1. Elliott D. Pollack & Company Economic Update 2014 ACMA July 23, 2014 Presented By: Jim Rounds Senior Vice President Elliott D. Pollack & Company

2. Past “Headlines”

3. Elliott D. Pollack & Company What The #$@&, I Thought It Was Getting Better? 2010 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company

4. “The Not So Attractive Recovery” (But it has a great personality!) 2011 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company

5. 2012 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company You Heard It Here First: Less Dreadful Times Ahead!

6. Elliott D. Pollack & Company 2013 By: Jim Rounds, Senior Vice President Elliott D. Pollack & Company What Will Firm Up This Recovery?

7. Elliott D. Pollack & Company How to Avoid the…

8. Elliott D. Pollack & Company Is there a story? Does the data make sense? If not, is there an explanation for why it is off? If not, then worry.

9. Elliott D. Pollack & Company United States Real Gross Domestic Product* Annual Growth 1970 - 2015** Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators * Based on chained 2009 dollars. ** 2014 and 2015 are a forecast from the Blue Chip Economic Indicators, July 2014. Recession Periods 3.8% = 40-year avg during expansion 3.2% = 20-year avg during expansion Q1 = -2.9% Q2/Q3 = ?

10. Elliott D. Pollack & Company US Non-Farm Employment Change from Prior Month (S/A) June 2010 – June 2014 Source: Bureau Labor of Statistics

11. Elliott D. Pollack & Company U.S. Unemployment Rate 1970 – 2014* Source: Bureau of Labor Statistics Recession Periods *Seasonally adjusted data through June 2014 Underemployment = 12.1%

12. Elliott D. Pollack & Company U.S. Leading Indicators 1971 – 2014* Source: The Conference Board Recession Periods *Data through June 2014

13. Elliott D. Pollack & Company 10 Components of U.S. Leading Indicators – June 2014 Interest rate spread Leading Credit Index (inverted) Stock Prices Manuf. new order index Manuf. new orders – capital goods Manuf. new orders – consumer goods Consumer expectations Claims for unemployment (inverted) Manuf. hours Building permits + -

14. Elliott D. Pollack & Company Risks?

15. Elliott D. Pollack & Company Consumers Debt burden low. Net worth improved. Real income growth. Liquidity improving. Inflation low. Government Fed policy still expansive (2015).

16. Elliott D. Pollack & Company Business No excess inventory. No capacity issues. Dollar not overly strong. Housing Prices up but leveled.

17. Elliott D. Pollack & Company U.S. Risks Stock market? International Risks: China? Russia?

18. Elliott D. Pollack & Company What’s slowing us down?

19. Elliott D. Pollack & Company 70s, 80s – Rapid increase in household formation.

20. Elliott D. Pollack & Company 90s – Huge increase in stock market.

21. Elliott D. Pollack & Company 1996 – 2005 – rapid increase in housing prices/housing based credit.

22. Elliott D. Pollack & Company Now?

23. Elliott D. Pollack & Company Consumers

24. Elliott D. Pollack & Company WEALTH EFFECT Housing prices are up. Stock market is up.

25. Elliott D. Pollack & Company Consumer Confidence 1978 – 2014* Source: The Dismal Scientist *Data through June 2014. Recession Periods

26. Elliott D. Pollack & Company Household Debt Composition Percent Change Year Ago 2004 – 2013* Source: The Federal Reserve Bank of New York Recession Periods *Data through fourth quarter 2013.

27. Elliott D. Pollack & Company Average Age of Auto Fleet (all light vehicles) 2013 – 11.4 years 2010 – 10.6 years 2005 – 9.5 years 2000 – 8.9 years 1995 – 8.4 years Source: R.L. Polk Company

28. Elliott D. Pollack & Company Business

29. Elliott D. Pollack & Company Hours Worked Percent Change from Year Ago 1976 – 2014* Source: Bureau of Labor Statistics Recession Periods *Data through first quarter 2014

30. Elliott D. Pollack & Company Capacity Utilization Rate 1970 – 2014* Source: The Federal Reserve Bank of St. Louis *Data through May 2014. Recession Periods

31. Elliott D. Pollack & Company Bottom Line Slower long term growth with some risk.

32. Elliott D. Pollack & Company Arizona

33. Elliott D. Pollack & Company Different this time? Significant declines in population flows. Steeper housing decline.

34. Elliott D. Pollack & Company 5 2 7 1 Arizona Population Growth Was Slow But Still Top 10 in 2013 8 Source: U.S. Census Bureau 3 9 6 Growing Declining Top 10 10 Alaska Hawaii 4

35. Elliott D. Pollack & Company Arizona Rank Population Growth 1991-2013 Source: Census Bureau

36. Elliott D. Pollack & Company Why did population flows slow? Slow job growth High unemployment Delayed retirement Difficulty in selling home Difficulty in qualifying for a loan S.B. 1070?

37. Elliott D. Pollack & Company Arizona Population Annual Percent Change 1975–2013 Source: AZ Dept. of Administration Recession Periods ½ normal

38. Elliott D. Pollack & Company Arizona Population Annual Net Change 1975–2013 Source: AZ Dept. of Administration Recession Periods ½ normal

39. Elliott D. Pollack & Company 49 46 23 41 40 3 43 27 50 Hawaii 39 1 Alaska 2 18 48 4 10 5 Jobs growing Jobs declining Top 10 8 6 9 7 Job Growth 2010 Source: US BLS 32

40. Elliott D. Pollack & Company 10 46 3 4 5 44 11 6 7 1 2 Alaska 47 Jobs growing Jobs declining Top 10 Hawaii 16 9 14 Job Growth 2013 Source: US BLS 8

41. Elliott D. Pollack & Company 15 33 9 6 3 50 7 2 35 1 5 Alaska 47 Jobs growing Jobs declining Top 10 Hawaii 27 11 30 Job Growth 2014 YTD June 2014 vs YTD June 2013 Source: US BLS 10 4 8

42. Elliott D. Pollack & Company Job Growth 2014 YTD June 2014 vs June 2013 Source: U.S. Bureau of Labor Statistics RankState% chg. 1North Dakota4.34% 2Nevada3.78% 3Texas3.07% 4Florida3.03% 5Utah2.87% 6Colorado2.85% 7Oregon2.84% 8Delaware2.42% 9California2.34% 10South Carolina2.08% 11Washington2.07% 12Tennessee1.88% 13Georgia1.84% 14North Carolina1.81% 15Arizona1.77% 16Indiana1.66% 17Minnesota1.65% 18Oklahoma1.65% 19Wisconsin1.58% 20Iowa1.56% 21Massachusetts1.49% 22Missouri1.47% 23Rhode Island1.35% 24New Hampshire1.27% 25Maine1.23% RankState% chg. 26New York1.23% 27Hawaii1.15% 28Arkansas1.11% 29Kansas1.06% 30Montana1.06% 31Nebraska1.04% 32West Virginia1.01% 33Wyoming0.98% 34Ohio0.96% 35Idaho0.93% 36Mississippi0.93% 37Louisiana0.92% 38South Dakota0.79% 39Alabama0.75% 40Michigan0.64% 41Maryland0.64% 42Connecticut0.63% 43Pennsylvania0.61% 44Vermont0.55% 45Illinois0.55% 46Kentucky0.54% 47Alaska0.31% 48Virginia0.18% 49New Jersey0.07% 50New Mexico-0.20%

43. Elliott D. Pollack & Company Quality?

44. Elliott D. Pollack & Company Arizona Job Losses Exceeded U.S. Source: Bureau of Labor Statistics, Seasonally Adjusted Data

45. Elliott D. Pollack & Company Arizona Jobs Regained Since Bottom of Cycle– Most Industries Yet to Regain Lost Jobs Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted, As of June 2014

46. Elliott D. Pollack & Company U.S. Jobs Regained Since Bottom of Cycle Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted, As of June 2014

47. Elliott D. Pollack & Company AZ Has Regained 57% of Lost Jobs 133,100 Jobs (43%) Still to Recover Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted Data through June 2014. 2.68 million Oct. 2007 2.37 million Feb. 2010 312,600 AZ Jobs Lost (12%) 179,500 Jobs Regained (57%)

48. Elliott D. Pollack & Company Greater Phoenix

49. Elliott D. Pollack & Company Greater Phoenix Population Annual Percent Change 1975–2015* Source: Arizona State University & AZ Dept. of Administration Recession Periods * 2014 & 2015 forecast is from Elliott D. Pollack & Co.

50. Elliott D. Pollack & Company YearRank# MSA’s 2003325 2004325 2005126 2006127 2007928 20082428 20092324 201023 20111425 2012927 2013728 2014*1428 YearRank# MSA’s 1991419 1992419 1993219 1994119 1995120 1996121 1997122 1998123 1999324 2000925 2001726 2002525 Phoenix-Mesa Employment Growth (Ranking among all metro areas greater than 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics *YTD June 2014 vs. YTD June 2013

51. Elliott D. Pollack & Company Greater Phoenix Has Gained 64% of Lost Jobs 88,700 Jobs (36%) Still to Recover Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted Data through June 2014. 1,930,800 July 2007 1,685,500 Sept. 2010 245,300 Phoenix Jobs Lost (13%) 156,600 Jobs Regained (64%)

52. Elliott D. Pollack & Company Arizona Construction Employment is Still Down by 134,900 Jobs (55%) Since Peak Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted June 2006 244,300 June 2014 119,000

53. Elliott D. Pollack & Company Employment Levels: Greater Phoenix back to Peak in 2016? Source: ADOA Recession Periods Peak *Based on seasonally unadjusted monthly data

54. Elliott D. Pollack & Company Maricopa County Retail Sales Percent Change Year Ago* 1999 – 2014** Source: Arizona Department of Revenue *Data through April 2014 **3-month moving average Note: January 2010 and March 2010 retail sales are estimates. Recession Periods

55. Elliott D. Pollack & Company Tougher Qualifying… (1) Higher down payment. (2) Higher FICO score required. (3) Lower debt to income ratios. (4) Longer lockout period after a foreclosure. (5) More paperwork.

56. Elliott D. Pollack & Company Single Family Permits Greater Phoenix 1975–2015* Source: RL Brown & Elliott D. Pollack & company # Permits (000) *2014 – 2015 forecast is from Elliott D. Pollack & Company

57. Elliott D. Pollack & Company Greater Phoenix Median Price of New Homes 2000-2014* Source: Information Market *Data through May 2014. Recession Periods

58. Elliott D. Pollack & Company Greater Phoenix Median Price of Resale Homes 2000-2014* Source: Information Market *Data through May 2014. Recession Periods

59. Elliott D. Pollack & Company U.S. and Arizona Negative Equity 2010–2013 Source: CoreLogic

60. Elliott D. Pollack & Company Year U.S. Foreclosures % chg year ago Greater Phoenix Foreclosures % chg year ago 2002230,7504,288 2003253,5849.9%4,78811.7% 2004273,9308.0%3,881-18.9% 2005290,8726.2%1,108-71.5% 2006379,38030.4%935-15.6% 2007587,87255.0%9,550921.4% 2008972,93365.5%38,427302.4% 20091,009,2843.7%47,05422.5% 20101,145,29213.5%49,3384.9% 2011930,633-18.7%42,518-13.8% 2012821,689-11.7%22,629-46.8% 2013618,493-24.7%9,686-57.2% U.S. and Greater Phoenix Annual Foreclosures 2002–2013 Source: CoreLogic; Information Market

61. Elliott D. Pollack & Company Pent-up Demand? Millennials?

62. Elliott D. Pollack & Company U.S. and Greater Phoenix Annual Homeownership Rate 2005–2013 Source: U.S. Census Bureau

63. Elliott D. Pollack & Company Percent of 18-34 Year Olds Living With Parents U.S.: 1983 – 2013 Source: US Census Bureau Recession Periods 18-34 year olds represent 23% of total population. (73.7 million persons)

64. Elliott D. Pollack & Company Millennials – Economic or Social? 30-34 year olds in 2012 had the lowest homeownership rate of any similarly aged group before them. Five years prior, this exact same group (at 25-29 years old) had the highest homeownership rate than any group before them.

65. Elliott D. Pollack & Company Greater Tucson

66. Elliott D. Pollack & Company Tucson MSA (Pima County) Population Annual Percent Change 1975–2013 Source: AZ Dept. of Administration Recession Periods

67. Elliott D. Pollack & Company Greater Tucson Has Gained 43% of Lost Jobs 20,400 Jobs (57%) Still to Recover Source: U.S. Bureau of Labor Statistics, Thousands of Jobs, Seasonally Adjusted Data through June 2014. 385,700 March 2007 350,200 July 2011 35,500 Tucson Jobs Lost (9%) 15,100 Jobs Regained (43%)

68. Elliott D. Pollack & Company Tucson Total Nonfarm Employment NSA 1990 – 2014* Source: Bureau of Labor Statistics Recession Periods *Data through June 2014.

69. Elliott D. Pollack & Company Tucson Employment* Source: ADOA Sectors in Decline Net Change % Change Construction-700-4.4% Other Services-200-1.6% Manufacturing-200-0.9% *June 2014/ June 2013 Sectors Improving Net Change % Change Education & Health Services2,5004.1% Leisure & Hospitality Prof. & Business Services Government Trade, Transp. & Utilities Financial Activities Natural Resources & Mining 1,300 800 500 300 100 3.3% 1.6% 1.2% 0.9% 1.8% 4.3% Information00.0%

70. Elliott D. Pollack & Company YearRank# MSA’s 200445357 200599357 200680357 2007135357 2008246357 2009251357 2010319357 2011220357 2012145357 2013235357 2014*208357 YearRank# MSA’s 1992113357 199381357 199419357 199576357 1996223357 1997138357 1998111357 199951357 200038357 2001235357 2002201357 2003 151350 Tucson Employment Growth (Ranking among all metro areas smaller than 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics *YTD June 2014 vs. YTD June 2013

71. Elliott D. Pollack & Company Pima County Retail Sales Percent Change Year Ago* 1999 – 2014** Source: Arizona Department of Revenue *Data through April 2014 **3-month moving average Note: January 2010 and March 2010 retail sales are estimates. Recession Periods

72. Elliott D. Pollack & Company Greater Tucson Single Family Permits 1990–2013 Source: Bright Future Real Estate Research Recession Periods

73. Elliott D. Pollack & Company Tucson Median Price of New Homes 2000-2014* Source: Bright Future Real Estate Research *Data through June 2014. Recession Periods

74. Elliott D. Pollack & Company Tucson Median Price of Resale Homes 2000-2014* Source: Bright Future Real Estate Research *Data through June 2014. Recession Periods

75. Elliott D. Pollack & Company Remainder of State

76. Elliott D. Pollack & Company Balance of State Employment* Source: ADOA Sectors in Decline Net Change Government-1,000 Information Prof. & Business Services Construction Other Services -900 -500 -400 -100 *June 2014/ June 2013 Sectors Improving Net Change Financial Activities1,200 Manufacturing500 Education & Health Services300 Leisure & Hospitality300 Trade, Transp. & Utilities300 Natural Resources & Mining100

77. Elliott D. Pollack & Company Unemployment Rate by County Source: Bureau of Labor Statistics Arizona 2004: 5.0% 2014*: 7.0%

78. Elliott D. Pollack & Company Policy and Budget

79. Elliott D. Pollack & Company Basic Roles of Govt? Security, Education, Transportation infrastructure, Etc. Note to policymakers: Don’t mess up the basic stuff.

80. Elliott D. Pollack & Company Things to keep in mind:  Avg. expansion is just under 5 years.  The current expansion will hit 5 years this summer.  But, its not the age, it’s the mileage.  How many more years of growth?

81. Elliott D. Pollack & Company Things to keep in mind:  Less time to plan for next downturn.  Less time to build infrastructure.  Less time to develop a structurally balanced budget.  What are people doing now in terms of longer term planning?

82. Elliott D. Pollack & Company The long term outlook for Arizona remains strong. We are ready for a boom. But, what if there is no boom this time?

83. Elliott D. Pollack & Company So, what was the basic story? In your community?

84. Elliott D. Pollack & Company ELLIOTT D. POLLACK & Company 7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251 480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / info@edpco.com Economic and Fiscal Impact Analysis/Modeling Real Estate Market and Feasibility Studies Litigation Support Revenue Forecasting Keynote Speaking Public Finance and Policy Development Land Use Economics Economic Development