elliott d. pollack & company to: acma by: jim rounds, senior vice president elliott d. pollack...

Elliott D. Pollack & Company

To:

ACMA

By:Jim Rounds, Senior Vice President


February 6th, 2013

The Land of Common NonSense


Context


The economy we wanted…


What we got…


United States Real Gross Domestic Product* Annual Growth 1970 - 2014**

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%

2.3%2.0%

2.6%

-4%

-2%

0%

2%

4%

6%

8%

* Based on chained 2005 dollars.

** 2012 - 2014 are forecasts from the Blue Chip Economic Indicators, January 2013Recession Periods

4th Qt = -.1%


Worried about GDP? No.

- Spending boost followed by budget cuts,

- Inventories.


US New Job Data Change from Prior Month (S/A)

June 2010 – January 2013Source: Bureau Labor of Statistics

-130

-86

-37-43

228

144

95

69

196205

115

209

78

132

225

166174

230

271

205

112125

87

153165

138

160

247

196

157

(250)

(200)

(150)

(100)

(50)

0

50

100

150

200

250

300

(000’s)


U.S. Unemployment Rate1976 – 2013*

Source: Bureau of Labor Statistics

0%

2%

4%

6%

8%

10%

12%

*Data through January 2013

Recession Periods


U.S. Underemployment Rate1994 – 2012*

Source: Bureau of Labor Statistics

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

*Data through August 2012

Recession Periods

Beaten down by life.

Unemployment Rate


Financial Obligation Ratio**1980 – 2012*

Source: Federal Reserve

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

1980 Q

1

1981 Q

2

1982 Q

3

1983 Q

4

1985 Q

1

1986 Q

2

1987 Q

3

1988 Q

4

1990 Q

1

1991 Q

2

1992 Q

3

1993 Q

4

1995 Q

1

1996 Q

2

1997 Q

3

1998 Q

4

2000 Q

1

2001 Q

2

2002 Q

3

2003 Q

4

2005 Q

1

2006 Q

2

2007 Q

3

2008 Q

4

2010 Q

1

2011 Q

2

2012 Q

3

*Data through third quarter 2012**Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.

Recession Periods

Paying less for past

purchases!


Consumer Confidence1978 – 2012*

Source: The Dismal Scientist

20

30

40

50

60

70

80

90

100

110

120

130

140

150

*Data through December 2012

Recession Periods

Normal NormalNormal New Normal?


Real Retail Sales U.S. Percent Change Year Ago

1973 – 2012* Source: Federal Reserve

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

*Data through November 2012**Three-month moving average

Recession Periods


Real Disposable Personal IncomePercent Change Year Ago

1971 – 2012* Source: Bureau of Economic Analysis

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

* Data through third quarter 2012

Recession Periods


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


Capacity Utilization Rate1970 – 2012*

Source: The Federal Reserve Bank of St. Louis

65

70

75

80

85

90

Jan-

70

Jan-

71

Jan-

72

Jan-

73

Jan-

74

Jan-

75

Jan-

76

Jan-

77

Jan-

78

Jan-

79

Jan-

80

Jan-

81

Jan-

82

Jan-

83

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

*Data through November 2012

Recession Periods


U.S. Leading Indicators1971 – 2012*

Source: The Conference Board

30

40

50

60

70

80

90

100

110

120

Recession Periods



FISCAL CLIFF

2013


Recession? No.

Slow growth?Yes.

Kicking the can…Yes.


Arizona


9

4

15

2

10

3

7

Job Growth 2006

11

15

6

22

8

Source: US BLSSource: US BLS

13

Jobs growing

Jobs declining

Top 10

Hawaii

Alaska


5

49

24

3645

4

30

8

25

46

50

44

1

3

Alaska 2

2034

Job Growth 2009Source: US BLSSource: US BLS

Jobs growing

Jobs declining

Top 10

Hawaii

6

7

910


65

34

10 8

448

32

3311

1

3

Alaska 43

22

Jobs growing

Jobs decliningTop 10

Hawaii

14

9

2

Job Growth 2012Source: US BLS

507


SRP Residential Utility Hookup Percentage Growth Greater Phoenix 2003 – 2012*

Source: SRP

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

*Data through July 2012.

POP


APS: Slowest Growth in over 50 years1954 – 2012*

0%

1%

2%

3%

4%

5%

6%

7%

8%

Re

sid

en

tia

l Cu

sto

me

rs O

ve

r P

rio

r Y

ea

r

*Data through third quarter 2012Source: APS

POP


Arizona Retail Sales Percent Change Year Ago*

1999 – 2012**Source: Arizona Department of Revenue

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

*Data through November 2012**3-month moving average

Recession Periods


Arizona Restaurant and Bar Sales Percent Change Year Ago*

1999 – 2012**Source: Arizona Department of Revenue

-15%

-10%

-5%

0%

5%

10%

15%

20%

*Data through November 2012**3-month moving average

Recession Periods


2010 2011 2012 2013 2014 2015

State Sales Tax ( 5% - Undistributed Portion) $798.5 $127.4 $143.3 $161.3 $181.7 $204.9 $231.2

State Sales Tax ( 0.6% - Education) $129.8 $20.7 $23.3 $26.2 $29.5 $33.3 $37.6

County (Direct and State Shared Revenue) $342.5 $60.0 $67.5 $75.9 $85.6 $96.5 $108.9

Local (Direct and State Shared Revenue) $588.6 $109.3 $122.9 $138.3 $155.9 $175.7 $198.3

Total $1,859.4 $317.4 $356.9 $401.8 $452.7 $510.5 $576.1

Source: Elliott D. Pollack & Company; IMPLAN; AZ Dept. of Revenue; AZ Tax Research Association; Univ. of Tennessee

FORECAST

2000 - 2009

Uncollected Taxes on E-Commerce (Millions)Arizona

2000 – 2012**Source: Elliott D. Pollack and Company, AZDOR, ATRA, IMPLAN


Projected Net Job Growth:

2013 = 73,600 2014 = 88,500 = 162,100

FISCAL CLIFF IN ARIZONA?


If the mandated spending cuts take place,

total loss to Arizona is projected at: 45,000 to 50,000 jobs.

We will still grow, but very slowly.Remember, the “worst case” is not the

most likely scenario.

FISCAL CLIFF IN ARIZONA?


Addl. Detail:Greater Phoenix


Arizona Employment* Source: Bureau of Labor Statistics

Sectors in Decline

Net

Change

Information -1,000

Other Services -400

Natural Resources & Mining -100

*Dec. 2012/ Dec. 2011

Sectors Improving

Net

Change

Professional & Bus Services 13,300

Trade, Transp, Utilities 12,200

Education & Health Services 10,200

Leisure & Hospitality 8,800

Construction 7,300

Government 6,200

Financial Activities 3,800

Manufacturing 3,600


Greater Phoenix Employment* Source: Bureau of Labor Statistics

Sectors in Decline

Net

Change

Information -600

Natural Resources & Mining -100

*Dec. 2012/ Dec. 2011

Sectors Improving

Net

Change





Government 5,300

Construction 5,200

Financial Activities 3,500

Manufacturing 2,400

Other Services 900


Arizona- Jobs in the Black

Over last 12 months: 63,900 12 months before that: 22,900

12 months before that: 7,00012 months before that:

(160,500)12 months before that:

(138,100) * As of December 2012


Arizona JobsSource: BLS

Jobs lost Peak to Trough:300,800

(Dec-07) (Jul-10)

Jobs gained Trough to Current:102,900

(Jul-10) (Dec-12)

***We are 33% of the way back****Based on seasonally adjusted monthly data


Employment Levels: Arizona back to Peak in 2015?

Source: ADOA

1,600.0

1,800.0

2,000.0

2,200.0

2,400.0

2,600.0

2,800.0

3,000.0

Recession Periods

Peak


Arizona Per Capita Personal Income1978–2011

Source: Bureau of Economic Analysis

$0

$10,000

$20,000

$30,000

$40,000

Recession Periods


Arizona Per Capita Personal Income% of US: 1978–2011

Source: Bureau of Economic Analysis

80%

85%

90%

95%

100%

Recession Periods


U.S. Single-Family Starts1978–20121/

Source: Census Bureau

1.4

1.2

0.9

0.7 0.7

1.1 1.1 1.1

1.2 1.11.1

1.00.9

0.8

1.01.1

1.2

1.1

1.21.1

1.3 1.31.21.3

1.4

1.5

1.6

1.7

1.5

1.0

0.6

0.4 0.50.4

0.5

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

(Millions)

1/ Through November 2012

Recession Periods

Over-supply

Under-supply

LTA: 1.2


Single Family Permits

Greater Phoenix 1975–2016*Source: RL Brown & Elliott D. Pollack & company

8.711.1

22.3

28.9

18.8

11.510.6

11.6

19.4 18.1

22.623.2

17.915.1

12.010.6

13.7

18.4

22.7

27.428.5

29.631.7

36.035.3

34.736.2

38.9

47.7

60.9

63.6

42.4

31.2

12.6

8.06.8

6.8

12.014.0

18.0

25.0

35.0

0

10

20

30

40

50

60

70

# Permits(000)

*2012 – 2016 forecast is from Elliott D. Pollack & Company

But population growth also slid…


Greater Phoenix Percentage of Homes Purchased with

$$$ Cash $$$2003 – 2012*

Source: Cromford Report

0%

10%

20%

30%

40%

50%



Greater Phoenix Permits Source: R.L. Brown

*Data through YTD December 2012 vs. YTD December 2011

Year Permits % chg

2004 60,872 27.6%

2005 63,570 4.4%

2006 42,423 -33.3%

2007 31,172 -26.5%

2008 12,582 -59.6%

2009 8,027 -36.2%

2010 6,822 -15.0%

2011 6,794 -0.4%

2012* 11,615 71.0%


Home Prices IndicesGreater Phoenix

1989 – 2012* Source: Macro Markets, LLC; AMLS

60

80

100

120

140

160

180

200

220

240

MLS Index Case-Shiller Index Trendline (4.0%)

Recession Periods

*Data through October 2012.

?


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%

?


Greater Tucson


Same basic story, just different scale and

timing…


Greater Tucson MSA Employment* Annual Percent Change 1975–2012**

Source: Department of Commerce, Research Administration

3.3%

6.2%

9.2%

4.6%

3.1%

-0.1%

3.8%

8.6%8.1%

3.3%2.3%

1.8%

0.3%0.6%

2.7%

2.4%

3.7%

6.3%

3.8%

1.5%2.7%

2.8%3.8%

4.0%

-0.7%

-1.3%

0.7%

3.4%2.7%

3.5%

1.5%

-1.0%

-5.1%

-2.2%

0.1%

0.6%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.

**Data through November 2012

Recession Periods


Greater Tucson Employment* Source: Bureau of Labor Statistics

Sectors in Decline

Net

Change

Education & Health Services -1,000

Other Services -400

Information -300

*Dec. 2012/ Dec. 2011

Sectors Improving

Net

Change


Business & Prof. Services 1,500


Construction 900

Government 900

Financial Activities 500

Manufacturing 300


Pima County Retail Sales Percent Change Year Ago

2000 – 2012* Source: Arizona Department of Revenue

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%


Recession Periods


Greater Tucson Single Family Permits2000–2012*

Source: Southern Arizona Housing Market Letter

Recession Periods


0

250

500

750

1,000

1,250

1,500

1,750

2,000


Single Family Resale Median PriceGreater Tucson

2000 – 2012* Source: Southern Arizona Housing Market Letter

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%


Recession Periods


Balance of State


Balance of State Employment* Annual Percent Change 1975–2012**

Source: Department of Commerce, Research Administration

3.9%

6.7%6.6%

1.6%1.0%

-5.3%

1.5%

4.9%

3.9%5.5%

5.2%

-10.9%

5.2%3.8%

2.4%3.8%3.3%

8.1%

3.1%2.0%

4.9%

2.2%3.1%

4.2%

1.7%

1.0%

1.6%

2.8%

4.1%

4.6%

0.8%

-1.4%

-6.3%

-1.8%

-0.3%

1.9%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.

**Data through December 2012

Recession Periods


Balance of State Employment* Source: Bureau of Labor Statistics

Sectors in Decline

Net

Change

Other Services -900

Financial Activities -200

Information -100

*Dec. 2012/ Dec. 2011

Sectors Improving

Net

Change




Construction 1,200

Manufacturing 900

Trade, Transp, Utilities 500


Balance of State Retail Sales Percent Change Year Ago**

2000 – 2012* Source: Arizona Department of Revenue

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

*Data through December 2012** 3-month moving average

Recession Periods


4.55.5

4.9

6.35.2

4.2

2.7

4.54.9

4.8

4.7 4.94.95.25.2

4.5

5.25.8

6.96.5

7.3

5.7

6.36.3

6.4

4.3

8.78.5

9.7

12.6

10.5

5.6

2.2

2.2

1.9 1.9

2.33.3

0

2

4

6

8

10

12

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

Balance of State Single Family Permits1976–2013*

Source: University of Arizona

Recession Periods

*2012 & 2013 are forecasts from the University of Arizona


Commercial


Multi-Family


Multi-Family Year-End Vacancy RatesMaricopa County 1975–2014*

Source: ASU Realty Studies / Hendricks & Partners**

6.2%

4.1%3.3%

2.8%

3.9%

6.1%

4.4%

6.1%

6.9%7.7%

10.1%10.6%

13.0%14.1%

13.4%

10.0%9.5%

8.0%

4.0%3.8%4.5%4.5%

4.8%

5.1%5.9%

6.8%

8.2%

9.4%9.6%

7.9%

6.8%

7.8%

10.2%

12.5%

13.4%

10.8%

8.7%7.8%

7.0%6.4%

0%

3%

6%

9%

12%

15%

18%

*2012 -2014 are forecasts from the Greater Phoenix Blue Chip

**Data prior to 2005 is from ASU

Recession Periods


Absorption Completions

2007 (3,121) 3,800

2008 (4,466) 5,900

2009 9,100 6,231

2010 11,619 200

2011 7,729 248

2012q3 2,931 274

Multi-Family Housing Market Source: PMHS and Hendricks & Partners


OFFICE

More lights on?


Office Space Year-End Vacancy RatesMaricopa County 1986–2014*

Source: CBRE

26.7%

22.8%

24.0%

26.7%26.4%

25.4%

22.7%

18.8%

14.8%

11.7%

9.5% 9.2%9.5%

10.0%9.9%

16.0%

18.8%18.3%

16.4%

12.6%

11.1%

13.9%

19.1%

24.5%

26.2%25.5%

23.9%

22.1%

20.0%

0%

5%

10%

15%

20%

25%

30%

35%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*2012 -2014 are forecasts from the Greater Phoenix Blue Chip

Recession Periods


Greater Phoenix Office MarketSource: CBRE

Year Absorption (sf) Chg in Inventory (sf)

2006 3,245,888 **2,320,302

2007 1,500,704 4,905,374

2008 (603,112) 3,402,646

2009 (677,329) 1,798,415

2010 233,670 2,011,404

2011 1,857,433 3,144,910

2012q3 1,111,008 1,033,684*Only includes multi-tenant space greater than 10,000 SF

** A number of buildings in downtown and mid-town are being converted to office condos.


As of third quarter 2012, there are 300,975 square feet

of office space under construction.

Source: CBRE


INDUSTRIAL

Slowly filling up?


Industrial Space Vacancy RatesMaricopa County 1980 – 2014*

Source: CBRE

8.4%

9.4%

11.1%

9.7%

12.8%

13.2%

16.4%15.2%

14.6%

12.8%14.0%

14.8%

13.6%

10.8%

7.4%

6.6%5.7%

7.0%7.1%8.1%

7.4%

9.8%10.3%

9.7%

8.5%

5.6%

6.7%

8.4%

12.5%

16.1%

14.7%

12.4%11.9%

11.0%10.6%

0%

5%

10%

15%

20%

* 2012 - 2014 are forecasts from the Greater Phoenix Blue Chip

Recession Periods


Greater Phoenix Industrial Market Source: CBRE


2006 6,032,175 7,829,959

2007 8,359,835 13,914,181

2008 629,838 13,467,215

2009 (4,649,352) 4,753,218

2010 4,455,097 2,451,202

2011 7,753,111 2,842,185

2012q3 6,093,132 2,132,574


As of third quarter 2012, there are 5.4 million square feet

of industrial space under construction.

Source: CBRE


RETAIL


Retail Space Vacancy RatesMaricopa County 1985–2014*

Source: CBRE**

6.6%

8.9%

10.0%

11.8%13.1%

14.2%13.5%

12.7%

11.1%

9.8% 8.7%

7.9%7.5%

6.3%5.5%

5.3%6.6%7.3%

7.4%

6.1%5.3%

5.1%

6.2%7.5%

11.4%12.2%

12.2%

11.9%11.3%

10.3%

0%

5%

10%

15%

20%

* 2012-2014 are forecasts from GPBC** Data prior to 1992 is from Grubb & Ellis

Recession Periods


Greater Phoenix Retail Market Source: CBRE


2006 5,244,597 4,582,618

2007 9,424,362 11,104,865

2008 3,395,986 6,229,205

2009 (1,117,100) 4,405,985

2010 (75,352) 902,380

2011 (152,647) 24,543

2012q3 1,179,828 (58,535)NOTE: 325,000 sf were deleted from inventory during 2011 and 175,000 through q2 2012 due to market data updates and demolitions.


As of third quarter 2012, there are 0.9 million square feet

of retail space under construction.

Source: CBRE


Why be Optimistic?


Housing?


Many renting will buy. Many doubled-up will buy. Some population growth is back. Employment growth is occurring. Retirees less bound to crappy states. Investors will not suddenly dump and run. Still producing less than “normal.” Fundamentals remain in place. “Normal” returns in 2015-ish. Growth rates will be strong now though.


Cyclical vs. Permanent?


How Arizona Ranks Among the States in Percentage Growth

Source: U.S. Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis PERSONAL DECADE POPULATION EMPLOYMENT INCOME

1950 - 1960 4TH 3RD 2ND

1960 - 1970 3RD 3RD 4TH 1970 - 1980 2ND 3RD 4TH

1980 - 1990 3RD 3RD 5TH

1990 - 2000 2ND 2ND 3RD

2000 – 2010 2ND 12th 8TH


Is the Cycle Our Enemy or Friend?

(Non-farm Emp. Percent Change 1980 – August 2012)

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

U.S. Arizona Recession Periods

Do you want to always be the same?

Or, most of the time EXCEED the US?


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

The

Exc

eptio

n…


Growth Factors Still Intact?

1. Climate2. Lifestyle3. Geographic Location4. Pro-Growth Attitude5. Competitive Tax Structure6. Focused Incentives/Investment (i.e. transportation)7. Leadership with Common Sense8. Low Cost of Living9. Congressional Delegation Working for State10. Business & Government in Same Direction11. ETC, ETC, ETC.

Elliott D. Pollack & Company Source: CBRE

Competitiveness Map – 2012(2013?)Source : CBRE


5

910

Benefits of the “SUNBELT”

Alaska

Hawaii

Industrial Northwest


Where do they come from?

1. California – Complete disaster.

2. Northeast – Too damn cold.

3. Rust Belt – No jobs.

4. Florida – Need help finding their luggage though.

5. Others…


Top 10 StatesPercent of Homes with Mortgages with Negative Equity

Source: Core Logic

22.6%

23.2%

24.1%

25.8%

29.0%

32.8%

35.8%

39.7%

42.7%

58.6%

0.0% 20.0% 40.0% 60.0% 80.0%

Rhode IslandMaryland

OhioIllinois

CaliforniaMichigan

GeorgiaArizonaFlorida

Nevada

U.S.= 22.3%


AZ will still be a top 5 economy. The economy has multiple gears. 2015/2016 is FULL recovery for AZ.

The long term potential remains intact!

Closing Points:


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

elliott d. pollack & company to: acma by: jim rounds, senior vice president elliott d. pollack...

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