Economic Review And Outlook
Brian Cary
Manager of Forecasting, Archives & Research
Salt River Project
Arizona Financial Professionals Association
June 11, 2014
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•
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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 multifamily construction accelerated
AFPA Meeting , 06/11/2014, B. Cary
June 2014: Economic Review
2
IMF Predicts Stronger Global Economic Growth
World Economic Output – Spring 2014 Forecast
Percent Change
12
2012
2013
2014
2015
2016
06/11/2014 AFPA Meeting , B. Cary
10
8
6
4
2
0
-2
-4
World
U.S.
Europe
Japan
China
India
Mexico
• 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
3
U.S. Economy Contracted For The First Time In Three Years
U.S. Gross Domestic Product (GDP) Growth
(seasonally adjusted annual rate, 2009 dollars)
Annual Growth Rate (%)
6
GDP
Consumption
Forecast
06/11/2014 AFPA Meeting , B. Cary
4
2
0
-2
-4
-6
-8
-10
2007
2008
2009
2010
2011
2012
2013
2014
2015
• 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
4
U.S. Household Net Worth Reaches New Record High
First Quarter 1986 – First Quarter 2014
(non-seasonally adjusted basis)
$ Billions
$80,000
Nominal Dollars
Constant Dollars (1985 $)
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
06/11/2014 AFPA Meeting , B. Cary
$90,000
$0
• 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
Source: Board of Governors of the Federal Reserve System
06/11/2014 AFPA Meeting , B. Cary
5
U.S. Stock Prices Hit Record Levels
S&P 500 Index and Dow Jones Industrial Average
Last Day Of The Month Closing Price
S & P 500
DJIA
18,000
16,000
2,000
14,000
12,000
1,500
10,000
8,000
1,000
6,000
500
4,000
Standard & Poor's 500 Index
Dow Jones Industrial Average
0
2,000
06/11/2014 AFPA Meeting , B. Cary
2,500
0
• 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
Source: Standard & Poor’s and Moody’s Analytics
6
Long-Term Interest Rates May Be On The Rise Again
Monthly Averages Through May 2014
Percent
30-Yr. Fixed Mortgage Rate
Federal Funds Rate
10-Yr. Treasury Note Yield
8
6
4
2
06/11/2014 AFPA Meeting , B. Cary
10
0
• Although interest rates began moving upward, they remain relatively low
• The Fed continues to “taper” its bond purchases
Source: Board of Governors of the Federal Reserve System
7
U.S. Consumer Prices: Still Stable
Year-Over-Year Percent Change
Percent Change
All Items
Core (Excluding Food & Energy)
06/11/2014 AFPA Meeting , B. Cary
6%
4%
2%
0%
-2%
-4%
• 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
Source: U.S. Bureau of Labor Statistics
8
U.S. Employment Returns To Pre-Recession Levels
Total Non-Farm Employment – Net Change From Prior Month & Unemployment Rate
Unemployment Rate
Thousands
800
12%
Unemployment Rate
600
10%
400
200
8%
0
6%
-200
-400
4%
-600
2%
06/11/2014 AFPA Meeting , B. Cary
Total Non-Farm Employment
-800
-1,000
0%
• 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
Source: U.S. Bureau of Labor Statistics
9
Total Nonfarm Employment: United States
Number of Months Needed to Surpass Previous Peak in Employment
Post-WWII Recessions
1953
1957
1960
1970
1980
1981
1990
2001
2007
1974
06/11/2014 AFPA Meeting , B. Cary
1%
1948
Percent Change from Peak Employment
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
6
8
10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76
Number of Months After Peak Employment
10
10
Employment Trends Index Strengthens
The Conference Board Employment Trends Index (ETI)
1996 = 100
06/11/2014 AFPA Meeting , B. Cary
130
120
110
100
90
80
• 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
11
ISM Surveys Show The Economy Is Still Expanding
Institute for Supply Management Manufacturing Index
Index
80
Non-Manufacturing
06/11/2014 AFPA Meeting , B. Cary
Manufacturing
70
60
50
40
30
20
• 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
Source: ISM
12
Global Semiconductor Sales Increased Steadily
Semiconductor Sales (3-month moving average)
$ Billions
$ Billions
$7
Worldwide
Americas
$6
$25
$5
$20
$4
$15
$3
$10
$2
$5
$1
$0
$0
• 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
Source: Semiconductor Industry Association
06/11/2014 AFPA Meeting , B. Cary
$30
13
Semiconductor Orders Dipped Slightly
U.S. Semiconductor Book-to-Bill Ratio
Ratio
1.6
06/11/2014 AFPA Meeting , B. Cary
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
• 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
Leading Index Signals Continued Economic Growth
U.S. Index Of Leading Economic Indicators — Net Change From Prior Month
Percent Change
06/11/2014 AFPA Meeting , B. Cary
3%
2%
1%
0%
-1%
-2%
-3%
-4%
• 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
Source: The Conference Board
15
Confidence Grows With A More Favorable Employment Outlook
U.S. Consumer Confidence Index
Index
160
06/11/2014 AFPA Meeting , B. Cary
140
120
100
80
60
40
20
0
• 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
16
Greater Phoenix Job Growth Remains Steady
Metropolitan Phoenix Non-Farm Employment
Net Change From A Year Ago And Unemployment Rate
Unemployment Rate
Thousands
12%
Total Non-Farm Employment
Unemployment Rate
100
10%
50
8%
0
6%
-50
4%
-100
2%
-150
-200
06/11/2014 AFPA Meeting , B. Cary
150
0%
• 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
Source: Arizona Office of Employment & Population Statistics
17
Total Non-farm Employment : Arizona
Number of Months Needed to Surpass Previous Peak in Employment
Post – WWII Recessions
1948
1953
1974
1981
1991
2001
2007
06/11/2014 AFPA Meeting , B. Cary
2%
Percent Change From Peak Employment
0%
-2%
-4%
-6%
-8%
-10%
-12%
-14%
4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78
18
Number of Months After Peak Employment (seasonally adjusted)
Unemployment Insurance Claims Fell Over The Year
Arizona Total Unemployment Insurance Claims
4-week moving average
Total Claims
06/11/2014 AFPA Meeting , B. Cary
120,000
110,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
• Total weekly UI claims were 1.1% lower than a year ago on a moving average basis
Source: U.S. Department of Labor
19
Unemployment Rate For Arizona Counties
Unemployment Rate, N.S.A.
Mohave 7.6%
Apache
15.9%
Coconino 6.2%
Navajo
11.9%
Yavapai 5.9%
La Paz 8.2%
Gila 7.5%
Maricopa 5.2%
Greenlee
5.4%
Yuma 23.8%
Unemployment Rate
Pinal 6.5%
Graham 5.6%
Pima 5.5%
Cochise 7.5%
Low
Medium
High
Highest
06/11/2014 AFPA Meeting , B. Cary
(April 2014)
Santa Cruz
13.1%
Source: Arizona Department of Administration
20
State Individual Income Tax Receipts Dipped in April
Individual Income Tax Collections (12-month moving average)
$ Millions
Individual Income Taxes
Year-Over-Year Percent Change
30%
$300
20%
$250
10%
$200
0%
$150
-10%
$100
-20%
$50
-30%
$0
-40%
• 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)
06/11/2014 AFPA Meeting , B. Cary
$350
Percent Change
21
Arizonans More Confident About Future Economic Conditions
Arizona Consumer Confidence Index (April 2014)
1985=100
06/11/2014 AFPA Meeting , B. Cary
120
100
80
60
40
20
0
• 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
Phoenix Area Home Prices: Leveling Off
Resale and New Home Median Sales Prices In Maricopa County
6-month moving average
Price
Sales Volume
18,000
Total Median Sales Price
Total Sales
$250,000
16,000
14,000
$200,000
12,000
10,000
$150,000
8,000
$100,000
6,000
4,000
$50,000
2,000
$0
06/11/2014 AFPA Meeting , B. Cary
$300,000
0
• 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
Sources: The Cromford Report; AMLS
23
Phoenix Area Home Prices: Leveling Off
Standard & Poor’s / Case-Shiller Home Price Index
Jan 2000 = 100
200
227.4
206.5
166.8
150
144.8
100
50
Phoenix MSA
20-City Composite
06/11/2014 AFPA Meeting , B. Cary
250
0
• 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
Source: Standard & Poor’s
24
U.S. and Arizona Home Prices Improved In The Last Two Years
Federal Housing Finance Agency House Price Index – Purchase Only
Quarterly, seasonally adjusted
1991 = 100
350
300
250
200
150
100
Arizona
Phoenix MSA
Tucson MSA
United States
50
06/11/2014 AFPA Meeting , B. Cary
400
0
•
•
•
•
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
Source: Federal Housing Finance Agency
25
Distressed Home Inventories Are Down From The Peak
NOTS
Pending
12,000
60,000
NOTS
10,000
Pending
Peak
50,000
8,000
40,000
6,000
30,000
4,000
20,000
2,000
10,000
0
06/11/2014 AFPA Meeting , B. Cary
Maricopa County Notices of Trustee Sales and Total Pending
0
• 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
Phoenix New Home Construction Still Sluggish
Metropolitan Phoenix Housing Permits (6-month moving average)
Permits
Total Units
Single Family Units
5,000
4,000
3,000
2,000
06/11/2014 AFPA Meeting , B. Cary
6,000
1,000
0
• Single-family permits are at the highest level since July 2013
• Growth in total permits decelerated slightly after two consecutive months of strong gains
Source: U.S. Census Bureau
27
Arizona Housing Permits Have Improved From Last Year
Arizona, Phoenix MSA and Tucson MSA Total Home Permits
6 — month moving average, not seasonally adjusted
Total Permits
Arizona
Phoenix MSA
Tucson MSA
2,000
1,500
1,000
500
06/11/2014 AFPA Meeting , B. Cary
2,500
0
• 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
Source: U.S. Census Bureau
28
Commercial RE Vacancies Are Trending Lower
Metro Phoenix Office, Industrial And Retail Real Estate
Vacancy Rate
30%
Industrial
Retail
06/11/2014 AFPA Meeting , B. Cary
Office
25%
20%
15%
10%
5%
0%
• 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
Source: CBRE
29
Phoenix Sky Harbor Passenger Count Reached A Record Level
Phoenix Sky Harbor Airport Statistics — Year-Over-Year Percent Change
% Change
Millions
20%
Total Air Passenger Traffic
Year-Over-Year Percent Change
4
10%
3
0%
2
-10%
1
0
06/11/2014 AFPA Meeting , B. Cary
5
-20%
• 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
Source: Phoenix Sky Harbor Airport
30
Arizona Highway Traffic Is Gradually Increasing
Total Vehicle Miles Driven in Arizona
(12-month moving average, % change from year ago)
Miles driven (Millions)
% Change
8%
6,000
% Change
6%
4%
5,500
2%
0%
5,000
-2%
-4%
4,500
06/11/2014 AFPA Meeting , B. Cary
Miles Driven
-6%
-8%
4,000
• 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
Exports From Arizona To Mexico Are At An All Time High
$ Millions
Merchandise Exports To Mexico
50%
Percent Change
$7,000
40%
$6,000
30%
$5,000
20%
$4,000
10%
$3,000
0%
$2,000
-10%
$1,000
-20%
$0
-30%
06/11/2014 AFPA Meeting , B. Cary
$8,000
% Change
32
Source: International Trade Administration, Global Patterns of a State’s Exports.
32
Metropolitan Phoenix Employment Forecast
University of Arizona Forecasting Project (May 2014)
Percent Change
06/11/2014 AFPA Meeting , B. Cary
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
• Greater Phoenix employment is expected to increase 3.2% in 2014 (57,400 jobs)
• Job growth is predicted to improve in 2015 and beyond
33
Source: University of Arizona Forecasting Project, Arizona Office of Employment & Population Statistics
Metropolitan Phoenix Population Forecast
University of Arizona Forecasting Project (May 2014)
Net Change In Population and Percent Change From A Year Ago
150
3.0%
Population
Y-O-Y Percent Change
130
2.5%
110
2.0%
90
1.5%
70
1.0%
50
30
0.5%
10
0.0%
• Forecast expects steady gains in the near term with stronger growth by 2017
• Greater Phoenix predicted to add nearly 68,000 people in 2014
Source: University of Arizona Forecasting Project
06/11/2014 AFPA Meeting , B. Cary
Percent Change
Net Change (thousands)
34
Statewide Population Forecast
University of Arizona Forecasting Project (May 2014)
Net Change In Population
150
Arizona
Phoenix MSA
Tucson MSA
130
110
90
70
50
30
10
06/11/2014 AFPA Meeting , B. Cary
Net Change (thousands)
(10)
• Arizona predicted to add more than 87,000 people in 2014
Source: University of Arizona Forecasting Project
35
Arizona Personal Income Expected To Accelerate In 2014
Arizona, Phoenix MSA and Tucson MSA Personal Income
$450,000
$400,000
Arizona
Phoenix
Tucson
Forecast
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
06/11/2014 AFPA Meeting , B. Cary
Personal Income (thousands)
$0
• Personal income growth is expected to improve this year
• Growth is expected to pick up from 2015 through 2018
36
Source: University of Arizona Forecasting Project
Arizona Home Building Predicted To Rise In The Next Three Years
Arizona, Phoenix MSA and Tucson MSA Total Residential Building Permits
Total Permits (thousands)
120
Phoenix MSA
Tucson MSA
Forecast
100
80
60
40
20
06/11/2014 AFPA Meeting , B. Cary
Arizona
-
• Home permits are expected to accelerate in 2015 across the state, especially in the Phoenix area
37
Source: U.S. Census Bureau, University of Arizona Forecasting Project
Summary and Outlook
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
06/11/2014 AFPA Meeting , B. Cary
• U.S. economic growth is expected to accelerate this year as
38