Arizona Outlook ACMA Winter Conference February 5, 2009

Recession Watch Recession Watch Arizona Jobs Arizona Jobs Arizona People Arizona People Outlook Summary Outlook Summary Economic Update & Outlook

How long in duration? How long in duration? How severe in depth? How severe in depth? USA RECESSION WATCH

Is This a Repeat of the GREAT DEPRESSION? Feb Andrew Mellon Secretary of the Treasury for Herbert Hoover "There is nothing in the situation to be in the situation to be disturbed about."

Is This a Repeat of the GREAT DEPRESSION? %-6.4%-13.0%-1.3%+10.8% In the Great Depression real GDP declined for 4 consecutive years

Is This a Repeat of the GREAT DEPRESSION? 2008 Q Q Q Q Q3 -0.5%-3.8%-3.3%-0.8%+1.2% In the current downturn real GDP expected to decline for 4 quarters Blue Chip Consensus

GDP Recovery in 2nd Half? Blue Chip: Consensus Percent Change in Real GDP at Annual Rate

Survey of Leading Economists 85% believe recession will end by Q % believe home prices will bottom out by Q % believe unemployment will peak in 2010 Blue Chip Economic Indicators, January 2009 Blue Chip Consensus _ _ _ 50 Top Economists

But…Current Recession Will be Longest Post-War 10 Previous Post-War RecessionsMonths Average Post-War Recession10 mos. Longest ( & )16 mos. Current Recession (Since 12/07)14 mos. The Great Depression ( )43 mos. National Bureau of Economic Research

GDP Growth in Q ComponentsQ3 08Q4 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

Percent Growth In Consumer Spending at Annual Rate U. S. Consumer Spending Negative Again in Q First negative quarter since 1991

Job Growth/Loss, Thousands 12 Months of U.S. Job Loss 2 million jobs lost

12 Months Into Recession Arizona Weaker Than US Non-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%

Arizona & US Move Together (Employment Year/Year Percent Change ) Arizona USA You are here

Five Recessions Since 1970 Arizona Follows U.S. Energy Stagflation Fed Policy S & Ls Energy Leverage Tech Bubble Energy Housing Leverage

(Percent Change Dec vs Dec. 2007) U. S. Bureau of Labor Statistics Red: 42 States Losing Jobs Arizona Ranks Near Last in Rate of Job Creation 8 20 Green = Growth 7

Monthly Percent Change vs Year Ago Arizona Job Losses in 2008 Worst since -4.6% June 1975

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

Thousands of Jobs 80,000 Arizona Construction Jobs Lost Since Summer of

Arizona Unemployment Rates in Recession % % % % (Dec) Unemployment at 7%?

Housing Market Drivers Population growth Population growth Employment growth Employment growth Mortgage rates Mortgage rates Mortgage standards Mortgage standards Move-up buyers Move-up buyers Investors Investors

US Census Bureau Arizona 2 nd in Population Arizona 2 nd in Population Growth Among All States Percent Change 2008 vs

14 th Largest State 2 nd Fastest Growth Rate 5 th in New Resident Count 3 rd in Domestic Migration Count 9 th in International Migration Count Arizona Population Rank 2008

Population in 2030 Population 10.7 Million 2 nd Largest State in West 10 th Largest State in US Median Age 39.3 Yrs More Children than Seniors U. S. Census Bureau

Affordability Rebounds Share of Phoenix home sales affordable at median income Phoenix Affordability National Association of Home Builders, 2008 Q3

Annual Percent Change Personal Income Employment Single Family Units Retail Sales Population ARIZONA BLUE 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

Annual Percent Change Source: Arizona Blue Chip Forecast Forecast Arizona Retail Sales: Recession Level Growth

Stagnant economy 2009 Stagnant economy 2009 No job growth until 2010 No job growth until 2010 Unemployment goes up Unemployment goes up Population growth is critical Population growth is critical Wait for US economic recovery Wait for US economic recovery Arizona Outlook Summary Arizona Outlook Summary

Worse economic news ahead Worse economic news ahead Housing must bottom out Housing must bottom out Recovery late 2009? Recovery late 2009? Unemployment at 8%? 10%? Unemployment at 8%? 10%? Stimulus plan to boost growth Stimulus plan to boost growth National Outlook Summary National Outlook Summary

Economic Policy Options 1. 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 Component Tax Cuts$120$130$75$10 State/Local Aid$75 $100 Infrastructure$25$85 $50 Total$220$290$170$60 Billions of Dollars Spending