Slide 1

Elliott D. Pollack & Company Economic Update 2014 ACMA July 23, 2014 Presented By: Jim Rounds Senior Vice President Elliott D. Pollack & Company

Slide 2

Past Headlines

Slide 3

Elliott D. Pollack & Company What The #$@&, I Thought It Was Getting Better? 2010 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company

Slide 4

The Not So Attractive Recovery (But it has a great personality!) 2011 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company

Slide 5

2012 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company You Heard It Here First: Less Dreadful Times Ahead!

Slide 6

Elliott D. Pollack & Company 2013 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company What Will Firm Up This Recovery?

Slide 7

Elliott D. Pollack & Company How to Avoid the

Slide 8

Elliott D. Pollack & Company Is there a story? Does the data make sense? If not, is there an explanation for why it is off? If not, then worry.

Slide 9

Elliott D. Pollack & Company United States Real Gross Domestic Product* Annual Growth 1970 - 2015** Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators * Based on chained 2009 dollars. ** 2014 and 2015 are a forecast from the Blue Chip Economic Indicators, July 2014. Recession Periods 3.8% = 40-year avg during expansion 3.2% = 20-year avg during expansion Q1 = -2.9% Q2/Q3 = ?

Slide 10

Elliott D. Pollack & Company US Non-Farm Employment Change from Prior Month (S/A) June 2010 June 2014 Source: Bureau Labor of Statistics

Slide 11

Elliott D. Pollack & Company U.S. Unemployment Rate 1970 2014* Source: Bureau of Labor Statistics Recession Periods *Seasonally adjusted data through June 2014 Underemployment = 12.1%

Slide 12

Elliott D. Pollack & Company U.S. Leading Indicators 1971 2014* Source: The Conference Board Recession Periods *Data through June 2014

Slide 13

Elliott D. Pollack & Company 10 Components of U.S. Leading Indicators June 2014 Interest rate spread Leading Credit Index (inverted) Stock Prices Manuf. new order index Manuf. new orders capital goods Manuf. new orders consumer goods Consumer expectations Claims for unemployment (inverted) Manuf. hours Building permits + -

Slide 14

Elliott D. Pollack & Company Risks?

Slide 15

Elliott D. Pollack & Company Consumers Debt burden low. Net worth improved. Real income growth. Liquidity improving. Inflation low. Government Fed policy still expansive (2015).

Slide 16

Elliott D. Pollack & Company Business No excess inventory. No capacity issues. Dollar not overly strong. Housing Prices up but leveled.

Slide 17

Elliott D. Pollack & Company U.S. Risks Stock market? International Risks: China? Russia?

Slide 18

Elliott D. Pollack & Company Whats slowing us down?

Slide 19

Elliott D. Pollack & Company 70s, 80s Rapid increase in household formation.

Slide 20

Elliott D. Pollack & Company 90s Huge increase in stock market.

Slide 21

Elliott D. Pollack & Company 1996 2005 rapid increase in housing prices/housing based credit.

Slide 22

Elliott D. Pollack & Company Now?

Slide 23

Elliott D. Pollack & Company Consumers

Slide 24

Elliott D. Pollack & Company WEALTH EFFECT Housing prices are up. Stock market is up.

Slide 25

Elliott D. Pollack & Company Consumer Confidence 1978 2014* Source: The Dismal Scientist *Data through June 2014. Recession Periods

Slide 26

Elliott D. Pollack & Company Household Debt Composition Percent Change Year Ago 2004 2013* Source: The Federal Reserve Bank of New York Recession Periods *Data through fourth quarter 2013.

Slide 27

Elliott D. Pollack & Company Average Age of Auto Fleet (all light vehicles) 2013 11.4 years 2010 10.6 years 2005 9.5 years 2000 8.9 years 1995 8.4 years Source: R.L. Polk Company

Slide 28

Elliott D. Pollack & Company Business

Slide 29

Elliott D. Pollack & Company Hours Worked Percent Change from Year Ago 1976 2014* Source: Bureau of Labor Statistics Recession Periods *Data through first quarter 2014

Slide 30

Elliott D. Pollack & Company Capacity Utilization Rate 1970 2014* Source: The Federal Reserve Bank of St. Louis *Data through May 2014. Recession Periods

Slide 31

Elliott D. Pollack & Company Bottom Line Slower long term growth with some risk.

Slide 32

Elliott D. Pollack & Company Arizona

Slide 33

Elliott D. Pollack & Company Different this time? Significant declines in population flows. Steeper housing decline.

Slide 34

Elliott D. Pollack & Company 5 2 7 1 Arizona Population Growth Was Slow But Still Top 10 in 2013 8 Source: U.S. Census Bureau 3 9 6 Growing Declining Top 10 10 Alaska Hawaii 4

Slide 35

Elliott D. Pollack & Company Arizona Rank Population Growth 1991-2013 Source: Census Bureau

Slide 36

Elliott D. Pollack & Company Why did population flows slow? Slow job growth High unemployment Delayed retirement Difficulty in selling home Difficulty in qualifying for a loan S.B. 1070?

Slide 37

Elliott D. Pollack & Company Arizona Population Annual Percent Change 19752013 Source: AZ Dept. of Administration Recession Periods normal

Slide 38

Elliott D. Pollack & Company Arizona Population Annual Net Change 19752013 Source: AZ Dept. of Administration Recession Periods normal

Slide 39

Elliott D. Pollack & Company 49 46 23 41 40 3 43 27 50 Hawaii 39 1 Alaska 2 18 48 4 10 5 Jobs growing Jobs declining Top 10 8 6 9 7 Job Growth 2010 Source: US BLS 32

Slide 40

Elliott D. Pollack & Company 10 46 3 4 5 44 11 6 7 1 2 Alaska 47 Jobs growing Jobs declining Top 10 Hawaii 16 9 14 Job Growth 2013 Source: US BLS 8

Slide 41

Elliott D. Pollack & Company 15 33 9 6 3 50 7 2 35 1 5 Alaska 47 Jobs growing Jobs declining Top 10 Hawaii 27 11 30 Job Growth 2014 YTD June 2014 vs YTD June 2013 Source: US BLS 10 4 8

Slide 42

Elliott D. Pollack & Company Job Growth 2014 YTD June 2014 vs June 2013 Source: U.S. Bureau of Labor Statistics RankState% chg. 1North Dakota4.34% 2Nevada3.78% 3Texas3.07% 4Florida3.03% 5Utah2.87% 6Colorado2.85% 7Oregon2.84% 8Delaware2.42% 9California2.34% 10South Carolina2.08% 11Washington2.07% 12Tennessee1.88% 13Georgia1.84% 14North Carolina1.81% 15Arizona1.77% 16Indiana1.66% 17Minnesota1.65% 18Oklahoma1.65% 19Wisconsin1.58% 20Iowa1.56% 21Massachusetts1.49% 22Missouri1.47% 23Rhode Island1.35% 24New Hampshire1.27% 25Maine1.23% RankState% chg. 26New York1.23% 27Hawaii1.15% 28Arkansas1.11% 29Kansas1.06% 30Montana1.06% 31Nebraska1.04% 32West Virginia1.01% 33Wyoming0.98% 34Ohio0.96% 35Idaho0.93% 36Mississippi0.93% 37Louisiana0.92% 38South Dakota0.79% 39Alabama0.75% 40Michigan0.64% 41Maryland0.64% 42Connecticut0.63% 43Pennsylvania0.61% 44Vermont0.55% 45Illinois0.55% 46Kentucky0.54% 47Alaska0.31% 48Virginia0.18% 49New Jersey0.07% 50New Mexico-0.20%

Slide 43

Elliott D. Pollack & Company Quality?

Slide 44

Elliott D. Pollack & Company Arizona Job Losses Exceeded U.S. Source: Bureau of Labor Statistics, Seasonally Adjusted Data

Slide 45

Elliott D. Pollack & Company Arizona Jobs Regained Since Bottom of Cycle Most Industries Yet to Regain Lost Jobs Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted, As of June 2014

Slide 46

Elliott D. Pollack & Company U.S. Jobs Regained Since Bottom of Cycle Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted, As of June 2014

Slide 47

Elliott D. Pollack & Company AZ Has Regained 57% of Lost Jobs 133,100 Jobs (43%) Still to Recover Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted Data through June 2014. 2.68 million Oct. 2007 2.37 million Feb. 2010 312,600 AZ Jobs Lost (12%) 179,500 Jobs Regained (57%)

Slide 48

Elliott D. Pollack & Company Greater Phoenix

Slide 49

Elliott D. Pollack & Company Greater Phoenix Population Annual Percent Change 19752015* Source: Arizona State University & AZ Dept. of Administration Recession Periods * 2014 & 2015 forecast is from Elliott D. Pollack & Co.

Slide 50

Elliott D. Pollack & Company YearRank# MSAs 2003325 2004325 2005126 2006127 2007928 20082428 20092324 201023 20111425 2012927 2013728 2014*1428 YearRank# MSAs 1991419 1992419 1993219 1994119 1995120 1996121 1997122 1998123 1999324 2000925 2001726 2002525 Phoenix-Mesa Employment Growth (Ranking among all metro areas greater than 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics *YTD June 2014 vs. YTD June 2013

Slide 51

Elliott D. Pollack & Company Greater Phoenix Has Gained 64% of Lost Jobs 88,700 Jobs (36%) Still to Recover Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted Data through June 2014. 1,930,800 July 2007 1,685,500 Sept. 2010 245,300 Phoenix Jobs Lost (13%) 156,600 Jobs Regained (64%)

Slide 52

Elliott D. Pollack & Company Arizona Construction Employment is Still Down by 134,900 Jobs (55%) Since Peak Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted June 2006 244,300 June 2014 119,000

Slide 53

Elliott D. Pollack & Company Employment Levels: Greater Phoenix back to Peak in 2016? Source: ADOA Recession Periods Peak *Based on seasonally unadjusted monthly data

Slide 54

Elliott D. Pollack & Company Maricopa County Retail Sales Percent Change Year Ago* 1999 2014** Source: Arizona Department of Revenue *Data through April 2014 **3-month moving average Note: January 2010 and March 2010 retail sales are estimates. Recession Periods

Slide 55

Elliott D. Pollack & Company Tougher Qualifying (1) Higher down payment. (2) Higher FICO score required. (3) Lower debt to income ratios. (4) Longer lockout period after a foreclosure. (5) More paperwork.

Slide 56

Elliott D. Pollack & Company Single Family Permits Greater Phoenix 19752015* Source: RL Brown & Elliott D. Pollack & company # Permits (000) *2014 2015 forecast is from Elliott D. Pollack & Company

Slide 57

Elliott D. Pollack & Company Greater Phoenix Median Price of New Homes 2000-2014* Source: Information Market *Data through May 2014. Recession Periods

Slide 58

Elliott D. Pollack & Company Greater Phoenix Median Price of Resale Homes 2000-2014* Source: Information Market *Data through May 2014. Recession Periods

Slide 59

Elliott D. Pollack & Company U.S. and Arizona Negative Equity 20102013 Source: CoreLogic

Slide 60

Elliott D. Pollack & Company Year U.S. Foreclosures % chg year ago Greater Phoenix Foreclosures % chg year ago 2002230,7504,288 2003253,5849.9%4,78811.7% 2004273,9308.0%3,881-18.9% 2005290,8726.2%1,108-71.5% 2006379,38030.4%935-15.6% 2007587,87255.0%9,550921.4% 2008972,93365.5%38,427302.4% 20091,009,2843.7%47,05422.5% 20101,145,29213.5%49,3384.9% 2011930,633-18.7%42,518-13.8% 2012821,689-11.7%22,629-46.8% 2013618,493-24.7%9,686-57.2% U.S. and Greater Phoenix Annual Foreclosures 20022013 Source: CoreLogic; Information Market

Slide 61

Elliott D. Pollack & Company Pent-up Demand? Millennials?

Slide 62

Elliott D. Pollack & Company U.S. and Greater Phoenix Annual Homeownership Rate 20052013 Source: U.S. Census Bureau

Slide 63

Elliott D. Pollack & Company Percent of 18-34 Year Olds Living With Parents U.S.: 1983 2013 Source: US Census Bureau Recession Periods 18-34 year olds represent 23% of total population. (73.7 million persons)

Slide 64

Elliott D. Pollack & Company Millennials Economic or Social? 30-34 year olds in 2012 had the lowest homeownership rate of any similarly aged group before them. Five years prior, this exact same group (at 25-29 years old) had the highest homeownership rate than any group before them.

Slide 65

Elliott D. Pollack & Company Greater Tucson

Slide 66

Elliott D. Pollack & Company Tucson MSA (Pima County) Population Annual Percent Change 19752013 Source: AZ Dept. of Administration Recession Periods

Slide 67

Elliott D. Pollack & Company Greater Tucson Has Gained 43% of Lost Jobs 20,400 Jobs (57%) Still to Recover Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted Data through June 2014. 385,700 March 2007 350,200 July 2011 35,500 Tucson Jobs Lost (9%) 15,100 Jobs Regained (43%)

Slide 68

Elliott D. Pollack & Company Tucson Total Nonfarm Employment NSA 1990 2014* Source: Bureau of Labor Statistics Recession Periods *Data through June 2014.

Slide 69

Elliott D. Pollack & Company Tucson Employment* Source: ADOA Sectors in Decline Net Change % Change Construction-700-4.4% Other Services-200-1.6% Manufacturing-200-0.9% *June 2014/ June 2013 Sectors Improving Net Change % Change Education & Health Services2,5004.1% Leisure & Hospitality Prof. & Business Services Government Trade, Transp. & Utilities Financial Activities Natural Resources & Mining 1,300 800 500 300 100 3.3% 1.6% 1.2% 0.9% 1.8% 4.3% Information00.0%

Slide 70

Elliott D. Pollack & Company YearRank# MSAs 200445357 200599357 200680357 2007135357 2008246357 2009251357 2010319357 2011220357 2012145357 2013235357 2014*208357 YearRank# MSAs 1992113357 199381357 199419357 199576357 1996223357 1997138357 1998111357 199951357 200038357 2001235357 2002201357 2003 151350 Tucson Employment Growth (Ranking among all metro areas smaller than 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics *YTD June 2014 vs. YTD June 2013

Slide 71

Elliott D. Pollack & Company Pima County Retail Sales Percent Change Year Ago* 1999 2014** Source: Arizona Department of Revenue *Data through April 2014 **3-month moving average Note: January 2010 and March 2010 retail sales are estimates. Recession Periods

Slide 72

Elliott D. Pollack & Company Greater Tucson Single Family Permits 19902013 Source: Bright Future Real Estate Research Recession Periods

Slide 73

Elliott D. Pollack & Company Tucson Median Price of New Homes 2000-2014* Source: Bright Future Real Estate Research *Data through June 2014. Recession Periods

Slide 74

Elliott D. Pollack & Company Tucson Median Price of Resale Homes 2000-2014* Source: Bright Future Real Estate Research *Data through June 2014. Recession Periods

Slide 75

Elliott D. Pollack & Company Remainder of State

Slide 76

Elliott D. Pollack & Company Balance of State Employment* Source: ADOA Sectors in Decline Net Change Government-1,000 Information Prof. & Business Services Construction Other Services -900 -500 -400 -100 *June 2014/ June 2013 Sectors Improving Net Change Financial Activities1,200 Manufacturing500 Education & Health Services300 Leisure & Hospitality300 Trade, Transp. & Utilities300 Natural Resources & Mining100

Slide 77

Elliott D. Pollack & Company Unemployment Rate by County Source: Bureau of Labor Statistics Arizona 2004: 5.0% 2014*: 7.0%

Slide 78

Elliott D. Pollack & Company Policy and Budget

Slide 79

Elliott D. Pollack & Company Basic Roles of Govt? Security, Education, Transportation infrastructure, Etc. Note to policymakers: Dont mess up the basic stuff.

Slide 80

Elliott D. Pollack & Company Things to keep in mind: Avg. expansion is just under 5 years. The current expansion will hit 5 years this summer. But, its not the age, its the mileage. How many more years of growth?

Slide 81

Elliott D. Pollack & Company Things to keep in mind: Less time to plan for next downturn. Less time to build infrastructure. Less time to develop a structurally balanced budget. What are people doing now in terms of longer term planning?

Slide 82

Elliott D. Pollack & Company The long term outlook for Arizona remains strong. We are ready for a boom. But, what if there is no boom this time?

Slide 83

Elliott D. Pollack & Company So, what was the basic story? In your community?

Slide 84

Elliott D. Pollack & Company ELLIOTT D. POLLACK & Company 7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251 480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / info@edpco.com 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