Economic Outlook 2010/2011

Transcription

1 Economic Outlook Luncheon December 11, 29 Economic Outlook 21/211 Twenty-Ninth Annual Forecat Luncheon Paul R. Portney Dean, Profeor of Economic, and Halle Chair in Leaderhip Marhall J. Vet Director Economic and Buine Reearch Center Overview National outlook Receion i over, but low recovery Arizona till contracting Will lag behind U.S. during recovery 3 key to the outlook Labor market Houing market Crii in tate government National Outlook Recovery will be low Deep receion normally followed by trong recoverie, BUT receion involving financial crii are typically low to recover Dampened by contrained credit market and poor fundamental for conumer pending Credit market require more time to heal Conumer are weary Conumption won t be a driver Houehold net worth ha declined by $1 trill. 1

2 Economic Outlook Luncheon December 11, 29 Houehold Net Worth ($Tril.) Arizona Economy The hardet hit tate? Job growth ranking = 5 th Peronal income growth = 1 t State revenue growth = 3 rd Fical peril econd only to California a wort Reidential forecloure = th Homeowner with negative equity = 2 nd Job Growth thru October 29 rank tate % change v year ago 5 Arizona -6.8% 9 Michigan -6.3% 8 Nevada -6.% 5 Oregon -5.2% Idaho -5.2% California -.6% 35 Florida -.% 33 Colorado -.3% 26 Utah -3.8% Peronal Income Growth thru 2q9 rank tate % change v year ago 5 Nevada -5.% 6 Florida -3.7% 5 Michigan -3.6% Idaho -3.% 1 Arizona -3.3% California -3.3% 33 Utah -2.7% 31 Colorado -2.5% 15 Oregon -1.% Tax Revenue, 3 rd Quarter Pew Center Fical Peril Index -12.1% -8.2% -8.7% -2.5% -1.1% 1% -16.3% -8.6% 2

3 Economic Outlook Luncheon December 11, 29 Reidential Forecloure 3q9 rank tate 1 for every X home 1 Nevada 8 2 California Florida 168 Arizona 2 5 Idaho Michigan 2 1 Utah 3 11 Colorado Oregon 59 Proportion of Homeowner With Negative Equity 3q9 rank tate Negative equity hare (%) 1 Nevada 65.% 2 Arizona 7.9% 3 Florida.7% Michigan 37.3% 5 California 3.7% 1 Idaho 19.7% 11 Colorado 19.% 1 Utah 18.3% 23 Oregon 13.8% Arizona Economy The receion continue Federal Reerve Bank of Philadelphia tate coincidence index Baed on nonfarm employment average age hour worked in manufacturing ac u Unemployment rate Inflation adjuted wage and alary diburement AZ one of 18 tate with loe greater than 1% during three month ending September State Coincident Indexe: FRB Philadelphia Source: IHS Global Inight Coincident Indexe Source: Philadelphia Federal Reerve Bank NV AZ CA 3 25 i 2 n d 15 e x 1 Metro Tucon Economy Nonfarm employment peaked in March 27 26, job have diappeared, 6.7% Statewide 2,, 1.3% Still declining at -5% annual rate in Sept

4 Economic Outlook Luncheon December 11, Nonfarm Job Growth, TUS eaonally adjuted annual rate (m/m), moothed % 2 c h -2 g Metro Tucon Economy Job loe are widepread All ector but health ervice are hedding job Some categorie have fallen to mid-199 level Nonfarm Employment, TUS eaonally adjuted Manufacturing Job, TUS eaonally adjuted Information Job, TUS eaonally adjuted 9 Accomodation Job, TUS eaonally adjuted

5 Economic Outlook Luncheon December 11, 29 Prof. & Buine Serv. Job, TUS eaonally adjuted Employment Service Job, TUS eaonally adjuted Retail Trade Job, TUS eaonally adjuted 5 Mining Job, TUS eaonally adjuted Contruction Job, TUS eaonally adjuted Indutry Employment During the Receion Metro Tucon chg ince peak peak lead (lag) percent month # month Nonfarm % Mar. 7 Contruction % Nov. 6 Profeional & Buine Serv % Oct. 7 (7) Trade, Tranportation ti & Util % May 7 (2) Manufacturing % Dec. 7 (9) Information % Jan. 6 1 Government % Sep. 8 (17) Financial Service % Mar 7 Leiure & Hopitality 1.9.7% Sep. 6 6 Other Service.6 3.9% Apr Mining.5 26.% Aug. 8 (17) Health Service & Private Ed.. 8.% till growing (33) 5

6 Economic Outlook Luncheon December 11, 29 Outlook for Job When will nonfarm employment begin to recover? How long will it take to regain all the job lot? Nonfarm Employment, AZ eaonally adjuted Recoverie Compared Nonfarm Employment, AZ 15 Recoverie Compared Nonfarm Employment, AZ trough= trough= current 1982q3 19q current 21q 1991q2 1982q3 19q Nonfarm Job Growth Metro Tucon 8 6 Conumer Spending Brighten Retail ale ha bottomed out Expect modet increae in 21 % 2-2 c h g

7 Economic Outlook Luncheon December 11, 29 Retail Sale, TUS eaonally adjuted annual rate 8. Retail Sale Growth, TUS (retail, retaurant & bar, food, and gaoline) B i l 6. $ 5.5 Real Nominal 5 % c h -5 g Other Poitive Sign Initial unemployment inurance claim peaked in February Houehold formation i till poitive Lowet mobility rate in 6 year Unemployment, AZ unemployment rate initial claim for unemployment eaonally adjuted annual rate % Annual Change in Pop & Job Metro Tucon 8 9 Population Job Houing Beginning to Stabilize Building permit have reached the bottom Will regiter large percentage increae but remain depreed Exiting home ale are up One third are forecloure/hort ale Houing price approaching bottom Standard & Poor Cae Shiller index PHX moving up FHFA/OFHEO houe price index Still declining, but lower pace 7

8 Economic Outlook Luncheon December 11, Building Permit, TUS (eaonally adjuted annual rate) 1 ingle family 2 3 total PHX Exiting Home Sale, MLS unit, ea adj annual rate PHX TUS 9 TUS Home Price Index, Metro PHX S&P/Cae-Shiller May 6 = trend line Sep % 25 2 i n 15 d e x 1 Home Price Appreciation FHFA/OFHEO Repeat Sale Index latet data: 9q3 PHX -3.6% TUS -2.1% 3 25 i n 2 d e x Crii in AZ State Government AZ i facing one of the larget budget gap in the nation Currently about 2% Increae in pending New afety net program Voter mandated Permanent tax cut ince mid-9 baed on tranitory revenue = $2.6 billion annually Better choice: budget tabilization fund AZ Budget Gap ($Bil.), FY21 Spending 1.1 Revenue

9 Economic Outlook Luncheon December 11, 29 AZ Budget Gap ($Bil.), FY21 AZ Budget Gap ($Bil.), FY21 Spending 1.1 Spending Revenue Revenue AZ Budget Gap ($Bil.), FY21 Where Would You Cut Spending? Spending 1.1 Revenue Crii in AZ State Government Arizona Town Hall finding (November) An immediate, temporary revenue-raiing repone i imperative Developed economie, a in Arizona, mut rely on innovation and technological progre in order to maintain economic growth. Education and reearch and development are key, while cot factor, including tax burden, are of leer importance to economic development. Crii in AZ State Government But you can t raie taxe without hurting the economy! Arizona Town Hall State and local government taxe have only a mall effect on economic growth Tax reduction boot economic growth only when the burden i high Tax cut imply lower revenue 9

10 Economic Outlook Luncheon December 11, 29 Crii in AZ State Government Arizona Town Hall finding (November) Tax burden in AZ i low and declining Compared to the ize of the Arizona economy, ongoing general fund revenue ha fallen ince the early 199, and i now the lowet on record. State and local government revenue rank 5 th on a per peron bai 39 th on a per dollar of peronal income bai Crii in AZ State Government Arizona Town Hall finding (November) Obtacle to cloing the gap Voter mandated pending without funding Mimanagement of tax bae Ideological roadblock Super-majority required to raie taxe Crii in AZ State Government Solution Additional pending cut Over the pat couple of year, larget pending cut in hitory have been enacted totaling $1.1 Billion layoff, huttering agencie You could lay off all tate employee and not begin to cloe the gap Eliminate all but K-12 and AHCCCS? Crii in AZ State Government Solution Referendum on temporary ale tax increae? Borrowing Iue IOU? Near Term Outlook Recovery will proceed lowly Reidential forecloure and high inventorie State & local government pending Commercial real etate contruction Weak conumer pending Unemployment will top 1% (AZ) in 1 t quarter retreat lowly, 21 before dip below 6% Metro Tucon rate run 1% lower Nonfarm payroll will bottom in 3 rd quarter 21 Public ector hrink through 211, lag behind Near Term Outlook Retail ale will increae by.1% in 21 Double-digit increae in 211 primarily replacement demand frugality i in 21 Cenu of Population will find Metro Tucon 1.35 million Metro Phoenix. million AZ 6.6 million people 1

11 Economic Outlook Luncheon December 11, 29 Near Term Outlook Contruction indutry will continue to hed job Dip below 16,5 in 21 (27,9 in 26) Homebuilding ha turned the corner but there i little upide potential until At leat 25, vacant home currently Commercial real etate till in early tage of down cycle, forecloure lie ahead Near Term Outlook BAD NEWS: a long way to go to repair extenive damage that been done GOOD NEWS: the Great Receion i coming to an end and healing will begin oon Economic Outlook 21/211 Twenty-Ninth Annual Forecat Luncheon State of the Economy Gerald J. Swanon, Ph.D. Profeor of Economic Thoma R. Brown Profeor in Economic Education The Economic Backdrop The Great Receion Why? Unemployment December 27.7% November 29 1.% High unemployment will continue through next year. Currently over 15. million unemployed. We lot 7.8 million job ince the receion tarted. The mot ince 195! 11

12 Economic Outlook Luncheon December 11, 29 Unemployment Include Dicouraged Worker Worker Forced to Work Part-Time. Etimated Unemployment Rate = 17.5% Average work week ha fallen to 33 hour. Doe not include thoe people who are working below their kill level. Unemployment MANCESSION There i till a gender gap. Unemployment rate November 28 November 29 Men 6.9% Men 1.% Women 5.9% Women 8.2% Problem Unemployment Inflation Thi high unemployment i largely tructural rather than cyclical. Many of the job are gone forever. October 29 All item.1% Core.3% Inflation Today Year ago %change Oil $7. $39. 9% Gold $119. $769. 9% Silver $18. $9. 83% Platinum $139. $87. 78% Growth GOOD NEWS! Third quarter GDP wa +3.5% REVISED now +2.8 Projected fourth quarter GDP +2.2% 12

13 Economic Outlook Luncheon December 11, 29 GOOD NEWS! Productivity Productivity 2 nd Quarter % Unit Labor Cot -.3% Productivity 3 rd Quarter % Unit Labor Cot -6.1% Conumption Conumer confidence till low Declined in September Conumption -.6% Increae in October Conumption +.7% Conumption Conumer are aving. October 29.% Conumer are paying down debt at a record pace. 18 traight month of declining i credit balance. Invetment Spending - Buine confidence low but improving. - Inventorie are a bright pot. - New home building howing ign of life. - Loan are till difficult to get. Invetment Spending Manufacturing capacity utilization October % Slowly Improving! 81% Normal Government Spending Deficit projection fical 29 wa $9B. Actual FY 29 $1. TRILLION! Projected FY 21 $1.5 TRILLION 13

14 Economic Outlook Luncheon December 11, 29 Deficit and Unfunded Liabilitie Everyone want to go to heaven, but nobody want to die! Government Spending Deficit for fical 29 = 1.% of GDP 3% of GDP i normally conidered afe -- Songwriter Dorey & Thoma Monetary Policy FEDERAL RESERVE UNDER ATTACK! Monetary Policy Mortgage Default Will Continue. More reet to come:$1.1 trillion in the next 3 year. We will continue to have record rate of home vacancie for the next year. Monetary Policy Our next big problem will be commercial real etate. There are $1.7 trillion of commercial loan on bank book currently. Between now and 212, $1. trillion worth of commercial loan will come due. Monetary Policy Lat Year Fed Fund Rate.9% Today Fed Fund Rate.12% Some bank appear to be tabilizing However: 129 have failed in bank on probation. 1

15 Economic Outlook Luncheon December 11, 29 Monetary Policy The Federal Reerve Balance Sheet ha Exploded! Augut 27 $8 billion November 29 $2.1 trillion BONUS QUESTION Where doe the FED get the money to buy thee aet? Monetary Policy Political Rik Next year i an election year. Lo of policy independence. Economic Rik Fed wait too long to increae interet rate. -- or -- Increae rate too oon and tall recovery. Fical Policy Political Rik Next year i an election year. Economic Rik Deficit are not controlled. FACT A real recovery depend on government demand being upplemented by utainable ource of private pending. Too Big to Fail What doe it mean? Private profit and public loe. -- or -- Head I win, tail you loe. Too Big to Fail Capitalim without loe i like religion without in. 15

16 Economic Outlook Luncheon December 11, 29 We Have a Big Overhang of Uncertainty. Uncertainty What policie will finally come out of Wahington? What will happen next in our two war? When will the economy again function without major government intervention? When will the tate economie tart to improve? Poible Barrier to Recovery 1. Conumer 2. Unemployment 3. Houehold balance heet. State and local government 5. Tight credit 6. Slow growth 7. Exce capacity 8. Stimulu doe not work What Have We Learned? Thing that can t go on forever eventually top. Houe are not liquid aet. Home are not ATM machine. Market are not alway efficient. The great moderation of buine cycle never happened. What Have We Learned? Monetary policy doe not alway work the way the textbook tate it hould work. John Maynard Keyne i not dead. Pork houlder roat get more tender the longer you cook them. What Have We Learned? Economit are fallible! AND YES 16

17 Economic Outlook Luncheon December 11, 29 Concluion Remember: We are a very optimitic, can-do country by nature. Go out there and Be Patient Be Poitive HAPPY HOLIDAYS! Economic Outlook 21/211 Twenty-Ninth Annual Forecat Luncheon 17