1. Arizona Outlook ACMA Winter Conference February 5, 2009

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

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

4. Is This a Repeat of the GREAT DEPRESSION? Feb. 1930 Andrew Mellon Secretary of the Treasury for Herbert Hoover "There is nothing in the situation to be in the situation to be disturbed about."

5. Is This a Repeat of the GREAT DEPRESSION? 19301931193219331934 -8.6%-6.4%-13.0%-1.3%+10.8% In the Great Depression real GDP declined for 4 consecutive years

6. Is This a Repeat of the 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 GDP expected to decline for 4 quarters Blue Chip Consensus

7. GDP Recovery in 2nd Half? 2008 2009 Blue Chip: Consensus Percent Change in Real GDP at Annual Rate

8. Survey 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 Chip Consensus _ _ _ 50 Top Economists

9. But…Current Recession Will be Longest Post-War 10 Previous Post-War RecessionsMonths Average Post-War Recession10 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

10. GDP Growth in Q4 2008 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

11. Percent Growth In Consumer Spending at Annual Rate U. S. Consumer Spending Negative Again in Q 4 20082007 First negative quarter since 1991

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

15. 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%

16. Arizona & US Move Together (Employment Year/Year Percent Change 1970 - 2008) Arizona USA You are here

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

18. (Percent Change Dec. 2008 vs Dec. 2007) 2 48 49 1 27 5 6 U. S. Bureau of Labor Statistics 16 14 41 36 13 4 36 Red: 42 States Losing Jobs Arizona Ranks Near Last in Rate of Job Creation 8 20 Green = Growth 7

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

20. 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

22. Less Harmed by Recession Food, guns, alcohol Health care & related Online commerce Repair & maintenance Basic consumer goods

23. Hit Hardest by Recession Discretionary & postponable Temporary worker agencies Construction, home stores Retail outlets, restaurants Auto dealers, trucking Finance & insurance

24. Thousands of Jobs 80,000 Arizona Construction Jobs Lost Since Summer of 2006 2005200720062008

25. Arizona Unemployment Rates in Recession 1976 10.3% 1982 11.5% 1992 7.5% 2008 6.9% (Dec) Unemployment at 7%?

26. 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

27. 1 7 2 3 5 4 6 US Census Bureau 18 17 8 11 14 9 Arizona 2 nd in Population Arizona 2 nd in Population Growth Among All States Percent Change 2008 vs 2007 10 12 16 36

28. 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

29. 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

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

32. 200820092010 Annual Percent Change Personal Income3.52.54.0 Employment-1.6-0.91.8 Single Family Units-53-3.713.2 Retail Sales-5.00.23.7 Population2.31.82.0 ARIZONA BLUE CHIP ECONOMIC FORECAST

33. Arizona Employment: No Job Growth Until 2010 Annual Numeric Change In Arizona Employment

34. Annual Percent Change In Arizona Employment Arizona Employment: No Job Growth Until 2010

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

36. 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

37. 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

38. 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

39. Stimulus Plan: A Hybrid Component2009201020112012 Tax Cuts$120$130$75$10 State/Local Aid$75 $100 Infrastructure$25$85 $50 Total$220$290$170$60 Billions of Dollars Spending 2009 - 2012

40. http://knowledge.wpcarey.asu.edu Lee.mcpheters@asu.edu