Schizophrenia and
Economists
Paramount Pool and Spa Systems
October 6th, 2014
Presented By:
Jim Rounds
Sr. VP, Elliott D. Pollack & Company
Elliott D. Pollack & Company
Paranoid
about the
economy?
Elliott D. Pollack & Company
Past
“Headlines”
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What The #$@&,
I Thought It Was Getting
Better?
2010
By:
Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
Elliott D. Pollack & Company
“The Not So Attractive
Recovery”
(But it has a great personality!)
2011
By:
Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
Elliott D. Pollack & Company
You Heard It Here First:
Less Dreadful Times Ahead!
2012
By:
Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
Elliott D. Pollack & Company
Firming Up The Recovery…
2013
By:
Jim Rounds, Senior Vice President
Elliott D. Pollack & Company
Elliott D. Pollack & Company
How to
Avoid
the…
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Is there a story?
• Does the data make sense?
• If not, is there an explanation
for why it is off?
• If not, then worry.
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Let’s start
with the
U.S.
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
8%
Underlying = 2.2%
7.3%
Act: -2.0, 4.6, 2.8, 3.3%
5.4% 5.6%
5.6%
5.2%
6%
4.6%
4.6%
4%
3.2%
2.6%
3.3%
4.8%
4.5%
4.5%
4.1%
3.6% 4.0%3.8%
4.2%
4.2%
3.5%
3.5%
3.7%
2.8%
2.7% 2.7%
1.9%
2%
3.8%
3.4%
2.7%
1.8%
1.8%
0.9%
3.0%
2.5% 2.3%
2.2%
2.1%
1.6%
0.2%
0%
-0.5%
-0.2%
-0.1%
-0.2%
-2%
-0.3%
But, next year hit “average.”
-1.9%
-2.8%
0
2
4
6
8
0
2
4
199
199
199
199
199
200
200
200
4
8
198
201
6
198
2
4
198
201
2
198
0
0
198
201
8
197
8
6
197
200
4
197
** 2014 and 2015 are a forecast from the Blue Chip Economic Indicators, September 2014.
6
2
197
* Based on chained 2009 dollars.
200
0
197
-4%
3.8% = 40-year avg during expansion
3.2% = 20-year avg during expansion
Recession Periods
Elliott D. Pollack & Company
Jan
-7
Jan 1
-7
Jan 2
-7
Jan 3
-7
Jan 4
-7
Jan 5
-7
Jan 6
-7
Jan 7
-7
Jan 8
-7
Jan 9
-8
Jan 0
-8
Jan 1
-8
Jan 2
-8
Jan 3
-8
Jan 4
-8
Jan 5
-8
Jan 6
-8
Jan 7
-8
Jan 8
-8
Jan 9
-9
Jan 0
-9
Jan 1
-9
Jan 2
-9
Jan 3
-9
Jan 4
-9
Jan 5
-9
Jan 6
-9
Jan 7
-9
Jan 8
-9
Jan 9
-0
Jan 0
-0
Jan 1
-0
Jan 2
-0
Jan 3
-0
Jan 4
-0
Jan 5
-0
Jan 6
-0
Jan 7
-0
Jan 8
-0
Jan 9
-1
Jan 0
-1
Jan 1
-1
Jan 2
-1
Jan 3
- 14
U.S. Leading Indicators
1971 – 2014*
Source: The Conference Board
Elliott D. Pollack & Company
Recession Periods
120
110
100
90
80
70
60
50
40
30
*Data through August 2014
10 Components of U.S. Leading
Indicators – August 2014
+
-
• Interest rate spread
• Manuf. new order index
• Leading credit index (inverted)
• Consumer expectations
• Manuf. new orders – consumer goods
• Manuf. hours
• Manuf. new orders – capital goods
• Stock Prices
• Claims for unemployment (inverted)
• Building permits
Elliott D. Pollack & Company
U.S. Consumer Debt
1999 - 2014*
(Trillions)
Source: Federal Reserve
Recession Periods
Debt down from peaks but
level still high with no
adjustment…
Elliott D. Pollack & Company
Overall, borrowing remains more than $1 trillion below its 2008 peak.
Financial Obligation Ratio**
1980 – 2014*
Source: Federal Reserve
Recession Periods
20.0%
19.0%
Consumers have less “relative” debt
compared to income…
18.0%
17.0%
16.0%
19
80
Q
19 1
81
Q
19 2
82
Q
19 3
83
Q
19 4
85
Q
19 1
86
Q
19 2
87
Q
19 3
88
Q
19 4
90
Q
19 1
91
Q
19 2
92
Q
19 3
93
Q
19 4
95
Q
19 1
96
Q
19 2
97
Q
19 3
98
Q
20 4
00
Q
20 1
01
Q
20 2
02
Q
20 3
03
Q
20 4
05
Q
20 1
06
Q
20 2
07
Q
20 3
08
Q
20 4
10
Q
20 1
11
Q
20 2
12
Q
20 3
13
Q
4
15.0%
*Data through first quarter 2014
**Ratio of mortgage and consumer debt (including auto, rent and tax payments) to disposable income.
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S&P 500
1980-2014*
Source: Standard & Poor's (S&P); Moody's Analytics (ECCA) Converted
Recession Periods
Risk? Bubble?
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*Data through July 31,2014
U.S. Household Net Worth
(Billions of Dollars, NSA)
1970 - 2014*
Recession Periods
Source: Board of Governors of the Federal Reserve System
But, people are focusing policy
discussions on narrowing the “gap.”
*Data through first quarter 2014
Elliott D. Pollack & Company
U.S. Average Household Income
by Each Fifth Percentile & Top 5%
Source: U.S. Census Bureau
Every group has been somewhat
flat since downturn and “gap” has
been growing for a while.
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U.S. Average Household Income
by Each Fifth Percentile & Top 5%
Source: U.S. Census Bureau
This is being ignored...
Elliott D. Pollack & Company
Grass always greener on other side, or
did neighbor steal your grass?
Elliott D. Pollack & Company
Consumer Confidence is High
…and so is Colorado…munchies!
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140
130
30
Jan- 7
8
Jan- 7
9
Jan- 8
0
Jan- 8
1
Jan- 8
2
Jan- 8
3
Jan- 8
4
Jan- 8
5
Jan- 8
6
Jan- 8
7
Jan- 8
8
Jan- 8
9
Jan- 9
0
Jan- 9
1
Jan- 9
2
Jan- 9
3
Jan- 9
4
Jan- 9
5
Jan- 9
6
Jan- 9
7
Jan- 9
8
Jan- 9
9
Jan- 0
0
Jan- 0
1
Jan- 0
2
Jan- 0
3
Jan- 0
4
Jan- 0
5
Jan- 0
6
Jan- 0
7
Jan- 0
8
Jan- 0
9
Jan- 1
0
Jan- 1
1
Jan- 1
2
Jan- 1
3
Jan- 1
4
Consumer Confidence
1978 – 2014*
Source: The Conference Board
Recession Periods
150
So people will be spending
more…
120
110
100
90
80
70
60
Worried
50
40
Disenfranchised
Elliott D. Pollack & Company
Weary
P.O.’d
20
*Data through August 2014.
Capacity Issues?
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
n
Ja -04
n
Ja -05
n
Ja -06
n
Ja -07
n
Ja -08
n
Ja -09
n
Ja -10
n
Ja -11
n
Ja -12
n
Ja -13
n14
Capacity Utilization Rate
1970 – 2014*
Source: The Federal Reserve Bank of St. Louis
Recession Periods
90
85
80
75
70
Front end of accelerated
investment; 10% in Q2
65
*Data through June 2014.
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Demographics Still Matter
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U.S. Birth Index
1909-2012
Source: U.S. Census Bureau; Harvard Joint Center for Housing Studies
Baby Boomers
1945-1964
78.7 M
Elliott D. Pollack & Company
Consumer Life Cycle
Source: U.S. Census Bureau; Dent Research; EDPCo
Age
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Starter Homes Cycle
31-32 year lag
1960-2043
Source: U.S. Census Bureau
?
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Trade Up Home Cycle
41-43 year lag
1970-2053
Source: U.S. Census Bureau
?
Elliott D. Pollack & Company
Vacation Home Cycle
50 year lag
1979-2062
Source: U.S. Census Bureau
?
Elliott D. Pollack & Company
Retirement Home Cycle
65 year lag
1994-2076
Source: U.S. Census Bureau
?
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Federal Government
No, not an accident…
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Federal Government Expenditures
Percent Change Year Ago
1970-2014*
Source: U.S. Bureau of Economic Analysis
Recession Periods
*Data through first quarter 2014.
Elliott D. Pollack & Company
State and Local Government Expenditures
Percent Change Year Ago
1970-2014*
Source: U.S. Bureau of Economic Analysis
Recession Periods
*Data through first quarter 2014.
Elliott D. Pollack & Company
Summary U.S.:
Economic conditions improving,
hard to tell when things will
better slope up (but soon),
demographics not fully in our
favor but manageable.
Elliott D. Pollack & Company
U.S. Blue Chip Economic Indicators
Forecasts as of September 2014
2011
2012
2013
2014
2015
Real GDP
2.5%
1.6%
2.3%
2.2%
2.1%
3.0%
Year-over-year % change
Consumer Price
Index
1.6%
3.2%
2.1%
1.5%
1.9%
2.1%
Industrial
Production
5.7%
3.3%
3.8%
2.9%
4.0%
3.6%
Disposable
Personal
Income
1.0%
2.5%
3.0%
-0.2%
2.6%
2.8%
Corporate
Profits
25.0%
4.0%
11.3%
4.2%
0.3%
6.4%
Unemployment
Rate
9.6%
9.0%
8.1%
7.4%
6.2%
5.7%
Housing Starts
0.59
0.61
0.78
0.92
1.01
1.20
Elliott D. Pollack & Company
Annual Average
2010
Total Units
Forecasts
Population
Elliott D. Pollack & Company
Population Growth 2013
Source: U.S. Census Bureau
Alaska
Part growth, part math
related to base size…
9
1
6
5
19
Hawaii
2
3
8
Growing
Top 10
Declining
Elliott D. Pollack & Company
31
10
4
7
Population Growth
Annual State Ranking
2005-2013
Source: U.S. Census Bureau
Arizona
% change
California
% change
Florida
% change
New York
% change
Texas
% change
2005
2006
2007
2008
2009
2010
2
2
5
8
19
14
12
7
8
3.3%
3.3%
2.3%
1.8%
1.0%
1.1%
0.9%
1.3%
1.2%
19
17
22
25
28
24
28
30
36
0.7%
0.5%
0.6%
1.0%
1.0%
1.1%
0.9%
0.9%
0.9%
4
10
19
27
31
17
6
9
7
2.5%
1.8%
1.1%
0.9%
0.7%
1.0%
1.3%
1.2%
1.2%
49
47
47
40
39
38
31
31
31
-0.2%
-0.1%
0.1%
0.4%
0.5%
0.4%
0.5%
0.4%
0.4%
9
6
8
5
3
3
1
3
4
1.7%
2.6%
2.0%
2.0%
2.0%
1.8%
1.6%
1.6%
1.5%
Elliott D. Pollack & Company
2011 2012 2013
Population Flows
Annual Growth Rate
2000-2013
Source: U.S. Census Bureau
Elliott D. Pollack & Company
Recession Periods
Distribution of Movers in U.S. by Type*
1990-2013
Movers (in millions)
Source: U.S. Census Bureau
*Excludes movers in the same county
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Employment
Elliott D. Pollack & Company
Job Growth 2006
Alaska
Source: US BLS
10
7
9
5
4
23
Hawaii
40
1
3
8
2
Jobs growing
Top 10
Jobs declining
Elliott D. Pollack & Company
6
13
Job Growth 2010
Source: US BLS
Alaska
2
8
6
1
14
5
4
Hawaii
9 10
49
Jobs growing
Top 10
Jobs declining
Elliott D. Pollack & Company
7
40
3
Job Growth 2013
Source: US BLS
Alaska
9
1
7
25
6
3
Hawaii
2
4
10
Jobs growing
Top 10
Jobs declining
Elliott D. Pollack & Company
5
8
Job Growth 2014
YTD August 2014 vs YTD August 2013
Source: US BLS
Alaska
10
1
6
26
2
9
Hawaii
4
8
7
15
Jobs growing
Top 10
Jobs declining
Elliott D. Pollack & Company
3
5
Employment Growth
Annual State Ranking
2006-2014*
Source: U.S. Bureau of Labor Statistics
Arizona
% change
California
% change
Florida
% change
New York
% change
Texas
% change
2006
2007
2008
2009
2010
2011
2012
2013
2014*
2
17
46
49
49
28
9
10
15
5.4%
5.0%
-2.1%
-7.2%
-1.9%
1.1%
2.1%
2.1%
1.9%
23
33
45
44
4
32
4
3
9
1.8%
1.7%
-1.3%
-6.0%
0.9%
1.0%
2.4%
3.0%
2.3%
13
45
50
47
40
26
11
8
5
2.6%
0.2%
-3.5%
-6.2%
-1.0%
1.1%
2.0%
2.5%
3.0%
40
20
12
7
14
11
27
25
26
1.0%
1.3%
0.7%
-2.7%
0.0%
1.4%
1.4%
1.3%
1.3%
6
4
3
8
7
3
3
5
3
3.3%
3.3%
2.0%
-2.8%
0.3%
2.2%
2.9%
2.9%
3.2%
*YTD August 2014 vs. YTD August 2013
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U.S. Employment Losses – Recent Recessions
Duration in Months
Source: Bureau of Labor Statistics
2008
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How hard
did you
get hit?
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Percent of Jobs Lost
By Select States
Source: Bureau of Labor Statistics
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Employment Losses – Most Recent Recession
Duration in Months
Source: Bureau of Labor Statistics
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Employment Recovery
Duration in Months
Pre-Recession Peak
Employment = 100
Source: Bureau of Labor Statistics
AZ
AZ & FL Have
Yet to Regain
All Lost Jobs
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Housing?
Elliott D. Pollack & Company
Long-Term Home Prices in the U.S.
Adjusted for Inflation
1980-2014*
Recession Periods
Housing bubbles have to be
evaluated by individual market…
Source: Figure 2.1 in Robert J. Shiller, Irrational Exuberance, 2nd. Edition, Princeton University
Press,2005, 2009, Broadway Books 2006, also Subprime Solution, 2008, as updated by author
Elliott D. Pollack & Company *Data through first quarter 2014.
Tougher Qualifications
(1) More paperwork,
(2) Lower debt to income ratios,
(3) Longer lockout period after a foreclosure,
(4) Higher down payment requirements,
(5) Others…
Elliott D. Pollack & Company
Net Percentage of Large U.S. Banks
Reporting Eased Standards versus Tougher Standards
on Residential Mortgage Prime Loans
2007 Q1 – 2014 Q2
Recession Periods
Source: Federal Reserve
Still Flat…
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U.S. Annual Foreclosures
2002–2013
Source: CoreLogic
Elliott D. Pollack & Company
Year
U.S.
Foreclosures
% chg year
ago
2002
230,750
2003
253,584
9.9%
2004
273,930
8.0%
2005
290,872
6.2%
2006
379,380
30.4%
2007
587,872
55.0%
2008
972,933
65.5%
2009
1,009,284
3.7%
2010
1,145,292
13.5%
2011
930,633
-18.7%
2012
821,689
-11.7%
2013
618,493
-24.7%
U.S. Foreclosure Lag
2002–2021
Source: CoreLogic
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Recession Periods
Negative Equity Share
2010–2014
Source: CoreLogic
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Pent-up Demand?
Millennials?
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Is it a social shift or just
the business cycle?
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Homeownership Rates
1990-2014*
Source: U.S. Census Bureau
Recession Periods
Upward potential: Rates
will get back to normal…
*Data through second quarter 2014
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Percent of 18-34 Year Olds Living With Parents
U.S.: 1983 – 2013
Recession Periods
Source: US Census Bureau
Upward potential: Parents
are currently going
insane…
18-34 year olds represent 23% of total population. (73.7 million persons)
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.
Elliott D. Pollack & Company
Total Residential Housing Building Permits
2000-2013
Source: U.S. Census Bureau
Recession Periods
Room to recover…
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Single Family Housing Permits
2000-2013
Source: U.S. Census Bureau
Elliott D. Pollack & Company
Recession Periods
Single Family Housing Permits
Annual Growth Rate
2001-2013
Source: U.S. Census Bureau
50%/100%
Elliott D. Pollack & Company
Recession Periods
Income by State
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Per Capita Personal Income
2000-2013
Source: Bureau of Economic Analysis
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Recession Periods
State Per Capita Personal Income
As a Percent of U.S.
2000-2013
Source: Bureau of Economic Analysis
Elliott D. Pollack & Company
Recession Periods
Don’t lose the smile just yet…
From Pkdata Special report 2014
Elliott D. Pollack & Company
•
Economy is improving.
•
Businesses and
consumers will be
spending more.
•
Demographics a
moderate constraint.
•
Millennials are not the
same from state to
state.
•
“Getting back to
normal” more than
offsets demographics.
Elliott D. Pollack & Company
For a quick analysis of
important economic data released
each week, subscribe to the
Monday Morning Quarterback
www.arizonaeconomy.com
Elliott D. Pollack & Company