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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 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?