Slide 1

Report
You Heard It Here First:
Less Dreadful Times
Ahead!
To:
GFOAz
By:
Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
February 18, 2011
Elliott D. Pollack & Company
The U.S. Recovery:
Elliott D. Pollack & Company
U.S. Y/Y Job Losses - Recent Recessions
Duration in Months - BLS
January
1.0%
0.0%
2001
1991
-1.0%
-2.0%
1980/81
1974
-3.0%
-4.0%
-5.0%
-6.0%
0
3
6
9
12
15
18
1974 Recession
1980/81 Recessions
2001 Recession
Current Recession
Elliott D. Pollack & Company
21
24
27
1991 Recession
30
33
US Employment*
Source: Bureau of Labor Statistics
Sectors in Decline
Sectors Improving
Construction
-2.5%
Natural Resources & Mining
10.3%
Information
-1.1%
Education & Health Services
2.0%
Financial Activities
-0.8%
Trade
0.6%
Government
-1.3%
Prof. & Bus. Services
2.3%
Leisure & Hospitality
0.8%
Transp., Warehousing &
Utilities
1.6%
Manufacturing
3.4%
Other Services
2.0%
Elliott D. Pollack & Company
*January 2011/January 2010
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Ja 0
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Ja 9
n0
Ja 0
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n0
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Ja 7
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Ja 0
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U.S. Unemployment Rate
1980 – 2011*
Source: Bureau of Labor Statistics
Recession Periods
12%
10%
8%
6%
4%
2%
USELESS!!!!!
0%
*Data through January 2011
Elliott D. Pollack & Company
Ja
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-7
Se 2
p73
Ja
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M 5
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-7
Se 6
p77
Ja
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M 9
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-8
Se 0
p81
Ja
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M 3
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-8
4
Se
p85
Ja
n8
M 7
ay
-8
8
Se
p89
Ja
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M 1
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-9
2
Se
p93
Ja
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M 5
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-9
6
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Ja
nM 99
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-0
0
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nM 03
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-0
4
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p05
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nM 07
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-0
8
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U.S. Leading Indicators
1971 – 2010 (through December)
Source: The Conference Board
120
110
100
90
80
70
60
50
40
30
Recession Periods
Elliott D. Pollack & Company
Select Recession Indicators:
Real GDP
 Real Income
 Employment
 Industrial Production
 Wholesale – Retail Sales

Elliott D. Pollack & Company
Real Gross Domestic Product
Percent Change Quarter Ago, Annualized
1971 – 2010*
Source: Bureau of Economic Analysis
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
Recession Periods
Half of growth Q4 & Q1 was from inventory
corrections. The softening in Q2 is from an
increase in imports.
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
1
3
1
3
1
3
1
93
1 Q 72 Q 74 Q 75 Q 77 Q 78 Q 80 Q 81 Q 83 Q 84 Q 86 Q 87 Q 89 Q 90 Q 92 Q 93 Q 95 Q 96 Q 98 Q 99 01 Q 02 Q 04 Q 05 Q 07 Q 08 Q 10 Q
7
1
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
* Data through 4th quarter 2010
Elliott D. Pollack & Company
Real Personal Income Net of Government Transfers
Percent Change Quarter Ago, Annualized
1971 – 2010*
Source: Bureau of Economic Analysis
Recession Periods
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
-12.0%
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
1
3
1
3
1
3
1
93
1 Q 72 Q 74 Q 75 Q 77 Q 78 Q 80 Q 81 Q 83 Q 84 Q 86 Q 87 Q 89 Q 90 Q 92 Q 93 Q 95 Q 96 Q 98 Q 99 01 Q 02 Q 04 Q 05 Q 07 Q 08 Q 10 Q
7
1
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
* Data through 4th quarter 2010
Elliott D. Pollack & Company
National Employment
Percent Change Month Ago, Annualized (S/A)
1981 – 2011*
Source: U.S. Bureau of Labor Statistics
Recession Periods
8%
Flat after adjusting for Census employment
6%
4%
2%
0%
-2%
-4%
-6%
Ja
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Ja 8
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Ja 9
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Ja 0
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Ja 1
n9
Ja 2
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Ja 3
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Ja 4
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Ja 5
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Ja 6
n9
Ja 7
n9
Ja 8
n9
Ja 9
n0
Ja 0
n0
Ja 1
n0
Ja 2
n0
Ja 3
n0
Ja 4
n0
Ja 5
n0
Ja 6
n0
Ja 7
n0
Ja 8
n0
Ja 9
n1
Ja 0
n11
-8%
*Data through January 2011
Elliott D. Pollack & Company
Ja
n
Ja -73
n
Ja -74
n
Ja -75
n
Ja -76
n
Ja -77
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Ja -78
n
Ja -79
n
Ja -80
n
Ja -81
n
Ja -82
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Ja -84
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Ja -85
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Ja -86
n
Ja -87
n
Ja -88
n
Ja -89
n
Ja -90
n
Ja -91
n
Ja -92
n
Ja -93
n
Ja -94
n
Ja -95
n
Ja -96
n
Ja -97
n
Ja -98
n
Ja -99
n
Ja -00
n
Ja -01
n
Ja -02
n
Ja -03
n
Ja -04
n
Ja -05
n
Ja -06
n
Ja -07
n
Ja -08
n
Ja -09
n10
Industrial Production
Percent Change Year Ago
1973 – 2010*
Source: The Conference Board
Recession Periods
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
-14%
-16%
*Data through December 2010
Elliott D. Pollack & Company
Real Retail Sales U.S.
Percent Change Year Ago
1973 – 2010*
Source: Federal Reserve
Recession Periods
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
n- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- ana
J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J
*Data through December 2010
**Three-month moving average
Elliott D. Pollack & Company
Recession Indicators Summary:
Real GDP
 Real Income
 Employment
 Industrial Production
 Wholesale – Retail Sales

Elliott D. Pollack & Company
Why is this Important?

Things won’t be getting WORSE…

But, when will they be getting
SIGNIFICANTLY BETTER?
Elliott D. Pollack & Company
Consumers
Elliott D. Pollack & Company
Household Net Worth
Percent Change Year Ago
1970 – 2010*
Source: Federal Reserve
Recession Periods
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
0Q 71Q 73Q 74Q 76Q 77Q 79Q 80Q 82Q 83Q 85Q 86Q 88Q 89Q 91Q 92Q 94Q 95Q 97Q 98Q 00Q 01Q 3 Q 4 Q 6 Q 7 Q 9 Q 0 Q
7
0
0
0
0
0
1
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20 20
20
20
20
20
20
• Equals assets less debt; data through third quarter 2010.
Elliott D. Pollack & Company
Household Net Worth ($$$)
1970 – 2010*
Source: Federal Reserve
($
in trillions)
Recession Periods
70
60
50
40
30
20
10
0
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
0Q 71Q 73Q 74Q 76Q 77Q 79Q 80Q 82Q 83Q 85Q 86Q 88Q 89Q 91Q 92Q 94Q 95Q 97Q 98Q 00Q 01Q 3 Q
4 Q 06 Q 07 Q 09 Q 10 Q
7
0
0
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
•Data through third quarter 2010.
Elliott D. Pollack & Company
Financial Obligation Ratio**
1980 – 2010
Source: Federal Reserve
Recession Periods
20.0%
19.0%
18.0%
17.0%
16.0%
19
80
Q
19 1
81
Q
19 1
82
Q
19 1
83
Q
19 1
84
Q
19 1
85
Q
19 1
86
Q
19 1
87
Q
19 1
88
Q
19 1
89
Q
19 1
90
Q
19 1
91
Q
19 1
92
Q
19 1
93
Q
19 1
94
Q
19 1
95
Q
19 1
96
Q
19 1
97
Q
19 1
98
Q
19 1
99
Q
20 1
00
Q
20 1
01
Q
20 1
02
Q
20 1
03
Q
20 1
04
Q
20 1
05
Q
20 1
06
Q
20 1
07
Q
20 1
08
Q
20 1
09
Q
20 1
10
Q
1
15.0%
*Data through third quarter 2010
**Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.
Elliott D. Pollack & Company
Savings Rate
1973 – 2010*
Source: Federal Reserve
Recession Periods
16
14
12
10
8
6
4
2
0
-2
-4
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
n- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- an- ana
J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J J
*Data through December 2010
Elliott D. Pollack & Company
Ja
nJa 78
nJa 79
nJa 80
nJa 81
nJa 82
nJa 83
nJa 84
nJa 85
nJa 86
nJa 87
nJa 88
nJa 89
nJa 90
nJa 91
nJa 92
nJa 93
nJa 94
nJa 95
nJa 96
nJa 97
nJa 98
nJa 99
nJa 00
nJa 01
nJa 02
nJa 03
nJa 04
nJa 05
nJa 06
nJa 07
nJa 08
nJa 09
nJa 10
n11
Consumer Confidence
1978 – 2011*
Source: The Dismal Scientist
Recession Periods
150
140
130
120
110
1985 Benchmark = 100
100
90
80
70
60
50
40
30
20
*Data through January 2011
Elliott D. Pollack & Company
Consumer Recap
Lots of pressure on the
consumer.
 Situation is improving but VERY
slowly.
 Wealth is an issue.
 Less pent up demand than typical
for a recovery.

Elliott D. Pollack & Company
Business
Depends on the sector…
Elliott D. Pollack & Company
M
ar
De -75
c
Se -75
pJu 76
M n-77
ar
De -78
c
Se -78
pJu 79
n
M -80
ar
De -81
c
Se -81
pJu 82
M n-83
ar
De -84
c
Se -84
pJu 85
n
M -86
ar
De -87
c
Se -87
pJu 88
n
M -89
ar
De -90
c
Se -90
pJu 91
M n-92
ar
De -93
c
Se -93
pJu 94
n
M -95
ar
De -96
c
Se -96
p
Ju -97
M n-98
ar
De -99
c
Se -99
p
Ju -00
n
M -01
ar
De -02
c
Se -02
p
Ju -03
n
M -04
ar
De -05
c
Se -05
p
Ju -06
M n-07
ar
De -08
c
Se -08
p
Ju -09
n10
Corporate Profit
(Billions of Dollars, SA)
1975-2010*
Source: Freelunch.com
Elliott D. Pollack & Company
Recession Periods
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
*Data through third quarter 2010
Corporate Profit By Industry ($Billions)
2010 q3
Source: BEA
450
393.7
400
350
269.2
300
250
200
123.2
150
114.6
90.2
100
54.3
35.2
50
0
Financial
Manuf acturing
Elliott D. Pollack & Company
Retail Trade
Wholesale Trade
Inf ormation
Transp. &
Warehousing
Utilities
Doin’ God’s Work
Elliott D. Pollack & Company
U.S. Real Exports
as a Percent of Real GDP
1971 – 2010*
Source: Bureau of Economic Analysis
Recession Periods
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
71
19
Q
1
73
19
Q
1
75
19
Q
1
77
19
Q
1
79
19
Q
1
81
19
Q
1
83
19
Q
1
85
19
Q
1
87
19
Q
1
89
19
Q
1
91
19
Q
1
93
19
Q
1
95
19
Q
1
97
19
Q
1
99
19
Q
1
01
20
Q
1
03
20
Q
1
05
20
Q
1
07
20
Q
1
09
20
Q
1
*Data through fourth quarter 2010
Elliott D. Pollack & Company
Hours Worked
Percent Change from Year Ago
1976 – 2010**
Source: Bureau of Labor Statistics
Recession Periods
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1 1
1
1 1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
6 Q 77 Q 78 Q 79 Q 80 Q 81 Q 82 Q 83 Q 84 Q 85 Q 86 Q 87 Q 88 Q 89 Q 90 Q 91Q 92Q 93Q 94Q 95Q 96Q 97Q 98Q 99Q 00Q 01Q 02Q 03Q 04Q 05Q 06Q 07Q 08Q 09Q 10Q
7
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
0
1
1 1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
2
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 1
**Data through fourth quarter 2010
Elliott D. Pollack & Company
Ja
n
Ja -70
n
Ja -71
n
Ja -72
n
Ja -73
n
Ja -74
n
Ja -75
n
Ja -76
n
Ja -77
n
Ja -78
n
Ja -79
n
Ja -80
n
Ja -81
n
Ja -82
n
Ja -83
n
Ja -84
n
Ja -85
n
Ja -86
n
Ja -87
n
Ja -88
n
Ja -89
n
Ja -90
n
Ja -91
n
Ja -92
n
Ja -93
n
Ja -94
n
Ja -95
n
Ja -96
n
Ja -97
n
Ja -98
n
Ja -99
n
Ja -00
n
Ja -01
n
Ja -02
n
Ja -03
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Ja -04
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Ja -05
n
Ja -06
n
Ja -07
n
Ja -08
n
Ja -09
n10
Capacity Utilization Rate
1970 – 2010*
Source: The Conference Board
Recession Periods
90
85
This is where
investment
occurs.
80
75
70
65
*Data through December 2010
Elliott D. Pollack & Company
Percentage of Large U.S. Banks
Reporting Easier Standards
on Business Loans
1997 – 2010*
Source: Federal Reserve, Board of Governors
Recession Periods
25%
20%
15%
Small Firms
Large & Medium Firms
10%
5%
0%
2
4 2
4
2
4
2 4
2
4
2
4 2
4
2
4
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 5Q2 5Q4 6Q2 6Q4 7q 7Q4 8Q2 8Q4 9Q2 9Q4 0Q2 0Q3
0
0 00 0 0
0
0
0
1 1
97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 0 0
19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 2 20 20 20 20 20 20 20
* Data as of January 2011 survey.
Elliott D. Pollack & Company
Business Recap

Profits are high, but…

Business spending on plant will be
slow.

Spending on equipment will be up a
little.

Hiring will still be relatively slow.
Elliott D. Pollack & Company
U.S. Summary:
Recovering but not
recovered.
Elliott D. Pollack & Company
Case Study:
Arizona, the
recession
“poster child.”
Elliott D. Pollack & Company
It all comes down to
supply/demand
and
pop/employ growth.
Elliott D. Pollack & Company
A strong rate of
growth does not
mean we have
recovered.
Elliott D. Pollack & Company
Job Growth 2006
Source: US BLS
10
7
9
5
4
1
3
22
2
Jobs growing
15
8
11
6
Top 10
Jobs declining
Elliott D. Pollack & Company
13
Job Growth 2007
Source: US BLS
7
8
15
5
2
28
1
36
22
Jobs growing
11
10
6
20
9
4
3
Top 10
Jobs declining
Elliott D. Pollack & Company
45
Job Growth 2008
Source: US BLS
Alaska
8
34
42
46
45
Hawaii
17
47
Jobs growing
15
2
1
7
11
10
9
4
14
3
6
Top 10
Jobs declining
Elliott D. Pollack & Company
50
Job Growth 2009
Alaska
2
Source: US BLS
30
47
44
50
45
Hawaii
35
49
Jobs growing
18
1
23
3
5
32
13
16
24
8
4
Top 10
Jobs declining
Elliott D. Pollack & Company
46
Job Growth Update: Arizona Ranked 35th
2010 v 2009
Alaska
3
31
34
36
28
50
46
Hawaii
2
43
7
1
8
12
16
11
35
Jobs growing
Top 10
Jobs declining
Elliott D. Pollack & Company
49
5
40
6
21
45
4
9
10
29
Employment Growth: Top 10
States (December M/M)










Elliott D. Pollack & Company
Texas
New Hampshire
North Dakota (added a Circle K)
Oklahoma
Massachusetts
Wyoming (added 2 Circle K’s)
Louisiana
Arizona
Washington
Wisconsin
Job Growth Update: Arizona Ranked 8th
December 2010 v December 2009
Alaska
36
9
24
26
29
50
32
30
Hawaii
16
8
Jobs growing
Top 10
Jobs declining
Elliott D. Pollack & Company
3
13
12
15
6
39
2
10
37
4
46
1
7
31
5
Greater Phoenix
Economy
Elliott D. Pollack & Company
Phoenix-Mesa MSA Employment*
Annual Percent Change 1975–2011**
Source: Department of Commerce, Research Administration
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
12.7%
8.1%
7.3%
6.6% 7.2% 5.4%
5.4%
4.9%
4.6%
3.5%
5.5%
4.6%
5.0%
3.6% 2.5%
2.6% 2.2%
3.5%
3.1%
1.2%
1.2%
6.2% 5.4%
4.5%
3.9%
1.5%
2.0%
1.6%
-0.1%
-0.4%
-0.3%
-3.5%
-0.8%
-2.5%
11
20
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
19
77
-7.9%
75
19
11.0%
9.1%
10.3%
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
** 2011 & 2012 forecasts are from Elliott D. Pollack & Co.
Elliott D. Pollack & Company
Recession Periods
Greater Phoenix Y/Y Job Losses - Recent Recessions
Duration in Months – BLS - December
2.0%
2001
0.0%
1991
1980/81
-2.0%
-4.0%
-6.0%
1974
-8.0%
-10.0%
0
3
6
9
1974 Recession
2001 Recession
Elliott D. Pollack & Company
12
15
18
21
1980/81 Recession
Current Recession
24
27
1991 Recession
30
33
Phoenix-Mesa Employment*
Source: Arizona Department of Commerce, Research Administration
Sectors in Decline
Sectors Improving
Information
-2.9%
-2.5%
Construction
Education & Health Services
2.2%
4.6%
Financial Activities
Other Services
-3.6%
Trade
4.0%
Government
Mining
-1.8%
0.0%
Prof. & Bus. Services
3.8%
Transp. & Utilities
2.2%
Manufacturing
Leisure and Hospitality
0.1%
1.9%
Elliott D. Pollack & Company
*December 2010/December 2009
Ja
nJu 95
l
Ja -95
nJu 96
l
Ja -96
nJu 97
l
Ja -97
nJu 98
l
Ja -98
nJu 99
l
Ja -99
nJu 00
l
Ja -00
nJu 01
l
Ja -01
nJu 02
l
Ja -02
nJu 03
l
Ja -03
nJu 04
l
Ja -04
nJu 05
l
Ja -05
nJu 06
l
Ja -06
nJu 07
l
Ja -07
nJu 08
l
Ja -08
nJu 09
l
Ja -09
nJu 10
l
Ja -10
nJu 11
l
Ja -11
nJu 12
l
Ja -12
nJu 13
l
Ja -13
nJu 14
l-1
4
Employment Levels:
Greater Phoenix Back to Peak Before 2015?
Source: ADOC
Recession Periods
2,400.0
2,200.0
2,000.0
Peak
1,800.0
1,600.0
1,400.0
1,200.0
1,000.0
Elliott D. Pollack & Company
Real estate problems
will continue…
(principles hold for all areas)
Elliott D. Pollack & Company
Properties in the Foreclosure Process
Maricopa County 2002 – 2011
Source: The Information Market
55,000
50,000
AZ = Approx 50% more;
this will stay relatively
high for a while!
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Ja
nM 02
ay
-0
Se 2
p0
Ja 2
nM 03
ay
-0
Se 3
p0
Ja 3
nM 04
ay
-0
Se 4
p0
Ja 4
nM 05
ay
-0
Se 5
p0
Ja 5
nM 06
ay
-0
Se 6
p0
Ja 6
nM 07
ay
-0
Se 7
p0
Ja 7
nM 08
ay
-0
Se 8
p0
Ja 8
nM 09
ay
-0
Se 9
p0
Ja 9
nM 10
ay
-1
Se 0
p1
Ja 0
n11
0
Elliott D. Pollack & Company
*Data through January 2011.
19
98
Q
19 1
98
Q
19 3
99
Q
19 1
99
Q
20 3
00
Q
20 1
00
Q
20 3
01
Q
20 1
01
Q
20 3
02
Q
20 1
02
Q
20 3
03
Q
20 1
03
Q
20 3
04
Q
20 1
04
Q
20 3
05
Q
20 1
05
Q
20 3
06
Q
20 1
06
Q
20 3
07
Q
20 1
07
Q
20 3
08
Q
20 1
08
Q
20 3
09
Q
20 1
09
Q
20 3
10
Q
1
Investors: 40% of the Market
Percent of Non-Owner Occupied Sales of Total Sales
Maricopa County
Source: DataQuick
50%
40%
30%
20%
10%
0%
Elliott D. Pollack & Company
How Investors Impact the
Market:
• Temporarily increase housing
demand.
• This puts upward pressure on
prices.
Elliott D. Pollack & Company
Home Prices Indices
2000 – 2010 (October)
Source: Macro Markets, LLC; AMLS
Recession Periods
250
230
210
190
170
150
130
w/ investors
110
90
w/o investors
70
0
nJa
0
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9
0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-1
-1
l
l
l
l
l
l
l
l
l
l
l
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
MLS Index
Elliott D. Pollack & Company
Case-Shiller Index
Trendline (4.0%)
Negative Equity in Homes
Affects Ability to Sell or Buy
Source: First American Core Logic
51% of homes in
Arizona have negative
equity.
(national average 23%).
Elliott D. Pollack & Company
But it’s also about
supply…
Elliott D. Pollack & Company
U.S. Single-Family Starts
1978–20101/
Source: Census Bureau
(Millions)
Recession Periods
2.0
1.7
1.8
1.6
1.6
1.5
1.4
Oversupply
1.5
1.4
1.4
1.2
1.2
1.2
1.2
1.1
1.1 1.1 1.1
1.3
1.1
1.1
1.0
1.0
1.2
1.1
1.3
1.2
1.3
1.1
LTA: 1.2
1.0
Undersupply
0.9
1.0
0.9
0.8
0.8
0.7
0.7
0.6
0.6
0.4 0.5
0.4
0.2
Elliott D. Pollack & Company
10
20
08
20
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
19
78
0.0
1/ Through November 2010
Greater Phoenix Population
Annual Percent Change 1976–2011*
Source: Arizona State University & Department of Commerce, Research Administration
6%
5.1%
4.7%
4.3%
4.2%
4%
4.6%
4.3%
4.3% 4.2%
4.3%
4.2%
3.8%
4.4%
4.2%
3.9%
3.7%
3.5%
3.3% 3.1%
3.0%
4.6%
4.0%
4.2%
3.5%
3.2%
3.1%
2.9%
2.8%
2.5%
2.4%
2.1%
3.5%
2.4%
2008 = 1%
2%
1.3%
2009 = 0%
2.0%
0.9%
1.0%
2010 = 1%?
0%
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
2009 is an estimate put out by ADOC and may be subject to substantial revision.
* 2010 & 2011 forecast is from Elliott D. Pollack & Co.
Elliott D. Pollack & Company
Recession Periods
Single-Family Permits vs. Population Demand
Greater Phoenix 1975–2015
Source: PMHS / RL Brown
# Permits
Recession Periods
70,000
63,570
60,892
60,000
47,720
50,000
36,151
35,308
34,701
31,715
27,426
29,609
28,543
40,000
28,851
22,281
30,000
31,172
23,222
22,652
22,598
18,843
18,125
17,944
19,447
15,085
18,379
10,614
13,698
11,485
11,625
12,000
10,649
20,000
11,081
10,000
42,423
38,914
36,001
8,705
26,500
20,000
12,582
8,027 6,000 12,000
6,822 8,000
* 2011 - 2015 forecast is from Elliott D. Pollack & Co.
Elliott D. Pollack & Company
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
19
75
0
Housing Affordability Index
2000 q3
Source: NAHB
80
66.6
64.8
64.7
60.9
56.7
60
50.0
44.5
34.8
40
24.6
20
0
Albuquerque
Phoenix
Las Vegas
Elliott D. Pollack & Company
Tucson
Salt Lake City
Denver
Seattle
Los Angeles
San Diego
Housing Affordability Index
2006 q3
Source: NAHB
80
57.1
60
39.0
36.8
40
30.2
26.6
22.8
17.8
20
13.7
4.9
1.8
0
Denver
Albuquerque
Salt Lake
City
Elliott D. Pollack & Company
Tucson
Phoenix
Seattle
Flagstaf f
Las Vegas
San Diego Los Angeles
Housing Affordability Index
2010 q3
Source: NAHB
100
86.5
83.5
82.3
79.0
74.3
80
72.6
63.6
62.4
60
51.1
40.3
40
20
0
Las Vegas
Phoenix
Tucson
Elliott D. Pollack & Company
Albuquerque
Salt Lake
City
Denver
Flagstaf f
Seattle
San Diego Los Angeles
Greater Tucson
Economy
Elliott D. Pollack & Company
Greater Tucson MSA Employment*
Annual Percent Change 1975–2011**
Source: Department of Commerce, Research Administration
12%
9.2%
10%
8.1%
8%
6.2%
6%
4%
8.6%
3.3%
6.3%
4.6%
3.8%
3.1%
2%
2.7%3.7%
3.3%
2.3%
2.4%
1.8% 0.6%
-0.1%
3.5%
4.0%
2.7% 3.8%
2.8%
1.5%
3.8%
3.4%
2.7%
2.9%
1.2%
1.5%
0.7%
0.3%
0%
-0.7%
-1.3%
-2%
-1.0%
-4%
-1.1%
-5.1%
11
20
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
19
77
-6%
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
**2011 & 2012
are forecasts from the University of Arizona
Elliott D. Pollack & Company
Recession Periods
Greater Tucson Employment*
Source: Arizona Department of Commerce, Research Administration
Sectors in Growing
Sectors in Decline
Construction
-6.7%
Mining
0.0%
Manufacturing
-0.4%
Prof. & Bus. Services
1.1%
Trade
1.8%
Government
Transp. & Utilities
-0.0%
-1.1%
Information
Other Services
Financial Activities
Elliott D. Pollack & Company
0.0%
-2.8%
0.0%
*December 2010/December 2009
Greater Phoenix/Tucson Construction Employment
Percent Change Year Ago
2007–2010
Source: Arizona Department of Commerce, Research Administration
4%
0%
-4%
-8%
Can’t look at just
one point in time…
-12%
-16%
-20%
-24%
-28%
Greater Phoenix
Elliott D. Pollack & Company
Greater Tucson
Recession Periods
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
-36%
Jan-07
-32%
Pima County Retail Sales
Percent Change Year Ago
2000 – 2010*
Source: Arizona Department of Revenue
Recession Periods
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
nJa
00
01
na
J
nJa
02
nJa
03
04
na
J
nJa
05
06
na
J
07
na
J
nJa
08
nJa
09
nJa
10
*Data through November 2010
Elliott D. Pollack & Company
Greater Tucson Single Family Permits
1976–2011*
Source: University of Arizona
12
11.2
9.6
10
7.2
8
6
7.2 7.3
4.9
3.6
4
6.5
4.5
4.2
4.1 4.5
4.1
5.4
4.1
6.5
5.1 5.6
4.9
7.6
8.1
6.86.3
6.1
4.7
4.1
3.7
2.5
3.1
2.5
2
2.62.22.6
2.7
2.1
1.9
0
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
*2010 & 2011 are forecasts from the University of Arizona
Elliott D. Pollack & Company
Recession Periods
Greater Tucson Foreclosures
August 2009-December 2010
Source: RealtyTrac
1,400
1,200
1,290
1,245
1,163
1,014
1,003
1,067
1,048
1,000
912
770
800
600
400
200
0
533
522
904
905
903
763
660
570
873
742
764
622 586
609
513
591
508
472
639
470
420
372
191
199
228
Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec09 09 09 09 09 10 10 10 10 10 10 10 10 10 10 10 10
Auctions
Elliott D. Pollack & Company
REOs
Remainder of
Arizona
Elliott D. Pollack & Company
All the same issues
apply, the degree is
what varies…
Elliott D. Pollack & Company
Balance of State Employment*
Annual Percent Change 1977–2010
Source: Department of Commerce, Research Administration
10%
7.9%
8%
6.7%
5.4%
5.1%
5.3%
4.9%5.2%
4.1%
6%
4%
2%
2.6% 3.4%
2.6%
2.0%
2.2%
2.2%
5.4%
4.3%
4.7%
4.4%
4.6%
3.1%
3.2%
2.7%
2.0%
1.7% 1.9%
0.7%
3.9%
3.6%
2.6%
0.2%
0%
-2%
-1.3%
-1.8%
-4%
-6%
-5.0%
-6.4%
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
19
77
-8%
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
Recession Periods
Elliott D. Pollack & Company
Balance of State Population
Annual Percent Change 1976–2009
Source: U.S. Census
6%
5.6%
5.5%
5.2%
5.1%
4.8%
4.7%
4.4%
4%
3.7%
3.1%
3.4%
3.1%
3.8%
3.6%
3.3%
3.3%
3.2%
2.7%
3.3%
2.9%
3.0%
2.6%
2.5%
2%
2.0%
1.9%
1.8%
2.0%
2.2%
2.5%
1.9%
1.4%
1.2%
0.7%
0%
?
-0.5%
-1.3%
-2%
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Recession Periods
Elliott D. Pollack & Company
Balance of State Housing Units
Authorized
Source: ASU Realty Studies
Year
2001
2002
2003
Permits
11,001
13,448
16,283
% chg
19.4%
22.2%
21.1%
2004
2005
2006
2007
2008
2009
23,185
27,177
19,561
13,334
9,398
8,048
42.4%
17.2%
-28.0%
-31.8%
-45.1%
-14.4%
Elliott D. Pollack & Company
Commercial
Markets…
Elliott D. Pollack & Company
Back to Normal Vacancy?
• Office =
2014 – 2015
• Industrial =
2013 – 2015
• Retail =
2014 - 2015
Elliott D. Pollack & Company
Financial Problems…
Elliott D. Pollack & Company
U.S. Problem Commercial Real Estate Loans Rise
Delinquency Rates at Commercial Banks
1991 – 2010*
Source: Federal Reserve
Recession Periods
14
12
Temporary
before
increasing
again?
10
8
6
4
2
0
91
19
Q
1
91
19
Q
4
92
19
Q
3
93
19
Q
2
94
19
Q
1
94
19
Q
4
95
19
Q
3
96
19
Q
2
97
19
Q
1
97
19
Q
4
98
19
Q
3
99
19
Q
2
00
20
Q
1
00
20
Q
4
01
20
Q
3
02
20
Q
2
03
20
Q
1
03
20
Q
4
04
20
Q
3
05
20
Q
2
06
20
Q
1
06
20
Q
4
07
20
Q
3
08
20
Q
2
09
20
Q
1
09
20
Q
4
10
20
Q
3
* Data through third quarter 2010
Elliott D. Pollack & Company
U.S. Commercial1 Mortgage Maturities
1980–2020*
Source: Foresight Analytics
Recession Periods
$250
$225.9 $226.5
$218.9
Post 2004 - Upside Down?
$197.2
$177.9
$200
$166.4
$150
$199.4
$198.0
$183.7
$177.3
$134.0
$118.3
$100
$50
$101.9
$76.7
$88.1
$79.4 $78.5
$73.1 $79.6
$65.3
$67.1
$53.6 $62.7
$60.0
$58.3
$44.6
$46.7
$39.2
$48.3
$48.4$43.7
$34.2
$23.9
$30.0
$21.2
$26.6
$17.6
$18.9
$87.1
$44.8
$34.2
Borrowed
Loan Due
$0
80 9 81 9 82 9 83 9 84 9 85 9 86 9 87 9 88 9 89 9 90 9 91 9 92 9 93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02 0 03 0 04 0 05 0 06 0 07 0 08 0 09 0 10 0 11 0 12 0 13 0 14 0 15 0 16 0 17 0 18 0 19 0 20
9
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Elliott D. Pollack & Company
1/ Includes mainly office, retail, industrial and hotels
Note: Forecast is from Foresight Analytics
How to Manage the Problem?
• Capital will continue to be relatively scarce.
• But, very few banks would refinance under
current conditions anyway.
• Banks won’t want to take back the
properties.
• But, “Extend & Pretend” will only work in the
short term.
Elliott D. Pollack & Company
How to Manage the Problem?
• Not enough cash flow (rents) for many
investors to gain interest in participating.
• Higher quality properties are moving, lower
quality not so much.
Elliott D. Pollack & Company
Additional Risks…
Elliott D. Pollack & Company
Elliott D. Pollack & Company
Elliott D. Pollack & Company
So which influence will be bigger?
• Population/employment gains may be offset
by new leases adjusting for lower rents/less
space, at least in 2011.
• This means the possibility of relatively flat
rental rates and vacancy rates in 2011.
• 2012 should see some improvement though
but not fully recovered until 2014-ish.
Elliott D. Pollack & Company
How does this impact commercial
property values?
Values through 2010 propped up by:
-
Owners depleting reserve funds (done);
Extend and Pretend (still pretending?);
Interest rates low (continues);
Multi-year leases (fewer).
Elliott D. Pollack & Company
Tale of Two Cities?
• Building values could continue to slip in
2011 despite some improvement in
overall economic conditions (except for
core product which is in good shape).
• Commercial foreclosures are not over.
• When will investors enter the market in
force?
Elliott D. Pollack & Company
Commercial
Summary:
For 2011, is flat the
new up?
Elliott D. Pollack & Company
Arizona Forecast
2011 – 2012
Indicator
2009 2010(e)
2011(f)
2012(f)
Population
0.9%
1.0%
2.0%
2.3%
Employment
-7.3%
-1.0%
2.0%
3.5%
Retail Sales
-9.8%
0.0%
5.0%
8.0%
Personal Income
-2.2%
2.5%
4.0%
5.0%
Building Permits
(Single Family)
-39.0%
-14.7%
-12.4%
30.4%
Elliott D. Pollack & Company
Source: Elliott D. Pollack & Company
AZ Summary:
Lagging the US in terms of
full recovery; but leading the
US in terms of rates of
growth.
Elliott D. Pollack & Company
Fiscal Topics
Elliott D. Pollack & Company
Discussion of Rates
vs. Levels…
(A 100% gain is needed to offset a
50% loss)
Elliott D. Pollack & Company
Gains Needed to Reach Previous Peak
100%
90%
Corporate Income Tax: -58% / 139%
Required Percent
Gain
80%
70%
60%
Individual Income Tax: -36% / 55%
50%
40%
30%
Sales Tax: -23% / 30%
20%
10%
0%
1
6
11
16
21
26
Realized
Percent Loss
Elliott D. Pollack & Company
31
36
41
46
Example “Recovery”
Models…
Elliott D. Pollack & Company
How do we deal with this issue?

At some point revenue growth RATES will
be significant even if full recovery is middecade.

But, WE DON’T KNOW exactly how/when
this will play out.

Options?
Elliott D. Pollack & Company
How do we deal with this issue?

Option #1: Assume a normal economic
recovery and an immediate/significant boost in
growth rates.

NO!
Elliott D. Pollack & Company
Examples of Forecasted Revenue Recovery - A
Growth Rate
Recovery Peak –
Typical
Back to Normal
Recession Trough
Revenue Cycle
Elliott D. Pollack & Company
How do we deal with this issue?

Option #2: Assume less pent up demand than
typical, so if trying for a “most likely” scenario
be more conservative.

Includes some budgeting risk but fewer
spending cuts will need to be identified.
Elliott D. Pollack & Company
Examples of Forecasted Revenue Recovery - B
Growth Rate
Recovery Peak – Less
Pent Up Demand
Back to Normal
Recession Trough
Revenue Cycle
Elliott D. Pollack & Company
How do we deal with this issue?

Option #3: Too much uncertainty;
forecast the peak to be no greater than
the long term average and be prepared
for revenues to eventually exceed the
forecast.

Less risk to out-year budget, but will
need to work harder to find more
spending cuts.
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Examples of Forecasted Revenue Recovery - C
Growth Rate
Simply wait until we
realize the
aforementioned
growth???
Back to Normal
Recession Trough
Revenue Cycle
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Examples of Forecasted Revenue Recovery - All
Growth Rate
Recovery Peak
Back to Normal
Recession Trough
Revenue Cycle
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Public Policy
Topics
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Focus on growing or
growing well?
Elliott D. Pollack & Company
Top Site Selection Factors
2009 Corporate Real Estate Executive Survey
1
Transportation infrastructure
2
Existing workforce skills
3
State and local tax scheme
4
Utility infrastructure
5
Land/building prices & supply
6
Ease of permitting & regulatory procedures
7
Flexibility of incentives programs
8
Access to higher education resources
9
Availability of incentives
10
State economic development strategy
Source: Site Selection M agazine
Elliott D. Pollack & Company
Why are incentives, at first
glance, low on the list of
most desired business
location factors?
Elliott D. Pollack & Company
Top Site Selection Factors
2009 Corporate Real Estate Executive Survey
1
Transportation infrastructure
2
Existing workforce skills
3
State and local tax scheme
4
Utility infrastructure
5
Land/building prices & supply
6
Ease of permitting & regulatory procedures
7
Flexibility of incentives programs
8
Access to higher education resources
9
Availability of incentives
10
State economic development strategy
Source: Site Selection M agazine
Elliott D. Pollack & Company
Competitiveness Map
Elliott D. Pollack & Company
Job Growth 2006
Source: US BLS
10
7
9
5
4
1
3
22
2
15
8
11
6
Elliott D. Pollack & Company
Job Growth 2009
Alaska
2
Source: US BLS
30
47
44
50
45
35
49
Hawaii
18
1
23
3
5
32
13
16
24
8
4
46
Elliott D. Pollack & Company
Areas of Policy Focus:
Arizona Summary
Elliott D. Pollack & Company
Basic Principles:
Address Where We Are Weak
•
•
•
•
•
•
•
More outreach by leadership.
Efficient levels of regulation.
More competitive tax policy.
Focused incentives when necessary.
Physical and intellectual infrastructure.
Better marketing/branding.
Better coordination.
Elliott D. Pollack & Company
Common Themes: “Best” States
 Have
 Are
the basic economic development tools.
competitive in tax rates where it matters.
 Communities
 Red
also participate.
tape is minimal.
 Marketing
of the State and sub-regions is
excellent.
 If
somebody calls there is a person that answers
the phone and EVERYBODY participates to
close the deal.
Elliott D. Pollack & Company
Where is the ball often
dropped?
Making sure there is a return
on the investment.
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Other Intangibles?
Elliott D. Pollack & Company
What do we have going for us
compared to other regions?
(from my recent trip to the East Coast)
My Cabbie.
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Where I
slipped on
ice and fell
on my butt.
My doctor
treating my
newly
developed
bronchitis.
My renewed opinion of the Southwest.
Elliott D. Pollack & Company
For additional economic updates
including speeches and publications
please follow us on Twitter.
We will walk you through the simple registration
process on our website:
www.arizonaeconomy.com
Elliott D. Pollack & Company
ELLIOTT D. POLLACK
& Company
• 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
7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251
480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / [email protected]
Elliott D. Pollack & Company

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