The Monday Morning Quarterback #AZRealEstate #ScottsdaleRealEstate

ELLIOTT D. POLLACK & Company FOR IMMEDIATE RELEASE February 2nd, 2015   The Monday Morning Quarterback  A quick analysis of important economic data released over the last week   Often overlooked in the discussion of the Arizona and Greater Phoenix economies is what we can learn from what has happened to population growth.  Population growth itself is an industry in the state.  When people move here, they bring their own set of demands for goods and services that create more jobs and, thus, spur more population growth.  When a person moves here, they need a place to live; they buy food, clothes and cars; they need doctors, bankers and plumbers.  When an area grows at 3-4 times the national average in terms of population, it creates a lot of new demand and a lot of jobs.   Historically, Arizona and Greater Phoenix have also had a very low unemployment rate relatively early in an economic recovery. Thus, historically, rapid population growth pulls in a lot of new people to fill those jobs.  In this cycle, the unemployment rate has been high and the level of employment growth slower than normal.  Thus, most of the jobs have been filled locally.  When you combine that with a drastic decline (33%) in the mobility rate of people in the U.S., the result is much slower population growth here.   Slower population growth has severe impacts on the economy.  First, all those jobs that exist to take care of rapidly growing population vanish.  This, combined with the free fall in construction after 2007, caused the jobs situation in the state to be far worse than one would expect from the decline in the national economy alone. Second, there were homes and apartments, offices and retail space built in anticipation of population growth that never occurred.  This substantially lengthened the absorption period for the excess supply and has led to construction employment having virtually no recovery so far in this cycle.   The only good news is that we now have an idea of what will happen to the state and its political subdivisions if it were to not grow much faster than the U.S. as a whole. In 2006, the state was 2nd out of 50 states in employment growth. By 2010, it was 49th.  It is now back to 13th out of 50 states. Greater Phoenix employment was the most rapidly growing major metro area out of 27 in the U.S. in 2006.  By 2010, it was dead last.  It is now 11th out of 28 in terms of percentage employment growth.  That is a significant recovery and sets a floor for where we would be if the state continued to grow at 1.3% vs. a pre-2008 long term average of 3.4%.  The good news is that it actually understates how Arizona would do because the excess supply in construction has yet to be absorbed to a point where there is construction needed for the new population.  That will surely happen at some point and will push our ranking up even further.  Thus, even with the current rate of growth, we would do relatively well.  It is only when we compare it to what we have learned to expect that we seem to be doing so poorly.   I have been a practicing economist in Arizona since 1969. Over the past 45 years, there have been numerous projections reporting that the state would start to slow tomorrow. Up until 2008, they were virtually all wrong.  And even with those projections, the rate of growth was expected to slow relatively modestly each year.  The current slowdown and certainly the extent of the slowdown was caused by factors that, for the most part, appear to be transitory in nature.  The difficulty is in determining when mobility will improve nationally.  That is not easy to do.  We believe that the state should be growing in the 2.25%-2.5% range by 2018. But, only time and economic events will tell.  The good news, though, is that while a meaningful recovery is still not at hand and the longer term rate of growth is most likely to be well below the long term average, the current rate of population growth in Arizona and Greater Phoenix are likely to, in retrospect, prove to be an aberration.      U.S. Snapshot: The economy grew slower than expected in the 4th quarter of 2014. A combination of a pull back in business investment related to the stronger dollar, weakness in Europe and Asia and low oil prices combined with a sharp fall in government spending caused real GDP to grow at 2.6% (seasonally adjusted annual rate) in the 4th quarter compared to 5.0% in the 3rd quarter. The expectation was for 3.2% growth in the 4th quarter. Consumer spending was strong. The price index for personal consumption expenditures (the Fed's preferred measure for inflation) fell at a 0.5% annual rate in the 4th quarter compared to a 1.2% annualized increase in the 3rd quarter. This is well below the Fed's announced target of 2.0%. Core prices, which exclude volatile food and energy components, were up 1.1% vs. 1.4% in the 3rd quarter. Both major measures of consumer confidence were up sharply in January (see chart below). The Conference Board index hit a recovery best of 102.9. The University of Michigan consumer sentiment index was up to 98.1 compared to 93.6 in December. Durable goods orders unexpectedly fell 3.4% in December after dropping 2.1% in November. Expectations were for a 0.7% rise. Overall, manufacturing is soft. The outlook is questionable with the recently sharp boost in the value of the dollar. The S&P/Case-Shiller home price index saw year over year growth rates decline in November compared to October. The 20-city composite gained 4.3% compared to 4.5% in October. Thus, prices dropped in November by 0.2%. This does not bode well for the housing market or national mobility. Arizona Snapshot:     The homeownership rate in Arizona declined to 61.8% from 64.9% a year ago and 63.2% in the 3rd quarter. The homeowner vacancy rate declined to 1.9% in the 4th quarter compared to 2.9% a year ago. According to the S&P/Case-Shiller home price index, home prices in Greater Phoenix were up 1.9% from a year ago in November (see chart below).       About EDPCo Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.   For more information, contact -   Elliott D. Pollack & company 7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251 480-423-9200   Website | Twitter | Facebook