in the same county Movers (in millions)

42. Elliott D. Pollack & Company Employment

43. Elliott D. Pollack & Company 2 1 3 23 9 4 5 Alaska 7 10 Job Growth 2006 Source: US BLS Jobs growing Jobs declining Top 10 Hawaii 6 8 13 40

44. Elliott D. Pollack & Company 49 4 7 40 Hawaii 1 Alaska 2 6 5 10 3 Jobs growing Jobs declining Top 10 8 9 14 Job Growth 2010 Source: US BLS

45. Elliott D. Pollack & Company 10 3 4 5 6 7 1 2 Alaska Jobs growing Jobs declining Top 10 Hawaii 9 25 Job Growth 2013 Source: US BLS 8

46. Elliott D. Pollack & Company 15 9 7 3 6 2 1 4 Alaska Jobs growing Jobs declining Top 10 Hawaii 10 Job Growth 2014 YTD August 2014 vs YTD August 2013 Source: US BLS 5 8 26

47. Elliott D. Pollack & Company Employment Growth Annual State Ranking 2006-2014* Source: U.S. Bureau of Labor Statistics 200620072008200920102011201220132014* Arizona2174649 2891015 % change5.4%5.0%-2.1%-7.2%-1.9%1.1%2.1% 1.9% California23334544432439 % change1.8%1.7%-1.3%-6.0%0.9%1.0%2.4%3.0%2.3% Florida1345504740261185 % change2.6%0.2%-3.5%-6.2%-1.0%1.1%2.0%2.5%3.0% New York40201271411272526 % change1.0%1.3%0.7%-2.7%0.0%1.4% 1.3% Texas643873353 % change3.3% 2.0%-2.8%0.3%2.2%2.9% 3.2% *YTD August 2014 vs. YTD August 2013

48. Elliott D. Pollack & Company U.S. Employment Losses – Recent Recessions Duration in Months Source: Bureau of Labor Statistics 2008

49. Elliott D. Pollack & Company How hard did you get hit?

50. Elliott D. Pollack & Company Percent of Jobs Lost By Select States Source: Bureau of Labor Statistics

51. Elliott D. Pollack & Company Employment Losses – Most Recent Recession Duration in Months Source: Bureau of Labor Statistics

52. Elliott D. Pollack & Company Employment Recovery Duration in Months Source: Bureau of Labor Statistics Pre-Recession Peak Employment = 100 AZ AZ & FL Have Yet to Regain All Lost Jobs

53. Elliott D. Pollack & Company Housing?

54. Elliott D. Pollack & Company Long-Term Home Prices in the U.S. Adjusted for Inflation 1980-2014* Source: Figure 2.1 in Robert J. Shiller, Irrational Exuberance, 2nd. Edition, Princeton University Press,2005, 2009, Broadway Books 2006, also Subprime Solution, 2008, as updated by author *Data through first quarter 2014. Recession Periods Housing bubbles have to be evaluated by individual market…

55. Elliott D. Pollack & Company Tougher Qualifications (1) More paperwork, (2) Lower debt to income ratios, (3) Longer lockout period after a foreclosure, (4) Higher down payment requirements, (5) Others…

56. Elliott D. Pollack & Company Net Percentage of Large U.S. Banks Reporting Eased Standards versus Tougher Standards on Residential Mortgage Prime Loans 2007 Q1 – 2014 Q2 Source: Federal Reserve Recession Periods Still Flat…

57. Elliott D. Pollack & Company Year U.S. Foreclosures % chg year ago 2002230,750 2003253,5849.9% 2004273,9308.0% 2005290,8726.2% 2006379,38030.4% 2007587,87255.0% 2008972,93365.5% 20091,009,2843.7% 20101,145,29213.5% 2011930,633-18.7% 2012821,689-11.7% 2013618,493-24.7% U.S. Annual Foreclosures 2002–2013 Source: CoreLogic

58. Elliott D. Pollack & Company U.S. Foreclosure Lag 2002–2021 Source: CoreLogic Recession Periods

59. Elliott D. Pollack & Company Negative Equity Share 2010–2014 Source: CoreLogic

60. Elliott D. Pollack & Company Pent-up Demand? Millennials?

61. Elliott D. Pollack & Company Is it a social shift or just the business cycle?

62. Elliott D. Pollack & Company Homeownership Rates 1990-2014* Source: U.S. Census Bureau Recession Periods *Data through second quarter 2014 Upward potential: Rates will get back to normal…

63. Elliott D. Pollack & Company Percent of 18-34 Year Olds Living With Parents U.S.: 1983 – 2013 Source: US Census Bureau Recession Periods 18-34 year olds represent 23% of total population. (73.7 million persons) Upward potential: Parents are currently going insane…

64. Elliott D. Pollack & Company Millennials – Economic or Social? 30-34 year olds in 2012 had the lowest homeownership rate of any similarly aged group before them. Five years prior, this exact same group (at 25-29 years old) had the highest homeownership rate than any group before them.

65. Elliott D. Pollack & Company Total Residential Housing Building Permits 2000-2013 Source: U.S. Census Bureau Recession Periods Room to recover…

66. Elliott D. Pollack & Company Single Family Housing Permits 2000-2013 Source: U.S. Census Bureau Recession Periods

67. Elliott D. Pollack & Company Single Family Housing Permits Annual Growth Rate 2001-2013 Source: U.S. Census Bureau Recession Periods 50%/100%

68. Elliott D. Pollack & Company Income by State

69. Elliott D. Pollack & Company Per Capita Personal Income 2000-2013 Source: Bureau of Economic Analysis Recession Periods

70. Elliott D. Pollack & Company State Per Capita Personal Income As a Percent of U.S. 2000-2013 Source: Bureau of Economic Analysis Recession Periods

71. Elliott D. Pollack & Company Don’t lose the smile just yet… From Pkdata Special report 2014

72. Elliott D. Pollack & Company Economy is improving. Businesses and consumers will be spending more. Demographics a moderate constraint. Millennials are not the same from state to state. “Getting back to normal” more than offsets demographics.

73. Elliott D. Pollack & Company For a quick analysis of important economic data released each week, subscribe to the Monday Morning Quarterback www.arizonaeconomy.com www.arizonaeconomy.com