Current Economic
Issues
Subtitle text can go here
Dennis.Hoffman@asu.edu
Director Seidman Research Institute
Issues to Consider in Digesting Consensus Forecasts
• You have just seen the consensus forecasts
• I want to spend a few moments thinking
through issues that will likely have an
influence on the actual course of the economy
• Summarize the Headwinds and Tailwinds that
prevail
• Brief look at AZ activity as reflected by recent
revenue flows.
2
The Pace of Growth in the Current recovery remains the weakest in Decades
And Consumption and Lack Thereof Remains the Major Culprit
Overall Austerity is dominating Fiscal Policy relative to prior recessions
Taste for Deleveraging (reducing private debt loads) is having a huge impact on the economy
To many, Debt is Simply another four Letter word!!
Radio Personalities
are raging against Debt
And the private sector
Is responding accordingly
To some it’s literally a sin
To take on debt
Households are responsible for most of the Recent Deleveraging
First Boomers
Hit 60!!
First Boomers
Hit
Peak
Spending
Age!!
And with this de-leveraging came dramatic declines in consumption
So how important have the boomers been and
how much impact will we have going forward
• Boomer bubble aligns with trend growth
nationally and especially in AZ
• Boomers have been major producers and
consumers
• Now they(we) expect legacy entitlements
• We may have burned our draft cards but we
sure aren’t planning to burn our social security
cards.
9
Let’s not forget about automation and productivity. Robots vs. jobs
So What will the FED do and will it hurt the Economy
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They say they are “data driven”
They want to raise Interest Rates
Many small HH savers wish they would
?? Choke of Expansion, especially Housing
?? Impact on Exports
?? Impact on Equity Markets
Fuel Prices and the Economy
• Will add approximately 1 % to disposable
income growth in AZ in 2015.
– Spend it
– Save it
– Will it have an impact on Auto purchases?
• National Effects Mixed but AZ should see
benefits
12
First Quarter GDP Growth was Anemic, lets look at the components
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Issues for the Nation
Positives
• Balance Sheets
• Most Private De-leveraging
is now done
• Among the best economies
in the world
• Potential of immigration
and trade reforms
• Baby boomer retirements
mean new opportunities
Negatives
• Demography is now a
headwind- Legacy
entitlements
• Value of the Dollar
• Dis-functional Federal
Government
• Susceptible to major shocks,
natural or otherwise
• FED Headwind and Potential
bubbles in credit markets and
equities
So are there any signs of life in the AZ Economy?
• Consensus suggests another sluggish but
positive growth year
• Many people are sitting on the sidelines
waiting for liftoff.
• State Revenue does indeed look far better
than it did at this point last year
15
April Final and Est Individual Income Tax Payments
(thous dollar)
$800,000
Anomalies triggered by
Fiscal Cliff Debate in 2012
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
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So what about the rest of State Revenues
(all based on yr/yr comparisons)
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Hotel Motel up 22% first quarter
R&B up 10% first quarter
Total Sales Tax up 6.3% Jan-Apr (estimated)
Individual Final and Est Payments up 18% in April
Dec-Apr Individual Final/Est Payments up 16%
Q1 2015 Individual Est payments up 22% -- sets a
positive tone for 2015
• Dec-Apr Corp Final and Est Payments up 21%
• So its raining money right now, suggesting that
the AZ Economy is clearly improving
Issues for Arizona
Positives
Negatives
• Positive Business Climate
• Neighbors more costly
• West is improving so froth
likely to spill over
• Housing/Land affordable in
comparison with much of the
west
• Still the State of Opportunity
• Will Benefit from Lower Gas
Prices
• State Budget Improving
• Net Domestic Migration not
back to where it was
• Reliance on DoD is high so
Sequester still lingers
• Image may be a problem with
young, innovative and mobile
• Employer sanctions binds
labor markets
• Competitors use lack of
education and skills against us.