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Sun Corridor Projections
Base and Alternative Scenarios
Prepared for
Central Arizona Association of Governments
January 8, 2009
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Study Outline
• Joint effort
– ASU’s WP Carey School of Business
– UA’s Eller College of Management
• Review economic & demographic research
• Development of Sun Corridor (3-county) model
• Base forecast highlights
– Population and demographic outlook
– Employment outlook
– Earnings, income and sales outlook
• High & low scenario results
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Economic & Demographic
Research
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Introduction
• The Economic and Demographic Research
portion examines/identifies long-term
economic and demographic forces that
could affect economic development in 3county “megapolitan” area (Pinal, Maricopa
and Pima counties combined)
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Economic & Demographic Topics
• Population, demographics and net
migration analysis
• Industry mix and basic industries in the
region
• Target industry recommendations
• Interviews with “experts”
• Case study: Riverside vs. Pinal County
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Population, Demographics and
Net Migration Analysis
• Historical population growth
– Natural increase
– Domestic migration
– Immigration
• Comparison of long-term forecasts
• Expert interview summary
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Population, Demographics and
Net Migration Analysis
• Use Census Bureau estimates of population
– By age, sex, ethnicity
• Domestic migration to AZ is much larger
than immigration
– Undocumented immigration surged in mid-90s,
peaked in 2000, and has declined since
• Largest migration flows from Los Angeles
– And other So. California metros (55% of total)
– Chicago (during the 1980s, 6% in 2006)
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Industry Mix and
Basic Industries, 2004
• Manufacturing is a key driver of the megapolitan
economy (33,000 excess jobs)
–
–
–
–
Electronic components (11,000)
Instruments (4,300)
Aerospace (17,700)
2 Wholesale trade industries tied to high tech mfg.
(6,000)
• Tourism (30,000 excess jobs) – low wage
• Administrative support and finance (16,000 excess
jobs)
• Copper mining and smelting (2,000 excess jobs)
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TARGET INDUSTRY SECTORS
•
•
•
•
•
•
Aerospace/Avionics/Defense/Homeland Security
Healthcare and Health Industries
Bioscience/Bioindustries/Biotechnology/Biomedical
Transportation and Logistics
Agriculture/Food Processing/Agricultural Technology
Sustainability/Environmental Technology/Renewable Energy
–
–
–
–
–
•
General Manufacturing
–
•
Industrial Machinery
Business and Professional Services
–
–
–
–
•
Solar Energy
Environmental Technologies
Water Management
Waste Treatment
Other Renewable Energy (Wind, Biofuels)
Communication Services
Engineering Services Research and Testing
Financial Services
Information Tech./Computer Software & Systems
High Tech Industry
–
–
–
–
–
High-tech Instruments
Medical Devices
Electronics/Semiconductor
Nanotechnologies
Analytical Instruments
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Economic Interview Summary
• Global competitiveness Issues
–
–
–
–
Workforce and education
Infrastructure
Labor costs
Geographic location
• Constraints to economic development
–
–
–
–
–
–
K-12 education quality
Transportation system
Water and waste water systems
Availability of high skilled workforce
Access to local employment opportunities
Funding is the key to avoiding constraints
• Water issues
–
–
–
–
With proper management there will be enough water in Arizona in the long-run
AZ will have to develop incremental water supplies to extend life of resources
There could be temporary localized water shortages
Water will become more expensive
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Case Study: Riverside vs. Pinal County
•
•
•
•
Population Growth
– Population growth in Riverside County has remained rapid over extended
period of time, indicating Pinal County population growth could remain
rapid for many years
Employment Growth
– The strong economies in Phoenix and Tucson are providing jobs for Pinal
County residents and are likely retarding the job creation in Pinal County
– Pinal County’s ability to create high wage jobs is limited by its relatively
low skilled workforce, and lack of arterial transportation infrastructure
within the County
Payroll per employee (PPE)
– If the example of Riverside County is any indication, the PPE in Pinal
County will stay below the U.S. average and below Maricopa and Pima
Counties average PPE
Employment to Population Ratio (E/P)
– Pinal County needs to increase the number of jobs. Over time the E/P
will improve, but not to Pima or Maricopa County levels
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Sun Corridor Model
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The Sun Corridor Model
• The Sun Corridor model was developed
using data for the 3-county megapolitan
area that includes Pinal, Maricopa and Pima
Counties
• The model consists of an econometric
general equilibrium structural model with
an embedded cohort survival model
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Exhibit 2 – Measures are Simultaneously Determined
Personal Income
Population
& Migration
Employment
Output/
Demand
Wage Rates
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Assumptions
• Economic drivers for model are from Global Insight, “U.S.
Economic Outlook” (ST), and “U.S. Economy” (LT), Oct.
2008.
• Short-term
– Real GDP will decline for three quarters in a row, starting 3Q ’08
Growth will be just 0.2% in 2009.
– Inflation has peaked and will fall close to zero in mid-2009.
• Long-term
– CPI rises at modest 2.0% rate
– Real oil prices fall, but remain high by historical standards (no oil
embargos in forecast)
– Federal budget deficit average 4.4% of GDP
– Real consumption grows at 2.1% annual rate
– Productivity grows at 2.0% annual rate
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Assumptions
• The Sun Corridor Forecasting Model used
the following demographic assumptions
– Birth rates are held constant
– Survivorship rates are constant
– The distribution of net migrants by
age/sex/ethnicity reflects the recent proportions
– Total net migration is driven by relative housing
prices and economic activity
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Assumptions
• Gasoline prices in the Phoenix area remain
high and drift upward from current levels to
near $4.00 per gallon in 2015
• Housing prices in the Sun Corridor have
fallen significantly
– Relative to prices in Los Angeles, the Sun
Corridor remains “cheap”
– Prices in LA will remain nearly twice those in the
Sun Corridor
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Relative Housing Prices
Ratio of Los Angeles to Phoenix
2.8
2.6
2.4
2.2
2.0
1.8
1.6
1.4
75 80 85 90 95 00 05 10 15 20 25 30 35 40
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1.2
Determinants of Growth
• In the long term, supply factors matter
– Labor force
– Capital stock (infrastructure AND human)
– Technological progress
• For the 3-county area, population growth is
the most important
– Migration flows
– Natural increase
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Base Scenario Results
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Highlights: Year 2040
• 10.1 million people will live in the Sun
Corridor
• The Sun Corridor will grow into one of the
nation’s 10 “megapolitan” areas
• Growth rates for both population and jobs
moderate to near 2% annually
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Forecasts to 2040, Sun Corridor
2000
2010
2020
Population (000s)
4,122
5,323
6,740
8,370 10,100
Nonfarm Jobs (000s)
1,925
2,180
3,020
3,830
4,760
113
188
380
670
1,150
46
67
129
215
353
Personal Income
($bil)
Retail Sales ($ bil)
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2030
2040
Annual Growth Rates, Valley 12
10
population
nonfarm jobs
8
6
4
2
0
-2
70 75 80 85 90 95 00 05 10 15 20 25 30 35 40
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-4
%
c
h
g
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Population Dynamics
• Natural increase (births – deaths)
– Birth rates remain relatively constant
– Death rates trend upward as population ages
– Calculated relative to total population
• Migration (net)
– On average, provides twice the number of
natural increase
– As a percent of population, continues on
downward trend
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Population Dynamics
• Retirement-related migration will double as
boomers retire
– but the numbers are small compared 0-64 age
group
• Work-related migration returns to
“average” (90-100 thousand per year) by
2015
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Net Migration (000s)
3-County Area
150
age 0-64
100
age 65+
50
0
80 85 90 95 00 05 10 15 20 25 30 35 40
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-50
Population Dynamics
• Once the economy recovers from current
downturn, annual population growth
returns to roughly 160,000 per year in
2015
– Then drifts slowly upward
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Highlights: Year 2040
• The proportion of the population age 65+
– will increase significantly, but remain less than
nationwide
– AZ will remain one of the youngest states
• School age population remains flat at 21%
• Hispanics share of the total population rises
from 33% to 48%
– Hispanic share of school age population
increases from 42% to 58%
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Shares of Total Population
Age 65 and over
22
20
18
16
3-county
14
12
US
10
60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40
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8
%
School-Age Population (5-19)
as a Share of Total
3-county
25
24
23
%
22
21
80 85 90 95 00 05 10 15 20 25 30 35 40
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20
Hispanic Population
as a Share of Total
3-county
50
40
30 %
20
80 85 90 95 00 05 10 15 20 25 30 35 40
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10
Hispanic Share of School-Age
Population (5-19)
60
3-county
50
40 %
30
80 85 90 95 00 05 10 15 20 25 30 35 40
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20
"Valley" Population by Age, Sex, Ethnicity, 2008
80_84
70_74
Male
Female
Age Category
60_64
50_54
Male Non-Hispanic
Male Hispanic
Female Hispanic
40_44
Female Non-Hispanic
30_34
20_24
10_14
0_4
(250)
(200)
(150)
(100)
(50)
0
50
100
Population by Age, Sex, Ethnicity (1,000)
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150
200
250
"Valley" Population by Age, Sex, Ethnicity, 2040
80_84
70_74
Male
Female
Age Category
60_64
50_54
Male Hispanic
Male Non-Hispanic
Female Hispanic
40_44
Female Non-Hispanic
30_34
20_24
10_14
0_4
(500)
(400)
(300)
(200)
(100)
0
100
200
Population by Age, Sex, Ethnicity (1,000)
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300
400
500
"Valley" Population by Age, Sex, 2008 vs. 2040
80_84
Male
70_74
Female
Age Category
60_64
50_54
Male 2008
Male 2040
Female 2008
40_44
Female 2040
30_34
20_24
10_14
0_4
(500)
(400)
(300)
(200)
(100)
0
100
Population by Age, Sex (1,000)
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200
300
400
500
Highlights: Year 2040
• 2.25 mil new nonfarm jobs will be created
during the next 32 years
– 4.75 mil total
– Most will be in services sectors
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Changes in Employment, 3-Co.
2008 to 2040
000s
0
Professional and Business Services
Trade, Transportation and Utilities Educational and Health Services
Leisure & Hospitality
Government
Financial Activities
Other Services
Manufacturing Construction
Information Natural Resources and Mining
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100
200
300
400
500
600
700
Employment Sector Growth
Growth Leaders
Growth Laggards
• Professional & Business
Services
• Leisure & Hospitality
• Financial Activities
• Information
• Other services
• Health Care & Social
Assistance
•
•
•
•
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Government
Construction
Manufacturing
Mining
Government Employment
as a Percent of Total Nonfarm
22
20
18
3-county
16 %
14
12
65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40
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10
Manufacturing Jobs
as a Percent of Total Nonfarm
20
18
16
3-county
14
12 %
10
8
6
65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40
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4
Highlights: Year 2040
• Employment to population ratio recovers
after the recession and drifts slowly upward
– Nationwide, the ratio remains flat at 0.46
• An alternative measure using BEA
employment relative to working-age
population (15-64) is significantly higher
and moves upward more quickly over the
forecast period
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Highlights: Year 2040
• PCPI relative to US stabilizes at 88% after
ratcheting down during the current
recession
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Long Term Outlook - BASE
• 10.1 million people in the Valley by 2040
– Population growth rate moderates from 3.7%
annually in decade of 1990s to 1.9% in 2030s
• Hispanic population’s share grows from
31.5% today to 46.4% in 2040
• Net migration flows stabilize at 100,000 per
year rather than trending ever upward
– An increasing share is age 65 and over
• Proportion of 65+ rises from 12% to 18%
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Long Term Outlook
• 2.3 mil new jobs will be created by 2040
– Service-related industries play larger role
• Employment:population steadies at 46%
• Per capita personal income relative to US
stabilizes near 88%
• A larger portion of our income will come
from transfer payments
– Less from “property” income
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Alternative Scenarios
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Scenario Forecast Development
• Forecast scenarios were developed on the basis of the work
done on the Demographic & Economic White Papers, and
expert interviews
• National economic forecasts from Global Insight (GI) were
used to incorporate alternative economic assumptions of
business conditions
• Future investments in education, workforce development and
infrastructure are necessary for Arizona to attract high tech
industry, raise income levels, and improve the overall quality
of life
• The level of investment in education and infrastructure, along
with national economic conditions were key factors in
developing the three forecast scenarios
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Base Scenario
• Assumes that the national economy will grow according to
the GI base (trend) economic forecast
• Investment in education and infrastructure remains on a
business-as-usual basis
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High Scenario Assumptions
• The GI high economic scenario boosts regional economic
growth
• Relatively higher housing prices in other regions sustains a
high rate of in-migration
• The state makes a commitment to increase expenditures for
education and infrastructure on a sustained basis
• That investment results, with a lag, in better education,
improved workforce skills, increased attraction of higher
waged industries, higher average wage levels and a better
quality of life
• Increased economic opportunities result in lower birth rates
for working aged Hispanic females, but their birth rates
remain above those for non-Hispanic females
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High Scenario (Cont.)
• Increased spending for education and infrastructure raise
wages for educators, improves the quality of the workforce
and results in greater success attracting, retaining and
expanding higher wage industries, including high tech
industries
• Construction employment benefits from increased
expenditures for infrastructure development
• Employment increases in utilities as solar power generation
capacity is added
• Employment also rises in other manufacturing industries due
to increased activity in high tech industries such as
biotechnology, pharmaceuticals, etc
• Healthcare industry employment expands due to increased
research and development activity and higher incomes
• Transportation and warehousing employment expand to take
advantage of better rail, highway and airport infrastructure
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Low Scenario Assumptions
• The national economy grows at the GI low scenario
• Homes in other parts of the country become relatively less
expensive than those in the megapolitan region, resulting in
slower in-migration rates
• Expenditures for education and infrastructure are inadequate
to support population growth, resulting in deteriorating
workforce quality, slower income growth, and a lower overall
quality of life in the region
• The poor quality workforce and weaker infrastructure cause
employment to suffer in manufacturing, information
technology industries, and those with higher wages and
higher workforce skill requirements
• Transportation and warehousing employment drops due to
poorer transportation infrastructure
• Finally, the diminished quality of life in the region
discourages employment in the leisure and hospitality
industry as tourism activity declines
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Relative Housing Prices
Ratio of Los Angeles to Phoenix
2.8
2.6
2.4
High
2.2
2.0
1.8
Low
1.6
1.4
75 80 85 90 95 00 05 10 15 20 25 30 35 40
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1.2
Births per 1,000 Women
Age 20-24
Hispanic
Base, Low
240
220
200
High
180
160
140
120
100
non-Hispanic
80 85 90 95 00 05 10 15 20 25 30 35 40
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80
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Population Forecasts to 2040, Sun
Corridor
(000s)
2000
2010
2020
Base
4,122
5,323
6,740
8,370 10,100
High
5,336
7,050
9,150 11,490
Low
5,288
6,370
7,590
8,870
48
680
1,560
2,620
Range
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2030
2040
Report Available At:
http://appliedeconomics.net/caag/ThreeCountyProjections.html
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