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Economic outlook spring_2012 final
1. ECONOMIC OUTLOOK SPRING 2012
2012
Three primary issues maintain the potential to rapidly alter the trajectory of the global economy during the near-term: Europe’s sovereign debt
crisis, geopolitical tensions with Iran, and U.S. fiscal policy.
An Accumulation of Risk
Economic Outlook for Salt Lake County
Policymakers around the world continue to questions surrounding the expiration of tax cuts
push politically difficult decisions into the future. and automatc spending cuts.
Consequently, deferred policy decisions and their
associated risks are accumulating. Three primary The fall 2011 version of this report observed that
issues maintain the potential to rapidly alter the elections and transfers of power would take place
trajectory of the global economy during the near- in key areas during 2012. It was also anticipated
term: Europe’s sovereign debt crisis, geopolitical that political conditions necessary to address
tensions with Iran, and U.S. fiscal policy. issues would be complicated due to an election
year dynamic. Recent events are manifestations
deferred policy of that expectation. Policymakers are unlikely
to sufficiently address long-term issues in 2012
decisions and their
and as a result, risk will continue to accumulate
associated risks are throughout the year.
accumulating.
International Outlook
The European debt crisis threatens the global Elections in France and Greece are complicating
economy through trade ties and financial the European sovereign debt crisis. The recent
channels. Developments in the Franco- election of French President Hollande reduces the
German alliance and Greek elections in June possibility of a unified strategy as he is opposed
will determine the course that the crisis takes. to many crisis policies advocated by Germany. In
Meanwhile negotiations with Iran over its nuclear Greece, it is possible that a government opposed
program will continue, but should talks fail, oil to the terms of the country’s recent bailout will
prices will rise. emerge, which increases the likelihood of a Greek
exit from the European Monetary Union; this
At home, the United States will face increasing means the actual problems and the ability of
uncertainty. Challenges that will come into policymakers to address them are both becoming
focus this fall include: uncertainty dominated by more complicated. Effects of the crisis on the
a presidential election, debt ceiling debate, and U.S. economy will largely be determined by the
2. degree of stress experienced in the financial
sector. CHANGES IN EMPLOYMENT
Change in Employment in Selected Western States
IN SELECTED WESTERN STATES
6.0%
Geopolitical tensions surrounding Iran’s nuclear 4.0%
program will also affect the U.S. Should 2.0%
negotiations with Iran fail, markets will drive
0.0%
oil prices higher. Also worth noting is slowing 2006 2007 2008 2009 2010 2011 2012 YTD CA
AZ
growth in emerging markets, particularly China,
-2.0% CO
NV
the world’s second largest economy. China is
UT
-4.0%
ID
slowing due to woes in its largest export market -6.0%
(Europe), waning effects of fiscal stimulus, and -8.0%
relatively tight monetary policy. Although growth -10.0%
Source: Salt Lake County, Utah
is expected to remain positive, it will not reach
levels experienced over the last several years. The most commonly reported unemployment
This further complicates the global outlook as rate is produced by looking at the number of
the largest economies in the world are unable to people actively seeking work and the total size
drive growth and grapple with unique challenges. of the workforce. Consequently, an improving
economy will bring previously discouraged
The bottom line: until policymakers adequately workers back into the workforce, which can
address challenges, global economic growth will temporarily boost the unemployment rate.
continue to be restrained. Although counterintuitive, in the context of an
economic recovery, a rising unemployment rate
US Outlook can represent improving conditions.
Growth in the United States is expected to
remain sluggish throughout 2012. Gas prices Utah Unemployment - Discouraged Workers
Headline Unemployment Rate & Select Alternative Measures
have likely peaked and will continue grinding 10.0% 9.5% 10.0%
downward, but will remain somewhat elevated, 9.0%
8.3%
8.1%
9.0%
8.0% 8.0%
barring any major shock to the economy.
8.2% 7.6%
7.0% 7.3% 7.0%
However, questions surrounding geopolitical 6.0%
7.0%
6.6%
6.0%
tensions, refining capacity and hurricane season 5.0%
4.9%
5.0%
(threats to supply) could reverse the trend and 4.0%
4.1% 3.5%
4.0%
4.0%
3.1%
cause fuel prices to rise. 3.0%
2.9%
3.5%
3.0%
2.6%
2.0% 2.0%
On a broader level, the first quarter 2012 GDP
1.0% 1.0%
0.0% 0.0%
growth estimate was revised downward from Q4
2009
Q4
2008
Q4
2007
Q4
2008
Q4
2009
Q4
2010
Q4
2011
Q1
2012
2.2% to 1.9% according to the Bureau of Economic U-3, "Headline" Unemployment Rate
Source: US Bureau of Labor Statistics
U-4, Unemployed + Discouraged Workers U-5, Unemployed + Discouraged Workers + Marginally Attached
SOURCE: US Bureau of Labor Statistics2
Analysis. Presently the second quarter appears
Note: Rates are model-based and may vary from other published reports, see http://www.bls.gov/lau/stalt.htm for details.
to be somewhat soft, similar to the first three Over the short-term, Utah will be aided by large
months of 2012. During the last half of the year, investments, both public and private. Notable
accumulating risk including Europe’s debt crisis, public projects underway or set to commence
2012 geopolitical tensions with Iran, and uncertainty
regarding U.S. fiscal policy will restrain growth.
soon include: the rebuilding of I-15 in Utah County,
light and commuter rail expansions, NSA data
Consequently, real GDP growth is expected to center, federal courthouse and rebuilding of Salt
average 2.0% for the year. Lake City International Airport. All together,
these projects represent several billion dollars of
Utah investment. In addition to public investments,
In the face of many challenges, Utah’s economy private sector entities are also investing.
registered solid performance in 2011 and is
expected to outperform national averages again The state’s business friendly environment
in 2012. Job growth at 2.8% across all sectors and workforce are important considerations
is expected, approaching the state’s long-term driving growth, particularly for high value
average of roughly 3%1. However, it should be tech companies. The Association of University
noted that Utah’s unemployment rate will not Technology Managers ranked the University of
necessarily decline with an improving economy. Utah as number one in the U.S. for most tech
3. startups, followed by MIT and BYU rounding out Taxable sales increased by 10.9% in the fourth
the top three. It is no wonder that a developing quarter of 2011 with double digit gains in many
tech corridor extending from southern Salt Lake sectors including motor vehicles and retail sales.
County into Utah County (now referred to by The massive City Creek Center completion earlier
some as “silicon slopes”) is home to some of the this spring brought with it more than 80 retailers
world’s most recognizable names. Firms with and over 500 residential units and is expected
a presence in the area include: eBay, Microsoft, to be a major selling point for both tourism and
Oracle and Twitter, but Adobe is making a hospitality downtown. According to the Salt
particularly significant investment. Adobe Lake City Mayor’s Office, approximately 4,000
is spending $100 million to construct a new jobs were created by the project since it was
280,000 square foot office building, with plans announced in October 2006 and of that initial
to triple its footprint in a new campus located in number, about 2,000 jobs will remain4.
northern Utah County.
Another factor contributing to the county’s
The contrast between economic conditions in ability to grow is the substantial expansion to
Utah and the broader U.S. is clear. Nationally, Utah’s passenger rail system. The Utah Transit
policy paralysis is restraining growth. In Utah, Authority (UTA) has three expansion projects
consistent economic stewardship is fostering currently underway and a fourth announced in
growth. While the state is outperforming Sugar House creating jobs for local construction
national averages and making progress on workers. These projects will give passengers the
many fronts, education continues to be an ability to use affordable public transit from Ogden
area of concern. Leaders must adequately to Provo.
invest in education to ensure the state’s ability
to continue providing businesses of the future
25.0% CHANGE IN HOME VALUES
with an educated workforce. 20.0%
15.0%
Salt Lake County
Percent Change
10.0%
Amid lingering economic concerns and the 5.0%
continuation of turmoil abroad, Salt Lake County 0.0%
is poised to continue growing at a healthy rate -5.0%
in the near-term. Construction and major project -10.0%
completions are strengthening the local economy
-15.0%
and creating needed job growth. County Salt Lake Metro Home
Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012
18.8% 4.2% -5.7% -10.2% -4.8% 0.3%
employment grew at a rate of 2.3% in 2011 and Prices
Utah Home Prices 16.5% 1.8% -10.4% -9.0% -7.4% 3.0%
is estimated to grow at the same rate in 2012,
SOURCE: Federal Housing Finance Agency, 4 Quarter Percent Change
outperforming the national average of 1.4%3.
Salt Lake Non-Farm Employment Housing is one area that has not fully recovered
April 2011 to april 2012
in Salt Lake. Continued low interest rates and
3.9% new lender incentives should stimulate activity.
2012
Government
6.8%
Leisure & Hospitality
According to the Salt Lake Board of Realtors 2012
1.4%
Education & Health Services Housing Forecast, while home sales are projected
4.2%
3.1%
Profesional and Business Services
to rise 15%, home prices are projected to decrease
Financial Activities
1.2% Information between 3% and 5% during 2012. As the year
1.6% Trade, Transportation, Utilities progresses and existing inventory is absorbed,
3.6% Manufacturing
8.5% Mining Loding and Construction
prices should begin to stabilize.
0.0% Other Services
3.4% Total
While local investments in infrastructure and
0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
projects like City Creek Center will stimulate the
SOURCE: US Bureau of Labor Statistics, Preliminary Data for April 2012 Salt Lake County economy in the near-term,
continued global uncertainty and likely election
Exceeding previous projections, non-residential year policy paralysis in the U.S. could slow growth
construction grew approximately 81% in 2011 with in the latter part of 2012.
much of the funding coming from private equity.
4. Historical Vacancy & Unemployment Rates in Salt Lake County
8.0% 25.0%
7.0%
20.0%
6.0%
Unemployment Rate
Unemployment Rate
5.0%
15.0%
Vacancy Rate
4.0%
10.0%
3.0%
2.0%
5.0%
1.0%
0.0% 0.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
Unemployment Rate 5.9% 5.8% 5.1% 4.1% 3.0% 2.7% 3.3% 6.7% 7.3% 6.8% 5.9%
Office Vacancy 19.7% 20.5% 18.9% 12.8% 11.3% 11.7% 13.7% 17.2% 17.1% 15.3% 15.5%
Industrial Vacancy 8.6% 9.9% 8.1% 5.6% 5.9% 6.2% 5.9% 6.8% 6.5% 6.2% 6.4%
Retail Vacancy 7.0% 7.3% 8.0% 7.2% 6.6% 6.2% 7.4% 9.1% 9.4% 9.6% 9.6%
*Preliminary Unemployment rate as of March 2012. All other rates are year-end averages over the 12 month period each year. Vacancy data as of Q1 2012
for Office and Industrial. Retail as of Q4 2011.
Commercial Real Estate & improvement in vacancy will not be maintained.
The Salt Lake Economy Over 900,000 square feet of single and multi-
Economists at CBRE frequently refer to tenant office space will be completed in 2012.
commercial real estate as the ‘economy in a box.’ Additional space from both new construction and
Commercial real estate houses organizations of large users moving to dedicated single-tenant
commerce and by examining the relationship office buildings will heavily influence the market.
between the broader economy and commercial As such, vacancy will edge downward across
real estate, much insight can be gained. In all the metro area and climb in select submarkets,
property types, there is a direct relationship particularly downtown. Lease rates are expected
to macro-economic indicators and the overall to stabilize, with isolated increases as demand
makeup of Salt Lake’s economy. continues to be somewhat subdued and new
supply enters the market.
Office SALT LAKE METRO OFFICE VACANCY
Salt Lake’s office market turned a corner in 2011.
20%
In sectors relating to office demand, job creation
over the 12 months ending in April of 2012 can
15%
be characterized as healthy. Financial services
expanded by 3.1%, while professional and business 10%
services expanded by 4.2% over the same period5.
This is significant due to the fact that sectors 5%
relating to office demand are growing above the
state’s overall long-term average, which is a little 0%
2007 2008 2009 2010 2011 2012 (est)
Vacancy 11.7% 13.7% 17.2% 17.1% 15.3% 15.0%
over 3%6.
2012
SOURCE: CBRE, Q1 2012 Market View
Further bolstering the outlook for office
properties in Salt Lake is a developing tech Industrial
corridor extending from southern Salt Lake Salt Lake’s ability to attract large corporations
County into northern Utah County. The corridor is a significant factor in continued industrial
is home to firms such as eBay, Microsoft, Oracle, market stability. Utah’s growing intermodal
Twitter and a new campus being constructed by freight sector and high truck traffic make it an
Adobe. The area’s growth will also be supported enticing home for many large manufacturers
by a large number of startups and expansion of and distributors. One of Union Pacific’s largest
existing firms. intermodal freight terminals is located in Salt Lake
City and much of its west coast seaport freight
Looking ahead, positive net absorption in the passes through Utah on its way to midwestern
range of 500,000 to 600,000 square feet can and eastern destinations7. Consequently, Utah’s
be expected during 2012. However, 2011’s rate of total rail volume posted major gains over the
5. past two years since its lowest point in 2009. Retail
In addition to rail volume, the Utah Department Indicators that help paint a picture of the
of Transportation boasts, “Utah is already retail market are unemployment, housing, and
the crossroads for long-distance trucking in consumer spending. Currently at 6.0%, Utah’s
western America, having the highest truck traffic unemployment rate is among the lowest in the
percentage (23% of total traffic on Utah highways nation8. While this is still roughly double the
is large trucks) of all 50 states.” Regionally, Salt rates experienced in 2007, the state is headed
Lake continues to maintain one of the lowest in the right direction. With respect to housing,
industrial availability rates. according to the Salt Lake Board of Realtors,
home sales increased 18% in the first quarter of
HISTORICAL INDUSTRIAL AVAILABILITY
2012; on a year-over-year comparison, home sales
20.0% experienced 10 consecutive months of gains.
18.0%
Lastly, consumer spending had a big boost at the
16.0%
14.0% end of 2011 due to increased clothing and motor
12.0% vehicle sales, although this increase in spending
is not expected to maintain itself and is estimated
10.0%
8.0%
6.0% to end the year around 5.0%.
4.0%
2.0%
CHANGE IN SALT LAKE COUNTY TAXABLE SALES
0.0%
2007 2008 2009 2010 2011 Q1 2012
15.0%
Salt Lake City 7.7% 7.5% 9.9% 8.5% 8.8% 9.4%
12.9%
Phoenix 16.2% 17.7% 18.7% 17.7% 15.1% 15.4%
Denver 11.3% 11.0% 9.4% 9.6% 8.7% 8.4%
Las Vegas 9.8% 9.7% 11.9% 13.1% 13.1% 13.2%
National 9.7% 12.1% 13.2% 13.3% 13.7% 13.4% 10.0%
6.4% 6.5%
SOURCE: CBRE, Q1 2012 Data 5.0%
5.0%
3.1%
Construction continues to be a focal point for 0.0%
the Salt Lake industrial market, and projects
currently under construction total approximately
-5.0%
-6.7%
736,000 square feet. Completions are on the
-10.0%
rise with over 733,000 square feet of warehouse/
-9.9%
distribution space completed. Notably, projects -15.0%
2006 2007 2008 2009 2010 2011 2012
that began as multi-tenant developments
SOURCE: Salt Lake County
managed to find large single-user tenants that
require longer leases. For example, Sun Products Current and recently completed construction
preleased the Landmark 7 project and Rockefeller numbers will be very healthy for the coming year,
Building E will be completely preleased in the amounting to roughly 1,000,000 square feet.
coming months by FedEx. Future job growth With its successful completion and opening in
and a stronger industrial employment sector are March, City Creek Center is and will continue to
expected results, as major industrial tenants such be a highlight for Salt Lake retail. The center is
as Boeing, OnTrac and ITT Corporation make filled with more than 80 retailers, 20 of which are
plans to stay in the Salt Lake area. brand new to the Utah market. City Creek is an
SALT LAKE COUNTY INDUSTRIAL CONSTRUCTION
1,800,000
outlier in the current retail environment as it is the
only regional shopping center scheduled to open 2012
in the United States during 2012.
1,600,000
24%
Another project of note is the upcoming
1,400,000
1,200,000 32%
3
2 completion of a new building for sporting
1,000,000
goods giant Scheels. Located in Sandy, the new
800,000 220,000 square feet store is expected to open in
600,000 September of 2012 and will be one of the retailer’s
400,000
largest buildings. Although the economy is still
200,000
in recovery, construction completions of major
retailers is a positive indication of a retail market
0
headed in the right direction.
1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012
SF Under Construction 852,710 1,259,298 1,659,298 1,244,341 736,879
SF Completed 0 0 15,000 925,910 733,388
SOURCE: CBRE
6. Conclusion
As long as major challenges to global growth not resolved before the election, they will need to
can be contained, Utah’s economy will continue be addressed within a period of just weeks before
to perform well and its commercial real estate they take effect.
market will reflect that reality. At the present
time, positive trends are expected to continue While there is much uncertainty, it is becoming
with improvement in all property types. clear that policymakers will not retain the ability
to continue delaying politically difficult decisions.
In 2010, Federal Reserve Chairman, Ben Bernanke, It is often said that leaders “kick the can down
said that the outlook was “unusually uncertain.” the road.” However, the end of the road is
The chairman’s assessment is just as applicable approaching and the cans are piling up. The next
now. As elections and transfers of power are held six to nine months will be critically important for
in critical areas, new and existing leaders will have the global, national and Utah economies.
little time to adjust to altered landscapes before
taking action.
Milestones: The following current or future
Major threats to the global economy such as projects in Salt Lake County and around the state
Europe’s debt crisis, geopolitical tensions in of Utah are significant indicators of both public
the Middle East and U.S. fiscal policy have been and private commitment to continued economic
years in the making. As sustainable solutions are growth:
put off, the timeframe to deal with challenges - City Creek Center
becomes more compressed. In others words, the - Regional Commuter Rail Expansion
margin for error diminishes. - Sugar House Street Car
- New Adobe Campus
European leaders are testing market patience, - NSA project
and the amount of time the market will allow is - Boeing
not certain. Furthermore, it is widely believed - Business Depot Ogden
that Iran’s nuclear program will be vulnerable - Family Dollar Distribution Center (St. George)
only for a short time longer; meaning decisions - Campbell’s Soup Facility
regarding any effective military strike must take - New Federal Courthouse
place soon. In the U.S., if issues surrounding tax - Station Park Farmington Retail & Multifamily
increases, spending cuts and the debt ceiling are - SLC International Airport Rebuild
Accumulation of Risk
2012
7. Salt Lake County Indicator Table
2012 2013
General 2008 2009 2010 2011
(est) (forecast)
US Real GDP (Global Insights/GOBP) -0.3% -3.5% 3.0% 1.7% 2.0% 2.2%
US Producers Durable Equipment (% Change) -4.3% -16.0% 14.6% 9.5% 8.6% 7.0%
US Commercial Structures -4.3% -16.0% 14.6% 12.5% 7.2% 1.8%
US Unemployment (Global Insights/GOBP) 5.8% 9.3% 9.6% 9.0% 8.2% 7.9%
US Employment (Global Insights/GOBP) -0.6% -4.4% -0.7% 1.2% 1.6% 1.7%
Utah Unemployment 3.7% 7.1% 8.0% 6.7% 6.7% 6.2%
Utah Employment 0.1% 5.1% -0.6% 2.3% 2.8% 2.8%
Utah Commercial Structures -6.4% -45.1% -12.3% 18.9% 15.8% 18.2%
SL Co. Population 1,007,205 1,018,737 1,033,299 1,048,985 1,063,700 1,078,400
Net Migration -2,642 -2,256 1,624 3,250 1,800 1,800
SL Co. Wages & Salaries ($B) 25.1 24.44 24.83 25.91 27.32 28.78
SL Co. Wages & Salaries (% Change) 2.2% -2.6% 1.6% 4.3% 4.3% 5.8%
SL Co. Employment (000) 602.9 573.6 571.5 584.6 597.2 615.7
SL Co. Employment (% Change) 0.3% -4.9% -0.4% 2.3% 2.3% 3.1%
SL Co. Unemployment Rate (Dec.) 3.3% 6.7% 7.3% 6.8% 6.7% 6.2%
2012 2013
Non-Farm Employment - Salt Lake County 2008 2009 2010 2011
(est) (forecast)
TOTAL (of all employment sectors) 602,859 573,414 571,290 583,066 597,011 612,552
Manufacturing (31) 55,323 50,360 50,231 51,178 52,595 54,063
Wholesale trade (42) 30,824 29,033 28,415 29,975 30,945 32,048
Retail trade (44) 65,866 62,007 61,543 60,871 60,521 60,017
Transportation and warehousing (48) 27,678 25,451 24,915 26,018 26,682 27,412
Information (51) 17,214 16,545 16,296 16,249 16,430 16,118
Finance and insurance (52) 39,560 38,345 36,497 37,121 38,088 38,980
Real estate and rental and leasing (53) 9,876 9,156 8,806 9,016 9,147 92,248
Professional and technical services (54) 39,136 37,184 36,898 38,047 39,982 41,940
Management of companies and enterprises (55) 16,073 15,398 15,334 15,814 15,657 15,663
2012 2013
Commercial Real Estate - Salt Lake County 2008 2009 2010 2011
(est) (forecast)
Industrial Availability (% Available) 7.5% 9.9% 8.5% 8.8% 9.0% 9.0% 2012
Office Vacancy (% Vacant) 13.7% 17.2% 17.1% 15.3% 15.0% 13.6%
Completed Construction: Industrial
1,547,260 2,586,961 128,797 925,910 1,470,267 700,000
(Square Feet, Single and Multi-Tenant properties)
Completed Construction: Office
1,212,153 562,471 349,500 0 916,980 230,000
(Square Feet, Single and Multi-Tenant properties)
SL Co. New Residential Construction Values (% Change) -28.2% 10.4% -32.7% 20.8% 11.2% 35%
SL Co. Metro Average Home Price (% Change ) FHFA,
-1.0% -7.6% -6.7% -5.1% N/A N/A
4 qtr. avg.
SL Co. Number of Homes Sold
8,518 8,903 8,553 7,028 N/A N/A
(Salt Lake Board of Realtors)
2012 2013
Consumer Indicators 2008 2009 2010 2011
(est) (forecast)
SL Co. Taxable Sales -- Baseline (% Change) -6.7% -9.9% 3.1% 6.5% 5.0% 6.0%
SL Co. Retail Sales -- Baseline (% Change) -5.1% -10.9% 3.7% 6.9% 3.7% 4.4%
