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Economic Outlook
GFOA AZ
Alan E. Maguire
February 20, 2013
Economic Outlook
“Where are we going?”
• US Economy in the Global Economy
• Arizona Economy in the US Economy
• Pertinent Observations
Economic Outlook
“Where are we going?”
• US Economy in the Global Economy
• Arizona Economy in the US Economy
• Pertinent Observations
US Economic Outlook
US Economy in the Global Economy
 The Current Context
 The Outlook
 Long-Term Trends
US Economic Outlook
 The Current Context
• Current Conditions
• Gross Domestic Product Trends
• Employment Trends
• Current Challenges
US Economic Outlook
 The Current Context
• Cyclical Recession Over Since Mid 2009
Relatively Short Recession in GDP Terms, but Deep
• US Financial Crisis Has Been Contained
Some Nagging Issues to Clean-up – Fannie, Freddie, FHA
• So, ………….
US Economic Outlook
 The Current Context
• Stagnant Growth for “Recovery” period
• Historical Recovery Drivers Missing
• Remnants of Double Whammy – Housing & Banking
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


Consumer Mortgage Debt / Other Debt
Overhanging Housing Supply
Battered Consumer Confidence
International Issues
US Economic Outlook
US GDP Quarterly Change 1970 - 2012
10.0
8.0
GDP
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
Recessions
*
US Economic Outlook
US GDP Quarterly Change 1970 - 2012
10.0
8.0
GDP
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
Recoveries
*
US Economic Outlook
US GDP Quarterly Change 1970 - 2012
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
GDP
*
US Economic Outlook
US GDP Quarterly Change 2009 - 2012
GDP
*
US Economic Outlook
US GDP Quarterly Change 2009 - 2012
GDP
*
US Economic Outlook
US GDP Quarterly Change 2009 - 2012
GDP
*
US Economic Outlook
8.0
6.0
US Employment % Change from Prior Year 1970 - 2011
Employment
4.0
2.0
0.0
-2.0
-4.0
Recoveries
-6.0
-8.0
*
US Economic Outlook
8.0
120
110
4.0
100
2.0
90
0.0
80
-2.0
70
-4.0
-6.0
-8.0
60
50
Total Employment
Employment Growth
6.0
US Employment % Change from Prior Year 1990 - 2010
US Economic Outlook
 The Outlook – Near Term
• Low, Slow, but Steady Growth: 1.5% to 2.5%
• Substantial Deterrents to Growth & Investment
International Issues – Especially Europe
Collapsing EU Fiscal Systems
Weak Demand – Scared Consumers & CEOs
Continuing Uncertainty!
• Expectations of Rising US Taxes- “Fiscal Cliff”
US Economic Outlook
US Economic Outlook
US Economic Outlook
US Economic Outlook
 Longer Term Trends
• Worldwide Demand Issues
• Europe’s Issues – Currently In Recession!
• Japan’s Issues
High Debt and Pending Liquidation
Now – Easy Money
• Asia’s Cultural / Governmental Challenges
• Stupid Government Risk!!
Economic Outlook
“Where are we going?”
• US Economy in the Global Economy
• Arizona Economy in the US Economy
• Pertinent Observations
AZ Economic Outlook
AZ Economy in the US Economy
 The Current Context
 The Outlook
 Long-Term Trends
AZ Economic Outlook
 The Current Context
• Recent AZ Employment Trends
• Current Challenges
*
AZ Economic Outlook
AZ Employment 2001 –2012
(000’s)
All Industries
*
AZ Economic Outlook
AZ Employment 2001 –2012
(000’s)
Construction
Manufacturing
All Industries
*
AZ Economic Outlook
AZ Employment 2001 –2012
(000’s)
Construction
Manufacturing
All Industries
*
AZ Economic Outlook
AZ Employment 2001 –2012
(000’s)
All Industries
*
AZ Economic Outlook
AZ Employment 2001 –2012
(000’s)
*
AZ Economic Outlook
AZ Employment 2001 –2012
(000’s)
*
AZ Economic Outlook
AZ Employment 2001 –2012
(000’s)
AZ Economic Outlook
 The Current AZ Context
• Still Challenging US Conditions
• Low, Slow, but Steady Growth: 1.5% to 2.5%
• But, ….
• Continuing Uncertainty – Nationally / Globally
• Positive AZ Trends
AZ Economic Outlook
 The Current AZ Context
• Returning to Government Fiscal Balance
• Above National Average Job Growth Rates
• Benefit of Building from a “Low Base”
Beware of the “Illusion of Recovery”
AZ Economic Outlook
 The Good AZ News
• Top 10 in Job Growth – From 49th!
100,000 + jobs added since 2010
• Retail Spending Rising (Autos, Durables)
AZ Retail Sales Up – Slow & Steady
Outlook Hopeful, but Concerned
• Arizona Gradual Recovery Underway
AZ Economic Outlook
The Good AZ News
• Blue Chip Economic Forecast
Calendar 2012 over 2011 % Growth
PI
Retail
Employ
5.8
6.3
2.4
Pop Housing
1.3
26.1
Calendar 2013 over 2012 % Growth
PI
Retail
Employ
6.4
5.6
2.8
Pop Housing
1.4
30.3
AZ Economic Outlook
 The AZ Outlook
• Substantial Drags and Risks Still Exist
• Historic Drivers Are Weak
• Future Not Like Historical Patterns
AZ Economic Outlook
 The AZ Outlook
• Expect Slow, but Positive Growth
Existing Capacity Available for Growth
-- Without Capital Spending
-- With Little New Hiring
• Still Strong Fundamentals in Arizona
Positive Business and Social Climates
We Are Not California!!!
AZ Economic Outlook
 AZ Long Term Trends
• More Integrated Economically
Not just the “Five C’s” anymore
• More Integrated (Dependent) on US / Global Economy
• Same Core Challenges as US
Labor Force - Skills Issues
Global Demand Constraints
Economic Outlook
“Where are we going?”
• US Economy in the Global Economy
• Arizona Economy in the US Economy
• Pertinent Observations
Pertinent Observations
 Global Economic Challenges
 US Economic Challenges
 The Real “Prime Directive”
 Economic Drivers
 US Economic Solutions
Pertinent Observations
 Global Economic Challenges
Probability of European Decline
• European Employment Crisis
Employment is 3.5 million lower than 2008
Current trend 4.5 mm more lost next 4 years
31.5 % of working age population not employed
Pertinent Observations
 Global Economic Challenges
Asian Challenges
• Chinese Totalitarianism
Lightening Transition to Modern Economy
Intellectual Intergity
• Indian Democracy
Urbanization and Infrastructure Needs
“The British Raj”
Pertinent Observations
 US Economic Challenges
America’s Challenges
• Demographic Trends
• Loss of Mid-skill Employment
• Labor Force Skills Gap
• Massive and Growing Federal Fiscal Crisis
• “American Competitiveness”
Pertinent Observations
 US Economic Challenges
Troubling Trends
• Slower Income Growth
• Longer Periods of Unemployment
• Smaller Proportion of “Employed” to “Not Employed”
• Growing Culture of “Entitlement” -- Dependency
Pertinent Observations
 The Real “Prime Directive”
Increasing Household Incomes
Investment Increases Productivity
Higher Productivity Increases Incomes
Rising Incomes and Standards of Living
Rising Incomes Drive Consumer Spending
Consumer Spending Drives Economic Growth
Pertinent Observations
 The Real “Prime Directive”
Increasing Household Incomes
Investment Increases Productivity
Higher Productivity Increases Incomes
Rising Incomes and Standards of Living
Rising Incomes Drive Consumer Spending
Consumer Spending Drives Economic Growth
Pertinent Observations
 The Real “Prime Directive”
Increasing “The Pie”
Customers Drive Consumer Spending
Consumer Spending Drives Job Creation
Job Creation Drives Economic Growth & Investment
Investment Increases Productivity
Pertinent Observations
 Economic Drivers
 Business Investment
 Greater Human Productivity
 Higher Disposable Incomes and Consumer Spending
 Population Growth
Pertinent Observations
 Economic Drivers
Job Creation Lures Population Growth
Population Growth Drives Production and Demand
Demand Drives Further Expansion and Employment
Employment Lures Population Growth
Pertinent Observations
 US Economic Solutions
America’s Strengths
• Strong, Agile Markets
• Tradition of Productivity AND Economic Focus
• Fully Developed Infrastructure (But Aging)
• Finest Higher Education System (Largely Misguided)
• Highest Caliber “Rule of Law” (May Be At Risk)
*
Pertinent Observations
 US Economic Solutions
1. Rediscover Free Enterprise
2. Reinvigorate American Competitiveness
3. Reinvigorate Individual Responsibility
4. Drastically Reduce Federal Spending
Pertinent Observations
 US Economic Solutions
1. Rediscover Free Enterprise
2. Reinvigorate American Competitiveness
3. Reinvigorate Individual Responsibility
4. Drastically Reduce Federal Spending
Pertinent Observations
 Closing Thoughts
• American “Exceptionalism”
Existentially Committed Immigrants
Economic Obsession – de Tocqueville
• American Economic Engine
Transformed the World 3 Times
Continues to Lead Worldwide Innovation
Drives the Global Economy
Pertinent Observations
 Closing Thoughts
Arizona’s Prospects
• American “Exceptionalism” Squared
• Open, Upwardly Mobile Social Structure
• Strengthening Economic Foundation
• Tradition of Leadership
• And, “It Ain’t Broke” So “Stop Trying to Fix It!”
Economic Outlook
Alan E. Maguire
February 21, 2013
Questions?