economic review and outlook brian cary manager of forecasting, archives & research salt river...
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Economic Review And OutlookBrian Cary
Manager of Forecasting, Archives & ResearchSalt River Project
Arizona Financial Professionals AssociationJune 11, 2014
June 2014: Economic Review
United States:• The U.S. economy slowed in early 2014 – due in part to severe
winter weather – but recent statistics reflected stronger growth in the second quarter
• The job market created jobs at a stronger pace while the unemployment rate trended downward
• The impact on the global and U.S. economies from the turmoil in Ukraine remains uncertain
Metropolitan Phoenix:• Employment gains in financial activities, education and health
services were offset somewhat by job losses in manufacturing• Phoenix area housing prices have leveled off while multi-
family construction accelerated 2
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IMF Predicts Stronger Global Economic GrowthWorld Economic Output – Spring 2014 Forecast
World U.S. Europe Japan China India Mexico-4
-2
0
2
4
6
8
10
122012 2013 2014 2015 2016
Percent Change
• U.S. economic growth is projected to improve gradually • Europe has improved but forecasted growth remains weak• China and India are expected to lead the global economy
Source: International Monetary Fund
06
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Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3-10
-8
-6
-4
-2
0
2
4
6 GDP Consumption
U.S. Economy Contracted For The First Time In Three YearsU.S. Gross Domestic Product (GDP) Growth(seasonally adjusted annual rate, 2009 dollars)
Annual Growth Rate (%)
• Q1 2014 GDP declined (1.0)% (annualized) — down from 2.6% growth in Q4 2013• Personal consumption spending increased at a 3.1% annual rate — down from 3.3% in Q4 2013• Decrease was driven primarily by reduced inventories and exports
Sources: U.S. Bureau of Economic Analysis; Moody’s Analytics
2007 2008 2009 2010 2012 2013 2014
Forecast
2011 2015
4
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06/11/2014 AFPA Meeting , B. Cary
Q1 1986
Q1 1987
Q1 1988
Q1 1989
Q1 1990
Q1 1991
Q1 1992
Q1 1993
Q1 1994
Q1 1995
Q1 1996
Q1 1997
Q1 1998
Q1 1999
Q1 2000
Q1 2001
Q1 2002
Q1 2003
Q1 2004
Q1 2005
Q1 2006
Q1 2007
Q1 2008
Q1 2009
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
Nominal Dollars Constant Dollars (1985 $)
$ Billions
U.S. Household Net Worth Reaches New Record HighFirst Quarter 1986 – First Quarter 2014(non-seasonally adjusted basis)
Source: Board of Governors of the Federal Reserve System
• Household net worth increased with improved home prices, more jobs and higher stock prices• Grew 2.0% from the fourth quarter 2013 – reached $81.8 trillion 5
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U.S. Stock Prices Hit Record Levels S&P 500 Index and Dow Jones Industrial AverageLast Day Of The Month Closing Price
0
500
1,000
1,500
2,000
2,500
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Standard & Poor's 500 Index Dow Jones Industrial Average
S & P 500 DJIA
Source: Standard & Poor’s and Moody’s Analytics
• In May, the S & P 500 index closed 18.0% higher than a year ago• The closing price of the Dow Jones was 10.6% higher than last year
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20140
2
4
6
8
10
30-Yr. Fixed Mortgage Rate Federal Funds Rate 10-Yr. Treasury Note Yield
Percent
Long-Term Interest Rates May Be On The Rise AgainMonthly Averages Through May 2014
Source: Board of Governors of the Federal Reserve System
• Although interest rates began moving upward, they remain relatively low• The Fed continues to “taper” its bond purchases 7
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Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
-4%
-2%
0%
2%
4%
6% All Items Core (Excluding Food & Energy)
Percent Change
Source: U.S. Bureau of Labor Statistics
U.S. Consumer Prices: Still StableYear-Over-Year Percent Change
• CPI rose 0.3% in April — up 2.0% on a year-over-year basis • Core CPI maintained its 0.2% pace from last month — up 1.8% from a year ago• Higher food and gasoline costs led to higher consumer prices
8
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U.S. Employment Returns To Pre-Recession LevelsTotal Non-Farm Employment – Net Change From Prior Month & Unemployment Rate
-1,000
-800
-600
-400
-200
0
200
400
600
800
0%
2%
4%
6%
8%
10%
12% Total Non-Farm Employment Unemployment Rate
Source: U.S. Bureau of Labor Statistics
Thousands Unemployment Rate
• 217,000 jobs were added in May; the jobless rate was unchanged at 6.3%• Professional/business services and health care posted the largest increases • March and April data revisions showed 6,000 fewer jobs than originally reported
9
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6 7 8 9 10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
Total Nonfarm Employment: United StatesNumber of Months Needed to Surpass Previous Peak in Employment
Post-WWII Recessions
1948 1953 1957 1960 1970 1974 1980 1981 19902001 2007
Number of Months After Peak Employment
Per
cen
t Ch
ange
fro
m P
eak
Em
plo
ymen
t
10
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Employment Trends Index StrengthensThe Conference Board Employment Trends Index (ETI)
May-0
6
Sep-06
Jan-0
7
May-0
7
Sep-07
Jan-0
8
May-0
8
Sep-08
Jan-0
9
May-0
9
Sep-09
Jan-1
0
May-1
0
Sep-10
Jan-1
1
May-1
1
Sep-11
Jan-1
2
May-1
2
Sep-12
Jan-1
3
May-1
3
Sep-13
Jan-1
4
May-1
480
90
100
110
120
130
• Correlated with employment & provides a leading indication of employment’s direction• Consists of 8 labor market indicators, with 7 indicators showing positive results• Index signaling continued employment growth in the months ahead
Source: The Conference Board
1996 = 100
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ISM Surveys Show The Economy Is Still ExpandingInstitute for Supply Management Manufacturing Index
May-0
9
Aug-09
Nov-09
Feb-10
May-1
0
Aug-10
Nov-10
Feb-11
May-1
1
Aug-11
Nov-11
Feb-12
May-1
2
Aug-12
Nov-12
Feb-13
May-1
3
Aug-13
Nov-13
Feb-14
May-1
420
30
40
50
60
70
80 Manufacturing Non-Manufacturing
Index
Source: ISM
• Manufacturing index was 55.4 in May — up for the fifth consecutive month• New orders index rose 1.8 points from the previous month• Non-manufacturing index was 56.3 in May– up 1.1 points from April
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Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
$0
$5
$10
$15
$20
$25
$30
$0
$1
$2
$3
$4
$5
$6
$7Worldwide Americas
• Sales in the Americas dropped 1.6% from last month but climbed 13.6% from last year• Worldwide billings were up 0.7% from the previous month & increased 11.5% from last year• Demand for electronics & cloud-based computing are expected to increase semiconductor growth
$ Billions
Global Semiconductor Sales Increased Steadily Semiconductor Sales (3-month moving average)
$ Billions
Source: Semiconductor Industry Association
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Semiconductor Orders Dipped SlightlyU.S. Semiconductor Book-to-Bill Ratio
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Ratio
• Book-to-bill ratio = new orders divided by current shipments• Ratio was 1.03 in April — ratio above 1.0 for seventh consecutive month• Demand for mobile devices and servers for cloud computing are expected to drive steady semiconductor growth
Source: SEMI
14
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Leading Index Signals Continued Economic Growth U.S. Index Of Leading Economic Indicators — Net Change From Prior Month
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
-4%
-3%
-2%
-1%
0%
1%
2%
3%
• Index is designed to signal the economy’s performance in the next 6-12 months• LEI increased 0.4% in April – up 11 of the last 12 months• Higher interest rate spread and rising building permits led to the increase
Percent Change
Source: The Conference Board
15
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Confidence Grows With A More Favorable Employment Outlook U.S. Consumer Confidence Index
May-0
0
May-0
1
May-0
2
May-0
3
May-0
4
May-0
5
May-0
6
May-0
7
May-0
8
May-0
9
May-1
0
May-1
1
May-1
2
May-1
3
May-1
40
20
40
60
80
100
120
140
160
Index
• In May, the index rose to 83.0 — April’s index level was revised downward to 81.7• Consumers were more optimistic in May about current and future business conditions• Labor market expectations improved from April as more respondents felt jobs were plentiful
Source: The Conference Board
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Greater Phoenix Job Growth Remains SteadyMetropolitan Phoenix Non-Farm EmploymentNet Change From A Year Ago And Unemployment Rate
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
-200
-150
-100
-50
0
50
100
150
0%
2%
4%
6%
8%
10%
12% Total Non-Farm Employment Unemployment Rate
Thousands
Source: Arizona Office of Employment & Population Statistics
• Non-farm employment grew 2.2% from a year ago in April (39,100 positions)• Gains were led by the financial, education and health services sectors• Manufacturing was down by 700 jobs from a year ago
Unemployment Rate
17
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4 5 6 7 8 9 10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
Total Non-farm Employment : ArizonaNumber of Months Needed to Surpass Previous Peak in Employment
Post – WWII Recessions1948 1953 1974 1981 1991 2001 2007
Number of Months After Peak Employment (seasonally adjusted)
Per
cen
t Ch
ange
Fro
m P
eak
Em
plo
ymen
t
18
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Unemployment Insurance Claims Fell Over The YearArizona Total Unemployment Insurance Claims4-week moving average
Total Claims
Source: U.S. Department of Labor
• Total weekly UI claims were 1.1% lower than a year ago on a moving average basis
May 2006
Sep 2006
Jan 2007
May 2007
Sep 2007
Jan 2008
May 2008
Sep 2008
Jan 2009
May 2009
Sep 2009
Jan 2010
May 2010
Sep 2010
Jan 2011
May 2011
Sep 2011
Jan 2012
May 2012
Sep 2012
Jan 2013
May 2013
Sep 2013
Jan 2014
May 2014
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
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Unemployment Rate For Arizona CountiesUnemployment Rate, N.S.A.(April 2014)
Source: Arizona Department of Administration
20
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Coconino 6.2%Mohave 7.6%
Pima 5.5%
Maricopa 5.2%
Yavapai 5.9%
Gila 7.5%
Pinal 6.5%
Cochise 7.5%
Yuma 23.8%
La Paz 8.2%
Graham 5.6%
Apache 15.9%
Navajo 11.9%
Greenlee 5.4%
Santa Cruz 13.1%
Unemployment Rate
Low
Medium
High
Highest
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
$0
$50
$100
$150
$200
$250
$300
$350
-40%
-30%
-20%
-10%
0%
10%
20%
30% Individual Income Taxes Year-Over-Year Percent Change
State Individual Income Tax Receipts Dipped in AprilIndividual Income Tax Collections (12-month moving average)
• Individual income tax collections were 0.1% lower than a year ago on a moving average basis• April withholding tax collections were 0.2% higher than a year ago
Source: Arizona Joint Legislative Budget Committee (JLBC)
$ Millions Percent Change
21
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Arizonans More Confident About Future Economic ConditionsArizona Consumer Confidence Index (April 2014)
Q202Q402
Q203Q403
Q204Q404
Q205Q405
Q206Q406
Q207Q208
Q209Q210
Q410Q211
Q411Q212
Q213Q413
Q2140
20
40
60
80
100
120
1985=100
• Index increased from 68.9 to 75.1 in the latest survey – its highest level in six years• Both consumers’ current assessment and expectations for the future improved
Source: Behavior Research Center
22
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$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000Total Median Sales Price Total Sales
Price Sales Volume
Phoenix Area Home Prices: Leveling OffResale and New Home Median Sales Prices In Maricopa County6-month moving average
Sources: The Cromford Report; AMLS
• Median prices rose 14.2% from last year but were unchanged from the prior month• The number of homes sold in April fell 13.3% over the year but grew 2.9% from last month 23
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Mar-0
3Ju
l-03
Nov-03
Mar-0
4Ju
l-04
Nov-04
Mar-0
5Ju
l-05
Nov-05
Mar-0
6Ju
l-06
Nov-06
Mar-0
7Ju
l-07
Nov-07
Mar-0
8Ju
l-08
Nov-08
Mar-0
9Ju
l-09
Nov-09
Mar-1
0Ju
l-10
Nov-10
Mar-1
1Ju
l-11
Nov-11
Mar-1
2Ju
l-12
Nov-12
Mar-1
3Ju
l-13
Nov-13
Mar-1
40
50
100
150
200
250
Phoenix MSA 20-City Composite
227.4
206.5166.8
144.8
Source: Standard & Poor’s
Phoenix Area Home Prices: Leveling OffStandard & Poor’s / Case-Shiller Home Price Index
Jan 2000 = 100
• Phoenix area: up +11.1% from last year, down (36.3)% from the June 2006 peak• Phoenix area prices posted a slight monthly gain for the first time in three months• U.S. Composite: up +12.4% from a year ago, down (19.2)% from the July 2006 peak 24
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Source: Federal Housing Finance Agency
Q3 2000
Q2 2001
Q1 2002
Q4 2002
Q3 2003
Q2 2004
Q1 2005
Q4 2005
Q3 2006
Q2 2007
Q1 2008
Q4 2008
Q3 2009
Q2 2010
Q1 2011
Q4 2011
Q3 2012
Q2 2013
Q1 20140
50
100
150
200
250
300
350
400
Arizona Phoenix MSA Tucson MSA United States
U.S. and Arizona Home Prices Improved In The Last Two YearsFederal Housing Finance Agency House Price Index – Purchase OnlyQuarterly, seasonally adjusted
1991 = 100
• Arizona home prices increased 2.1% over the quarter and 14.7% from a year ago• Phoenix area home prices were up 2.0% from last quarter and 16.6% from last year• Tucson MSA home prices grew 1.0% from Q4 2013 and 8.4% from a year ago• Prices were up 1.3% from last quarter and 6.6% from last year
Distressed Home Inventories Are Down From The PeakMaricopa County Notices of Trustee Sales and Total Pending
May-0
6
Sep-06
Jan-0
7
May-0
7
Sep-07
Jan-0
8
May-0
8
Sep-08
Jan-0
9
May-0
9
Sep-09
Jan-1
0
May-1
0
Sep-10
Jan-1
1
May-1
1
Sep-11
Jan-1
2
May-1
2
Sep-12
Jan-1
3
May-1
3
Sep-13
Jan-1
4
May-1
40
2,000
4,000
6,000
8,000
10,000
12,000
0
10,000
20,000
30,000
40,000
50,000
60,000
Peak
NOTS Pending
• Inventory of properties in foreclosure peaked in December 2009 • Total active notices are 91.4% lower than December 2009 peak level• Initial notices & total foreclosures pending continue to fall – dropped 44.3% & 47.2% Y-O-Y
Source: Information Market
26
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Phoenix New Home Construction Still Sluggish Metropolitan Phoenix Housing Permits (6-month moving average)
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
0
1,000
2,000
3,000
4,000
5,000
6,000
Total Units Single Family Units
• Single-family permits are at the highest level since July 2013• Growth in total permits decelerated slightly after two consecutive months of strong gains
Permits
Source: U.S. Census Bureau
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Mar-1
0
Jul-1
0
Nov-10
Mar-1
1
Jul-1
1
Nov-11
Mar-1
2
Jul-1
2
Nov-12
Mar-1
3
Jul-1
3
Nov-13
Mar-1
40
500
1,000
1,500
2,000
2,500
Arizona Phoenix MSA Tucson MSA
Source: U.S. Census Bureau
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Total Permits
Arizona Housing Permits Have Improved From Last YearArizona, Phoenix MSA and Tucson MSA Total Home Permits6 — month moving average, not seasonally adjusted
• Statewide housing permits are up 21.8% from last year on a moving average basis• Phoenix permits were up 26.0% from last year & 9.4% from last month on a moving average basis• Tucson home permits were down 10.2% on a moving average basis
Commercial RE Vacancies Are Trending LowerMetro Phoenix Office, Industrial And Retail Real Estate
1Q053Q05
1Q063Q06
1Q073Q07
1Q083Q08
1Q093Q09
1Q103Q10
1Q113Q11
1Q123Q12
1Q133Q13
1Q140%
5%
10%
15%
20%
25%
30% Office Industrial Retail
Source: CBRE
• Office vacancy rate declined to 22.1% in Q1 2014 – net absorption dipped to 253,845 SF• Industrial vacancies fell to 11.3%, with net absorption of 1.6 MSF in Q1 2014• Retail vacancy rate decreased to 10.0% – net absorption was 387,226 SF
Vacancy Rate
29
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Phoenix Sky Harbor Passenger Count Reached A Record LevelPhoenix Sky Harbor Airport Statistics — Year-Over-Year Percent Change
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
-20%
-10%
0%
10%
20%
Total Air Passenger Traffic Year-Over-Year Percent Change
• Total passenger traffic climbed 28.0% and total cargo jumped 43.3% from the prior month• March marked the busiest month ever with over 4 million passengers • Passenger traffic was 3.2% higher over the year & total cargo soared 34.0% from last year
% ChangeMillions
Source: Phoenix Sky Harbor Airport
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Arizona Highway Traffic Is Gradually IncreasingTotal Vehicle Miles Driven in Arizona(12-month moving average, % change from year ago)
Mar-0
3
Mar-0
4
Mar-0
5
Mar-0
6
Mar-0
7
Mar-0
8
Mar-0
9
Mar-1
0
Mar-1
1
Mar-1
2
Mar-1
3
Mar-1
44,000
4,500
5,000
5,500
6,000
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8% Miles Driven % Change
Miles driven (Millions) % Change
• After climbing in 2010, mileage started declining again in the summer of 2011• Traffic has slowly picked up the pace since October 2012 on a moving average basis• Arizona traffic rose 1.2% on a year-over-year moving average basis in March
Source: U.S. Department of Transportation
31
06
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Exports From Arizona To Mexico Are At An All Time High
$ Millions % Change
Source: International Trade Administration, Global Patterns of a State’s Exports.
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19992000
20012002
20032004
20052006
20072008
20092010
20112012
2013$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
-30%
-20%
-10%
0%
10%
20%
30%
40%
50% Merchandise Exports To Mexico Percent Change
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Metropolitan Phoenix Employment Forecast University of Arizona Forecasting Project (May 2014)
20102011
20122013
20142015
20162017
20182019
2020-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
Percent Change
• Greater Phoenix employment is expected to increase 3.2% in 2014 (57,400 jobs)• Job growth is predicted to improve in 2015 and beyond
Source: University of Arizona Forecasting Project, Arizona Office of Employment & Population Statistics
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Metropolitan Phoenix Population Forecast University of Arizona Forecasting Project (May 2014)Net Change In Population and Percent Change From A Year Ago
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0% Population Y-O-Y Percent Change
Net Change (thousands) Percent Change
Source: University of Arizona Forecasting Project
• Forecast expects steady gains in the near term with stronger growth by 2017• Greater Phoenix predicted to add nearly 68,000 people in 2014 34
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(10,000)
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000 Arizona Phoenix MSA Tucson MSA
Net Change (thousands)
Statewide Population Forecast University of Arizona Forecasting Project (May 2014)Net Change In Population
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Source: University of Arizona Forecasting Project
• Arizona predicted to add more than 87,000 people in 2014
Arizona Personal Income Expected To Accelerate In 2014Arizona, Phoenix MSA and Tucson MSA Personal Income
19901992
19941996
19982000
20022004
20062008
20102012
20142016
20182020
2022$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000Arizona Phoenix Tucson Forecast
Source: University of Arizona Forecasting Project
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Personal Income (thousands)
• Personal income growth is expected to improve this year • Growth is expected to pick up from 2015 through 2018
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19901992
19941996
19982000
20022004
20062008
20102012
20142016
20182020
2022 -
20
40
60
80
100
120
Arizona Phoenix MSA Tucson MSA Forecast
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Source: U.S. Census Bureau, University of Arizona Forecasting Project
Arizona Home Building Predicted To Rise In The Next Three YearsArizona, Phoenix MSA and Tucson MSA Total Residential Building Permits
Total Permits (thousands)
• Home permits are expected to accelerate in 2015 across the state, especially in the Phoenix area
Summary and Outlook• U.S. economic growth is expected to accelerate this year as
household incomes and credit conditions improve
• Job creation is expected to continue at a solid pace while the unemployment rate should continue its downward trend
• Home prices in the greater Phoenix area are predicted to remain relatively flat in the months ahead
• The Arizona job market is projected to post modest gains in 2014 before trending higher in 2015
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