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Today s written analysis and slides are available from our Award-Winning

1 Sponsored by Eller College Dean and Halle Chair in Leadership JPMORGAN CHASE & CO. Today s written analysis and slides are available from our Award-Winning Website: Director Economic and Business Research Center ebr.eller.arizona.edu Sponsored in part by JPMORGAN CHASE & CO. mvest@eller.arizona.edu 1

2 Recovery continues at slow pace Comparable to recovery from recession Consumers are spending What happened to the workers? Hispanics account for decline in births Signs of life in housing markets Mobility remains at decades low Historically, deep recessions have been followed by rapid recoveries But financial meltdowns take longer Current recovery compares to path following the mild/shallow recession 5 6 Recoveries Compared Nonfarm Employment, AZ 13 Recoveries Compared Nonfarm Employment, AZ 13 Beginning of recovery 1 Beginning of recovery current Aug Apr current Dec. 21 May 1991 Aug Apr mvest@eller.arizona.edu 2

3 Metro Phoenix accounts for most of new jobs created Metro Tucson employment is flat Job growth 2Q1 Y/Y Net jobs created since Aug. 2 AZ 2.1% 75, PHX 2.6% 69,4 TUS -.4% s *** 6 months ago *** Nonfarm Jobs, TUS seasonally adjusted annual rate (m/m) smoothed (R) number (L) 5-5 % c h g s Nonfarm Jobs, TUS seasonally adjusted annual rate (m/m) smoothed (R) number (L) 5-5 % c h g Nonfarm Job Growth, TUS % 2 c h -2 g mvest@eller.arizona.edu 3

4 Labor force participation rates are the lowest in three decades Demographics retiring boomers? Kids staying in school? Displaced/discouraged workers will they return? No longer employable? Employment to Population Ratio US AZ Employment to Population Ratio US AZ TUS AZ s unemployment rate 8.2% in April 8.1% nationwide 7.1% in PHX and 7.2% in TUS Peak month Peak Rate April 2 U.S. Oct. 29.% 8.1% AZ Mar. 2.8% 8.2% PHX Jan % 7.1% TUS Jan % 7.2% 16 mvest@eller.arizona.edu 4

5 Births have stabilized at a level first reached years ago Hispanics account for most of decline Births and Deaths, Arizona seasonally adjusted annual rate Births s 17 Deaths Number of Births Annually Arizona Total Hispanic s Population growth of.5% in 211 Improvement in net migration (to near zero) Natural increase is running at 3,6 Down from 5,5 in 27 Slow growth due to restrained mobility mvest@eller.arizona.edu 5

6 Population Annual Growth Change Net Natural Rate (%) Migration Increase % % % % % % % % % % % % Components of Population Annual Change, Metro TUS net migration natural increase 95 5 forecast s 22 Annual Changes in Population Metro Tucson % c h g Existing homes sales are buoyant Strong investor demand Inventories are lean (and near normal) 4-mo in TUS Construction of new residential units moving upward mvest@eller.arizona.edu 6

7 PHX Existing Home Sales, MLS s units, seas adj annual rate PHX TUS 11 TUS Housing For Sale Inventory, MLS active listings seas adj and smoothed, Metro Tucson months supply active listings months supply Building Permits, TUS (seasonally adjusted annual rate) single family total s How much depends on the measure MLS Realtor data, median price of homes sold PHX, up 32% AR over past nine months TUS, up 15% AR over past six months Standard & Poor s Case-Shiller index PHX, up 9.5% AR over past five months FHFA repeat-sales index PHX, up 6.1% AR past 3 quarters TUS, still declining mvest@eller.arizona.edu 7

8 3 25 Home Prices Metro PHX 3 25 Median Price of Homes Sold MLS, Metro Tucson $ s S&P/Case-Shiller (seasonally adjusted) 95 Realtors: median price of homes sold June Mar. = 6.4 down 53.2% i n 15 d e x 5 96 seas adjusted and smoothed $ s 8 Home Price Appreciation FHFA Repeat Sales Index PHX -5.% latest data: 2q1 TUS -36.% 3 25 i n 2 d e x 15 Retail sales grew by 7.3% in 211 Largest since 25 s 9.2% gain 14.4% in February and 8.% in January, Y/Y mvest@eller.arizona.edu 8

9 Retail Sales, TUS seasonally adjusted annual rate and moving average B i l Restaurant & bar sales grew 3.8% in % in Feb., Y/Y $ Restaurant & Bar Sales, TUS seasonally adjusted annual rate B 1.4 i l 1.2 $ Retail Restaurant & Bar Gasoline Food Total Retail mvest@eller.arizona.edu 9

10 Recovery continues at slow pace Employment is barely growing Comparable to early 199s Population growth remains restrained Consumer spending is outpacing income Labor force participation lowest in 3 decades Some workers may not return Housing prices are now increasing 37 Pace of recovery slow by historical standards restrained by Tight credit, de-leveraging Housing markets Reduced mobility of population Lack of confidence Cautious spending and hiring Drag from public sector Mid-decade before damage from recession is repaired 38 Professor Emeritus of Economics Thomas R. Brown Professor in Economics Education IT IS THE NEW WORD DE JOUR mvest@eller.arizona.edu

11 GOOD NEWS OUR ECONOMY IS GROWING ENJOYMENT OBTAINED FROM THE TROUBLES OF OTHERS. BAD NEWS SOME OF THE SPOILERS THAT INTERRUPTED THE RECOVERY OF 2 AND THE RECOVERY OF 211 HAVE EMERGED AGAIN A puzzling picture. May 2 unemployment rate = 8.2 % December 211 unemployment rate = 8.5% Number unemployed =.5 million Serious problem Unemployed 27 months or more = 5.4 million Not changing 6.3 million discouraged workers Participation rate = % population over age of 16 in labor force May % January % Employment rate = % of population over the age of 16 employed May % January % mvest@eller.arizona.edu 11

12 Participation Rate Employment Rate Less than H.S. 45.2% 39.8% H.S. no college 59.2% 54.5% Some college 69.% 63.7% Bachelor s Degree 76.2% 73.2% or higher REASONS FOR UNEMPLOYMENT Job Losers 4.5% Job Leavers.6% Reentrants 2.2% New Entrants.9% Total unemployment = 8.2% WHO IS HIRING? HEALTH CARE TRANSPORTATION WHOLESALE MANUFACTURING WHO IS NOT HIRING? CONSTRUCTION STATE & LOCAL GOVERNMENTS UNDERPERFORMING 29 GDP 2 GDP 211 GDP Q1-6.4% Q1 3.7% Q1.4% Q2 -.7% Q2 1.7% Q2 1.3% Q3 1.6% Q3 2.5% Q3 1.8% Q4 5.% Q4 2.3% Q4 3.% GROWTH FOR 211 = 1.7% 1 ST QUARTER 2 1.9% mvest@eller.arizona.edu

13 NO INFLATIONARY EXPECTATIONS DESPITE MASSIVE INJECTION OF MONEY INTO THE ECONOMY BY THE FEDERAL RESERVE BANK OVER 2 TRILLION DOLLARS NOVEMBER 211 = 3.% DECEMBER 211 = 3.2% JANUARY 2 = 2.9% FEBRUARY 2 = 2.9% MARCH 2 = 2.9% APRIL 2 = 2.3% FEDERAL RESERVE S TARGET RATE IS 2% PENT UP DEMAND BUYING CARS & TRUCKS = C+I+G+X CONSUMER SPENDING INVESTMENT SPENDING GOVERNMENT SPENDING NET EXPORTS = EXPORTS-IMPORTS SAVINGS DOWN CONFIDENCE STILL LOW REAL WAGES STAGNANT NEGATIVE ELECTION YEAR POLITICS - mvest@eller.arizona.edu 13

14 BUSINESS CONFIDENCE IS UP BUSINESS PROFITS ARE GOOD EXPORTS HAVE BEEN A DRIVING FORCE IN OUR ENEMIC RECOVERY BUSINESSES HAVE LOTS OF CASH BUSINESSES STILL FACE LOTS OF UNCERTAINTY EXPORTS ACCOUNT FOR 14% OF OUR GDP EXPORTS-IMPORTS TRADE DEFICIT FOR 211 $56 BILLION U.S. BOUGHT $56 BILLION MORE IN GOODS AND SERVICES THAN IT PRODUCED Exports 1. Canada $ 281b 2. China $ 4b 3. Mexico $ 198b 4. Japan $ 66b 5. Germany $ 49b 6. U.K. $ 56b 7. S. Korea $ 43b 8. Brazil $ 43b 9. France $ 28b. Taiwan $ 26b HOW ARE THESE COUNTRIES DOING? mvest@eller.arizona.edu 14

15 FALLING OF THE FISCAL CLIFF JANUARY 2, 213 Two months after election MASSIVE SPENDING CUTS MASSIVE TAX INCREASES MORE FUN TO COME! WE WILL HIT THE DEBT CEILING AGAIN AT THE END OF THIS YEAR Current Ceiling $16.4 trillion Current Debt $15.8 trillion March 2 deficit = $198.2 billion A RECORD MONTHLY DEFICIT! MOST EXPANSIVE MONETARY POLICY IN THE HISTORY OF THE FEDERAL RESERVE FUTURE EFFECT OF MONETARY POLICY IS VERY LIMITED WE HAVE HAD 42 MONTHS OF ZERO INTEREST RATES CURRENT 3 YEAR FIXED MORTGAGE INTERST RATE = 3.75% mvest@eller.arizona.edu 15

16 TREASURY YIELD CURVE INTEREST RATES TO MATURITY 6 MTH RATE =.6% 1YR RATE =.18% 5YR RATE =.62% YR RATE = 1.5% 3YR RATE = 2.54% NEGATIVE INTEREST RATES TRANSFERS WEALTH FROM SAVERS TO BORROWERS REAL INTEREST RATE = NOMINAL INTEREST RATE INFLATION RATE CURRENT INFLATION 2.3% COUNTRIES CAUGHT BETWEEN A ROCK AND A HARD PLACE WORK TO MEET CRITERIA SURRENDER BUGET SOVERENTY HIGHER TAXES MAJOR BUDGET CUTS LIBERALIZATION OF LABOR MARKETS TOLERATE MAJOR RECESSION LEAVE THE EURO-ZONE DEFAULT CAPITAL FLIGHT ADOPT OLD CURRENCY DEVALUE OLD CURRNECY TOLERATE MAJOR RECESSION mvest@eller.arizona.edu 16

17 EUROZONE UNEMPLOYMENT AT RECORD HIGH 17 COUNTRIES THAT USE THE EURO ARE FACING THE HIGHEST UNEMPLOYMENT RATES IN THE HISTORY OF THE CURRENCY. = 11% SPAIN 24.3% GREASE 21.7% FRANCE.% ITALY.2% GERMANY 5.4% CONTAGION EUROPEAN UNION (EU) EXPERIENCES A FINANCIAL CRISIS A TROUBLED EU MEANS TROUBLE FOR EVERYONE ECONOMIC ACTIVITY IS SLOWING IN SYNIC AROUND THE GLOBE LESSONS FROM CRISIS NEVER BECOME A 1. HIGH TAX 2. SLOW GROWTH 3. ENTITLEMENT STATE BECAUSE THE INEVITABLE DAY OF RECKONING WILL BE: 1. NASTY 2. PAINFUL 3. AND NOT SHORT THE EURO CRISIS COULD BECOME OUR CRISIS WE NEED LONG-TERM SOLUTIONS TO OUR DEBT AND DEFICIT PROBLEMS NOW mvest@eller.arizona.edu 17

18 OUR GOVERNMENT WILL KICK THE DEBT AND DEFICIT PROBLEMS DOWN THE ROAD TO NEXT YEAR. OUR ECONOMY WILL CONTINUE TO GROW AT A SLOW PACE OUR UNEMPLOYMENT RATE WILL REMAIN UNACCEPTABLY HIGH SCHADENFREUDE OUR ECONOMY IS IN BETTER SHAPE THAN EUROPE S HOWEVER EINFUHLUNGSVERMOGAN OUR DEBT AND DEFICIT PROBLEM IS NOT HAVE A COOL SUMMER SEE YOU IN DECEMBER Sponsored by JPMORGAN CHASE & CO. mvest@eller.arizona.edu 18

Economic Outlook 2011/ /10/2010

Economic Outlook 2011/ /10/2010 GOOD NEWS OUR ECONOMY IS GROWING Professor Emeritus of Economics Thomas R. Brown Professor in Economics Education WE ARE NOT IN A RECESSION WE HAVE A LONG WAY TO GO TO A FULL RECOVERY WORST RECOVERY SINCE