President Trump’s Plan • FED? 47 Elliott D. Pollack & Company
President Trump’s Plan • Massive infrastructure spending • Opening oil, gas & coal 48 Elliott D. Pollack & Company
President Trump’s Plan • International Trade is the biggest Potential problem with his Plan. 49 Elliott D. Pollack & Company
What keeps me up at night? 1. Trade War 2. How close to full employment are we? How many people who left the labor force will come back? 3. Elasticity of tax revenues due to tax cuts. 4. 138 months expansion? Any recession is likely to be mild 50 Elliott D. Pollack & Company
Share of Total Non-farm Employment Source: Bureau of Labor Statistics Professional and Educational and Industry Manufacturing Business Services Health Services 1975 21.9% 7.8% 7.1% 1980 20.7% 8.3% 7.8% 1985 18.3% 9.1% 8.9% 1990 16.2% 9.9% 10.1% 1995 14.7% 10.9% 11.4% 2000 13.1% 12.6% 11.6% 2005 10.6% 12.6% 13.2% 2010 8.8% 12.8% 15.3% 2015 8.7% 13.9% 15.5% 51 Elliott D. Pollack & Company
What to Expect Under President Trump • Faster Growth o GDP o Jobs • Higher Interest Rates • Higher Inflation • Higher after Tax Profits • Deficit?? • International Trade?? • Construction Labor?? 52 Elliott D. Pollack & Company
What to Expect Under President Trump • Larger Military o Higher Spending on Weapons o Some Allies pay for Protection • Carried Interest goes away • Estate Taxes mostly go away • Political Correctness declines • Recession in the next 4 years?? 53 Elliott D. Pollack & Company
President Trump’s Plan • We’re facing the potential for a significant change in Economic Growth 54 Elliott D. Pollack & Company
Arizona and Greater Phoenix 55 Elliott D. Pollack & Company
Employment Growth From Bottom of Recession to Now Seasonally Adjusted Source: BLS % of Arizona 2015 Annual Area % Change Growth Wages United States 11.2% $52,876 Arizona 14.5% 100.0% $47,492 Greater Phoenix 17.5% 85.4% $49,903 Greater Tucson 7.4% 7.6% $41,676 Balance of State 7.2% 7.0% $35,733 Note: Start of Recession Sept. 2010 to October 2016 Wages for Private industries 56 Elliott D. Pollack & Company
Arizona and Greater Phoenix The State has had a significant recovery in both absolute and relative terms. It is only when we compare ourselves to previous recoveries that we look so bad. 57 Elliott D. Pollack & Company
The World has Changed… Pre-2007 Post-2007 58 Elliott D. Pollack & Company
Arizona Employment Growth Arizona’s Rank Out of 50 States Source: Arizona State University, U.S. Bureau of Labor Statistics Year Rank Year Rank 2005 2 1993 5 2006 2 1994 2 2007 17 1995 2 2008 46 1996 2 2009 49 1997 2 2010 49 1998 1 2011 27 1999 2 2012 8 2000 5 2013 9 2001 9 2014 17 2002 10 2015 11 2003 4 2016* 8 2004 2 * YTD October 2016 vs. YTD October 2015 59 Elliott D. Pollack & Company
Phoenix-Mesa-Scottsdale Employment Growth (Ranking among all metro areas greater than 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics # MSA’s # MSA’s Year Rank Year Rank 1993 2 19 2005 1 26 1994 1 19 2006 1 27 1995 1 20 2007 10 29 1996 1 21 2008 25 29 1997 2 22 2009 23 24 1998 1 23 2010 23 23 1999 3 24 2011 14 25 2000 7 25 2012 10 28 2001 7 26 2013 7 29 2002 5 25 2014 15 31 2003 3 25 2015 11 32 2004 3 25 2016* 7 33 *YTD October 2016 vs. YTD October 2015 60 Elliott D. Pollack & Company
Why has Arizona growth in this cycle been subpar relative to its historical norm? 61 Elliott D. Pollack & Company
(1) Sub normal national recovery (2) Slowdown in population flows Nationally and in Greater Phoenix 62 Elliott D. Pollack & Company
What has changed? 63 Elliott D. Pollack & Company
Growth itself is an economic driver in Arizona and Greater Phoenix – People moving to the State creates demand for goods and services that create more jobs. When you grow around 1.6% instead of 3.2%, the part of the economy that is based on servicing new people shrinks. 64 Elliott D. Pollack & Company
Greater Phoenix Unemployment Rate 1990 – 2016* Recession Periods Source: Bureau of Labor Statistics 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% *Data through October 2016 65 Elliott D. Pollack & Company
Employment Growth From Bottom of Recession (Start of Recovery) Greater Phoenix Employment, Seasonally Adjusted Source: BLS Emp. 73 mos. % Avg. Monthly Recession Trough Later Growth Gain 1974-1975 Dec-74 Jan-81 46.5% 0.65% 1981-1982 Sep-82 Oct-88 44.1% 0.62% 1991 Aug-91 Sep-97 38.9% 0.55% 2001 Dec-01 Jan-08 21.3% 0.30% 2007-2009 Sep-10 Oct-16 17.5% 0.25% 66 Elliott D. Pollack & Company
Population Growth after Recessions Greater Phoenix Source: ADOA Start of Population Avg. Annual Recovery Population 6 years later % Growth Growth 1975 1,337,700 1,658,988 24.0% 4.0% 1981 1,658,988 2,102,571 26.7% 4.5% 1991 2,301,825 2,900,325 26.0% 4.3% 2001 3,360,062 4,087,390 21.6% 3.6% 2009 4,186,130 4,482,906 7.1% 1.2% 67 Elliott D. Pollack & Company
Fewer people mean fewer houses & less commercial construction. 68 Elliott D. Pollack & Company
Greater Phoenix Employment* Annual Percent Change 1976 – 2017** Source: Arizona Department of Administration 14% 13.3% 11.2% 12% 10.4% 10% 8.7% 9.3% 7.3% 7.2% 8% 5.9% 6.6% 5.4% 6.2% 5.8% 4.6% 5.4% 5.4% Pre-2008 Avg. 4.8% 6% 4.8% 4.9% 3.5% 4.9% 3.9% 3.5% 3.7% 3.5% 2.2% 2.9% 3.3% 3.2% 4% 3.0% 2.5% 2.5% 2.3% 1.7% 1.1% 2% 1.3% 1.5% 1.5% 0.0% 0% -0.4% -0.1% -2% -1.9% -2.5% -4% -6% -7.8% -8% 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 *Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990. **2016 & 2017 forecasts from Elliott D. Pollack & Co. as of November 2016. Recession Periods 69 Elliott D. Pollack & Company
Labor Force Participation Rate (16 years and over) 1986 – 2014 Source: Bureau of Labor Statistics Recession Periods 72% 70% 68% 66% 64% 62% 60% U.S. Phoenix Metro 70 Elliott D. Pollack & Company
Pinal County • Lucid Motors Automotive Manufacturer • Hiring of about 400 starts in 2017. • Expected to hire more than to 2,000 employees by 2022. • Attessa Motorsports • 2,360-acre cost estimated between $250-310 million • PhoenixMart • 1.5-million-square-foot expo center • $1 billion dollar project • 4,500 new jobs 71 Elliott D. Pollack & Company
Pinal County Employment 2001-2016* Source: ADOA (1,000’s) 60.0 56.1 56.3 56.5 55.9 55.5 55.0 50.0 45.0 40.0 35.0 30.0 *Data through October 2016 72 Elliott D. Pollack & Company
Pinal County Permits 1990-2016* Source: U.S. Census Bureau 12,000 10,000 8,000 MF SF 6,000 4,000 2,000 0 *Data through October 2016 73 Elliott D. Pollack & Company
Where are the Inflows of Population? 74 Elliott D. Pollack & Company
For the U.S. as a Whole • 2001 – 2005 • 2011 – 2015 Total Movers down 25.9% • Movers from abroad (down 21.3%) • Movers from other states (down 35.9%) • Movers from other counties in the state (down 16.2%) Note: Does not include in-state movers 75 Elliott D. Pollack & Company
U.S. Population Flows Source: U.S. Census Bureau % of Population moving Year % of Pop Moved out of a local area 2000 16.1% 7.0% 2005 13.9% 6.0% 2010 12.5% 3.8% 2015 11.6% 4.3% 76 Elliott D. Pollack & Company
Arizona Capture Rate (from abroad and between states) • 2001 – 2005 = 7.6% • 2011 – 2015 = 3.2% Note: Does not include in-state movers 77 Elliott D. Pollack & Company
Arizona Capture Rates Year Capture Rate 2000 6.4% 2005 10.4% 2010 2.4% 2015 3.7% 78 Elliott D. Pollack & Company
Conclusion: • Due to the lack of national, international, and in state population flows: 1. Jobs that would have been created by the domestic demand from people moving here slowed. 2. It took longer to absorb the excess inventory of single family, office, etc. Construction employment has suffered. 79 Elliott D. Pollack & Company
Population Growth 2015 Alaska Source: U.S. Census Bureau 39 7 15 1 9 11 32 3 6 16 2 19 8 Hawaii 44 10 Growing 5 Top 10 4 Declining 80 Elliott D. Pollack & Company
Greater Phoenix Population Annual Percent Change 1975 – 2017* Source: AZ Dept. of Administration, EDPCo Recession Periods 6% 5.1% 4.7% 4.4% 4.6% 4.3% 4.2% 4.3% 4.3% 4.2% 4.3% 4.2%4.2% 3.9% 3.8% 3.8% 4% 3.7% 3.7% 3.6% 3.5% Pre-2008 Avg. 3.5% 3.3% 3.1% 3.0% 3.1% 3.0% 2.9% 2.7% 2.8% 2.7% 2.5% 2.6% 2.4% 2.1% 2.0% 1.9% 1.9% 1.8% 2% 1.5%1.5% 1.3% 1.1% 0.6% 0.5% 0.3% 0% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 *2016 and 2017 forecasts from Elliott D. Pollack & Co. as of November 2016 . 81 Elliott D. Pollack & Company
Greater Phoenix Population Annual Net Change 1975 – 2017* Source: AZ Dept. of Administration, EDPCo Recession Periods 200.0 180.0 160.0 141.6 141.5 130.4133.6 140.0 127.7 118.6 118.6 115.6 111.9 120.0 111.0 105.9 104.2 94.5 89.3 92.0 100.0 91.4 81.3 85.2 83.8 84.7 79.6 78.0 75.6 80.0 69.8 64.866.2 64.5 60.1 59.6 60.0 54.9 53.2 54.6 52.7 60.0 50.5 49.7 46.3 35.8 40.0 29.7 27.2 28.7 19.1 14.3 20.0 0.0 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 7 7 7 8 8 8 8 8 9 9 9 9 9 0 0 0 0 0 1 1 1 1 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 *2016 and 2017 forecasts from Elliott D. Pollack & Co. as of November 2016 . 82 Elliott D. Pollack & Company
How quickly are population flows going to recover? 83 Elliott D. Pollack & Company
SLOWLY! Still buffering, seriously? 84 Elliott D. Pollack & Company
Greater Phoenix Population Source: U.S. Census Bureau; AZ Dept. of Administration; University of Arizona Forecasting Project; EDPCo Greater Phoenix Population Estimates and Projections Population 2015 2016 2017 EDPCo Forecast as of November 2016 4,482,906 4,568,081 4,659,443 Net Change 78,018 85,175 91,362 % Change 1.8% 1.9% 2.0% U of A Forecasting Project Forecast as of 2016 Q4 4,482,906 4,565,876 4,662,024 Net Change 78,018 82,970 96,148 % Change 1.8% 1.9% 2.1% Arizona Dept. of Administration Forecast as of 2015 Q4 4,482,906 4,569,800 4,661,600 Net Change 78,018 86,894 91,800 % Change 1.8% 1.9% 2.0% 85 Elliott D. Pollack & Company
Greater Phoenix Population Source: U.S. Bureau of Census; Arizona Department of Administration; University of Arizona Forecasting Project Year Population APR 1960 726,183 6.9% 1970 1,039,807 3.7% 1980 1,600,093 4.4% 1990 2,238,498 3.4% 2000 3,251,876 3.8% 2010 4,192,887 2.6% 2015 4,482,906 1.3% 2020* 4,954,811 2.0% Too low? 2025* 5,445,742 1.9% 86 *Forecasts as of 2016 Q4 Elliott D. Pollack & Company
What If Greater Phoenix Population Growth Rates Increase Source: U.S. Bureau of Census; Arizona Department of Administration; EDPCo Year Population APR 1960 726,183 6.9% 1970 1,039,807 3.7% 1980 1,600,093 4.4% 1990 2,238,498 3.4% 2000 3,251,876 3.8% 2010 4,192,887 2.6% 2015 4,482,906 1.3% 2020* 5,010,444 2.25% 2025* 5,600,061 2.25% 87 Elliott D. Pollack & Company
What If Greater Phoenix Population Growth Rates Increase Source: U.S. Bureau of Census; Arizona Department of Administration; EDPCo Year Population APR 1960 726,183 6.9% 1970 1,039,807 3.7% 1980 1,600,093 4.4% 1990 2,238,498 3.4% 2000 3,251,876 3.8% 2010 4,192,887 2.6% 2015 4,482,906 1.3% 2020* 5,071,997 2.50% 2025* 5,738,499 2.50% 88 Elliott D. Pollack & Company
Housing Market Outlook 89 Elliott D. Pollack & Company
Parade of Horribles for Housing is Less Scary 90 Elliott D. Pollack & Company
What is keeping potential buyers out of the housing market? Parade of horribles: (1) Negative Equity (2) Foreclosures (3) Millennials (4) Student Loans (5) Tougher Loan Standards 91 Elliott D. Pollack & Company
How this effects housing permits • Unforeseen Positives 1. Faster employment growth leads to higher population flows to AZ 2. Millennials 92 Elliott D. Pollack & Company
If you believe that population will grow at 2.0%, it implies an average of about 33,000 single family permits in Greater Phoenix will be filed each year over the next 10 years. 93 Elliott D. Pollack & Company
Phoenix MSA Annual Homeownership Rates 1986 – 2015 Recession Periods Source: U.S. Census Bureau 74.0 72.5 72.0 70.0 68.0 66.0 64.0 61.0 62.0 61.8 60.0 94 Elliott D. Pollack & Company
U.S. and Arizona Negative Equity Share Plus Near Negative Equity Share 2010 – 2016 Source: CoreLogic 60.0% 56.9% 55.8% 50.0% 44.7% 40.0% 29.8% 27.5% 30.0% 28.7% 27.0% 22.6% 18.6% 20.0% 18.4% 14.3% 13.7% 11.2% 9.0% 10.0% 0.0% 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 U.S. Arizona 95 Near Negative Equity: Loan-to-value ratio equals 95 to less than 100 Elliott D. Pollack & Company
Maricopa County Foreclosure Lag 2002 – 2023 Source: Information Market Recession Periods 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Nov. 2016 0 Completed 7-Year Lag (Fannie/Freddie) Foreclosures 96 Elliott D. Pollack & Company
Mortgage Credit Availability Index 2012 – 2016* March 2012 = 100 Source: Mortgage Bankers Association 180 160 140 120 100 80 2015 2014 2016 2013 2012 *A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening of credit. 97 *Data through November 2016 Elliott D. Pollack & Company
Mortgage Credit Availability Index 2004 – 2016* March 2012 = 100 Recession Periods Source: Mortgage Bankers Association 1,000 750 500 250 0 2004 2006 2008 2012 2014 2010 *A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening of credit. 98 *Data through October 2016 Elliott D. Pollack & Company
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