1. Economic Update & Outlook Arizona State Board of Equalization
For the U.S. and Arizona
Subtitle text can go here
Arizona State Board of Equalization
May 16, 2017

2. Report: Drowsy Official Dozing in Meeting With
Kim Jong Un Executed With Anti-Aircraft Gun

3. Report: Official Was Bored by Graphs
and Statistics on Economic Outlook

5. Economic Update & Outlook
No Recession on U.S. Horizon
But Uncertainty Prevails
A One-Half Cheer for Q1 GDP Growth
“New Normal” Cliché - New Reality?
Consumer is Key to Demand Side
Productivity is Key to Supply Side
Arizona Economy Is Solid for 2017

6. A Paradox: Consumer Confidence & Worry Are Both Up After Election
Gallup Poll, March 2017

8. Join the Club! Citizens of Most Nations
Are Pessimistic About Their Countries Too

9. 11th Year of Below “Normal” GDP Growth
(Average 1965 – 2005 = 3.3% Real GDP Growth)
Annual % Change
U. S. Bureau of Economic Analysis, April 28, 2017

10. GDP Starts off Weak in Q1 GDP & Components 2016 Growth 2017 Q1 1.6%
U. S. (Real) GDP
1.6%
0.7%
Consumer Spending
2.7
0.3
Gross Investment
-1.6
4.3
Residential Construction
4.9
13.7
Exports
0.4
5.8
Government (all levels)
0.8
- 1.7
U. S. Bureau of Economic Analysis, GDP Accounts, April 28, 2017

11. From the Demand Side: the Cautious Consumer is Key to GDP Growth
Accounts for 70% of GDP…but..
Paying off debt & saving more
Growth 1956 – 2006 = 3.6% year
2016 growth was 2.7%
Has not been at 3.6 % since 2004
Low real income main headwind

12. Middle Class Families Make
Less Than Ten Years Ago
U.S.
Arizona

13. University Study: Rich People Have Higher Incomes Than Poor People
“As far as I’m concerned they can do what they want with the minimum wage, just as long as they keep their hands off the
maximum wage.”

14. Jobs for High Wage/High Skill Workers Have Grown Most In this Recovery
Deutsche Bank Securities

15. Consumers Are Not Borrowing to Support Spending as in the Past
Household Financial Obligations as a Percent of Disposable Income
Recession End
Board of Governors, Federal Reserve System

16. From the Supply Side: Productivity Increase is Key to GDP Growth
Economic Theory Tells Us O = f(L, K)
(Output depends on labor & capital)
Increase labor (immigration, participation rate)
Increase capital (investment in R&D, equipment)
Improve labor (training, education)
Improve capital (technology, innovation)
Increase efficiency (total productivity)
Theorist

17. Productivity Slowed in “App Era”
(Productivity Up When Innovation Replaces Human Labor)
Computers
Internet Boom
Browser wars
ecommerce
Robotics
Great Inventions
Electricity
Automobile
Oil & Gas
Machinery
App Era
Smart Phones
Google
Facebook
Twitter
Sharing
Refinements
Jet Airplanes
Microwave
Air Conditioning
Next?
Internet of Things
Drones
DNA/Medical
Annual Average Increase in U.S. Productivity
Source: Robert Gordon, National Bureau of Economic Research

18. U. S. Productivity Growth From
Has Averaged Only 0.6%
Productivity Growth: percent change in output per worker per hour, nonfarm business sector, billions of 2009 dollars
U. S. Bureau of Labor Statistics

20. 5 Companies That Are Changing the World We Live In
SPOTIFY – streaming music
YOUTUBE – home videos
FACEBOOK – social interaction
AIRBNB – home and room sharing
UBER – ride sharing
Choose an Option Below
Keep these 5 but give up
running water and indoor
toilet
B. Keep running water and
indoor toilet but no new technology since 2002
(Windows 98, Amazon)

21. Supply Side Perspective: Workforce & Productivity Drive GDP Growth
Real GDP Growth
Workforce Growth
Productivity Growth
U. S. Bureau of Labor Statistics, U. S. Department of Commerce

22. Unemployment Rate is Down – But So is Labor Force Participation
Peak 10.0% October 2009

23. How to Tell if Your Tot Is A Future Economist
“I had another bad dream about the labor force participation rate.” 23 23

24. U.S. Economic Outlook “The function of economic forecasting
is to make astrology
look respectable.”
John Kenneth Galbraith

25. 12th Year of GDP Growth Under 3.0%
U.S. Economic Outlook
12th Year of GDP Growth Under 3.0%
Indicator
2015
2016
2017
Real GDP Growth
2.6%
1.6%
2.1%
Inflation (CPI)
0.1%
1.3%
2.4%
Employment (Jobs)
2.9 mil
2.5 mil
2.4 mil
Unemployment Rate
5.3%
4.9%
4.5%
Housing Starts
1.1 mil
1.2 mil
1.3 mil
W. P. Carey School of Business & Blue Chip Economic Indicators, May 2017

26. ARIZONA Overview
14th largest state; 82% of population in Phoenix & Tucson; more young/old than national average
Strengths: affordability, labor force, fast growing population, established high tech center, new gains in knowledge jobs – finance, information
Weaknesses: too reliant on population growth; manufacturing is defense related; shortages of workers in agriculture & construction; image (?)
Arizona will be a top ten growth state for all key indicators – population, jobs & income in 2017

27. Arizona: A Leading Growth State
Decade
Rank
Population
Growth (%)
Employment
Income
3rd
4th
2nd
5th
14th
49th
45th
2016
8th
9th
11th
Annual Growth Rates from U.S. Bureau of Census; U.S. BLS; U. S. BEA

28. Arizona Ranked 11th in Personal
Income Growth Rate in 2016 4 41 7 20 6 50 1 8 2 15 9
Hawaii 11 43 10 5 35
Continuing Problem:
Arizona Ranked 42nd in
Per Capita Income in 2016 3
U. S. Bureau of Economic Analysis

29. Early Reports Show Steady Arizona Economic Growth in 1st 100 Days
Indicators
2015
2016 Q1
New Jobs (thousands)
65.6
68.0
56.2
Employment (% change)
2.5
2.6
2.1
Unemployment Rate
6.0
5.3
5.0
Retail Sales (% change)
8.6
3.7
1.5
Single Family Permits (% change)
32.0
11.0
10.0
W. P. Carey School of Business, ASU, based on data available May, 2017

30. Trump Economy Watch List (Bannon’s White Board)
Strengthen U.S. defense – increase spending
Health care - repeal Obamacare
International trade – renegotiate NAFTA
Immigration – build the wall
Infrastructure – transportation + more
Tax reform – cut corporate taxes

31. Defense Spending Increase Benefits Arizona
U. S. Department of Defense, U.S. Bureau of Economic Analysis, U. S. Census Bureau

32. Health Care is A Recession-Resistant
Growth Driver For the Arizona Economy
Health Care Job Growth: Arizona vs. All States
9th th st th th 3rd th
20% of New Jobs
Health care accounted for
one out of every five new
Arizona Jobs created in 2016
Arizona Employment (000 of Jobs)
Health Care Jobs
(right axis)
All Arizona Jobs
(left axis)
25% of Residents
One out of every four
Arizona residents receives
Medicaid health funding
U.S. Bureau of Labor Statistics, Kaiser Foundation, AHCCCS

33. Arizona International Trade Supports
More Than 100,000 Jobs
Top Trading Partners
Mexico
Canada
S. Korea
China UK
6,663 small/medium
Arizona export firms
U.S. Department of Commerce, International Trade Administration

34. Arizona Economic Outlook Western Blue Chip Consensus Forecast
Indicators
2015
2016
2017
New Jobs (thousands)
65.6
68.0
70.0
Employment (% change)
2.5
2.6
Retail Sales (% change)
8.6
3.7
4.4
Population (% change)
1.5
1.7
1.6
Single Family Permits (% change)
32.0
11.0
15.0
2017 Forecast from
JPMorgan Chase Economic Outlook Center, W. P. Carey School of Business, consensus based on data available Q1 2017

35. Arizona Job Growth Outlook
Metro
2015
2016
2017
Phoenix
3.2%
3.1%
2.9%
Prescott
2.4
4.1
2.0
Lake Havasu
1.7
1.8
Tucson
0.8
1.3
1.0
Yuma
1.4
2.1
Flagstaff
1.5
W. P. Carey School of Business, May 2017

36. Private Job Growth: Arizona 7th
(Private Q1 Jobs Up by 2.5% - All Jobs Up by 2.1%)
Top 10 Growth States
Lost Private Jobs 6 18 8 3 50 4 1 17 11 9 7 43 10
Ranked by % Change:
Private Sector Jobs
First Quarter 2017 5 15 2
U. S. Bureau of Labor Statistics 36

37. Minimum Wage Increase Did Not Slow
Arizona Food Service Hiring in First Quarter
Record
Q1 High
56,200 New Arizona Jobs
In First Quarter 2017 (+2.1%)

38. Arizona Job Growth Update
Percent Change: Year-to-Date First Quarter 2017
Arizona Industry
% Change
U.S. Rank
Nonfarm Employment
2.1 9
Private Employment
2.5 7
Finance & Insurance
5.8 1
Food Services
6.8
Health Care
3.4 10
Manufacturing
1.2 12
Business Services 19
W. P. Carey School of Business & U. S. Bureau of Labor Statistics

39. Arizona Ranked 8th Fastest in
Population Growth in 2016
Top 10 Growth States
Lost Population 5 13 6 3 2 1 7 19 8 41 10 9
U. S. States Ranked by
Percent Change 2016 4
U. S. Census Bureau, Dec. 2016

40. Arizona Population Growth Stabilizes
After Slow Recovery from Recession
2017 Projection: 110,000 New Residents
Forecast
W. P. Carey School of Business, ASU & U. S. Census Bureau

41. Arizona Ranks Among Top Five States for Domestic In-Migration3 7 10 6
Alaska
Hawaii 5 4 8 9 2
31 States in Red Lost
Domestic Population
to 19 States in Green 1
U.S. Census Bureau, Dec. 2016

42. Arizona Population: 2016 8th Fastest Growth Rate (1.7%)
14th Largest State (6.8 mil)
8th Fastest Growth Rate (1.7%)
5th In New Residents (113k)
4th in Domestic Migration
17th in International Migration
U.S. Census Bureau, Dec. 2016

43. Arizona International Migration is
Down By Half Since 2001
Domestic Migration
International Migration
Thousands of Persons
61,544
14,861
U.S. Census Bureau

44. International Migration Slows
Mexico Pays For New Fence
at Nogales
Border Slide
To Reduce
Migration
To Arizona

45. 3rd Year of Home Building Gains Single Family Permits – Arizona
15% Rise Expected in 2017
Single Family Permits – Arizona
Forecast
W. P. Carey School of Business, ASU & U. S. Census Bureau

46. What Is Holding Back Home Building?
Supply of Lower Priced Homes is Restricted
Labor costs are up
Lumber costs are up
Labor less available
Land/lot costs are up
Land/lot regulations
Lending still tight

47. What Is Holding Back Home Building?
Some Want A House But Cannot Buy One
Low credit score
Prior foreclosure
Home under water
Student loan debt

48. What Is Holding Back Home Building?
Some (Millennials) Don’t Want A House At All!
Live with parents
Live with a group
Marry much later
Want urban lifestyle
Prefer to rent
Housing seen as
bad investment

49. Millennials Replace Boomers
Age 19 – 37 today; 39 – 57 in 20 years
A larger group (83 mil.) than Boomers
Millennials will dominate economy as
Boomer group shrinks over time

50. Went To the Moon
Went To the Bathroom
Took 5 Photos
Took 17 Photos

51. Arizona Advantages for
Economic Development
Pro-growth economic setting
Competitive tax structure
Affordable space, labor, housing
Relatively new infrastructure
Must work on education issues

52. On The Arizona Road To Recovery No Doom – No Gloom – But No Boom!

53. Arizona Comparison By Rank
Arizona Statistics
Rank
Private Job Growth (Yr to Date) (BLS)
7th
Domestic In-Migration (Census)
4th
Value of Exports (Census)
19th
Start-Up Activity (Kauffman)
21st
Business Tax Climate (Tax Foundation)
24th
Per Capita Income (BEA)
42nd
Poverty Rate (Census)
48th
Per Pupil Spending on Education (Census)

54. Economic Update & Outlook Arizona State Board of Equalization
For the U.S. and Arizona
Subtitle text can go here
Arizona State Board of Equalization
May 16, 2017