Tag Archives: economic outlook center

Arizona Economic Forecast 2011

Arizona’s Economic Recovery Remains Sluggish, But The Outlook Is Brighter

While the nation’s economy showed some significant signs of life in the first half of 2011, the state’s economy continues to bounce along the bottom. But forecasters at the Economic Club of Phoenix’s Annual Economic Outlook 2011 luncheon on May 5, said they are looking at a comparably stronger finish to the year, with growth continuing at a healthier pace leading up to 2015.

“Arizona job growth is still very weak. For the first quarter, the Arizona economy has added only 4,100 jobs over the first quarter of last year, so growth is well below one half of one percent,” said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business in an interview before the luncheon. “The summer is not usually a strong period for job growth in Arizona, in fact the economy basically goes nearly flat. We are currently forecasting 1 percent job growth, or an increase of about 24,000 new jobs for the year.”

McPheters said that if Arizona has any hope of generating 1 percent job growth, the state and nation’s economies needed to get moving in the second half of the year.

“Current national forecasts are calling for improved job growth this year, but it will also tend to be weighted to the second half,” he said. “So, economy watchers have their fingers crossed that things will improve after summer.”

According McPheters’ forecast, in 2011 the nation will record 650,00 housing starts, an inflation rate of 2.6 percent, 2 million jobs created and GDP growth of 3.1 percent.

Here in Arizona, where the state once led national economic recoveries, it is now relying on growth in other parts of the country to rev up its financial engine.

“Arizona population growth depends as much on events outside Arizona as within the state,” McPheters said. “If Arizona job growth improves (and it has a long way to go), this would act as a ‘draw.’ But people have trouble moving if they cannot sell their house or if they cannot get the price they need. That is why we expect to see more young people move to the state, they will rent instead of buy and are less locked into a particular career path.”

This year, McPheters forecasts that Arizona job growth will only be 1 percent, with personal income rising 4 percent. Meanwhile, single-family home permits are expected to rise by just 10 percent and the population will increase by 1.5 percent. The forecast is only slightly better in 2012, with employment expected to be up 2 percent, a 30 percent increase in single-family home permits and a 1.8 percent rise in the number of people moving into the state.

Arizona Economic Forecast 2011

However, McPheters said, the state’s economy will continue an upward trajectory through 2015, with personal income rising 6.5 percent, the rate of job growth hitting 3.5 percent and a population increase of 2.5 percent. Single-family housing permits are expected to increase by 50 percent in 2013 (reflecting the current stasis in the residential home industry) before leveling off to a 20 percent growth rate in 2015.

Arizona Economic Forecast, Far Forecast, Arizona Recovers

In raw numbers, McPheters forecasts that between 2011 and 2015 the state will create 300,00 jobs, issue 112,500 single-family home permits, and see 665,000 new residents.

Arizona Forecast, Annual numberic change in employment

The state’s ongoing budget crisis has been one of the major factors in Arizona’s slow economic recovery.

“The effect of budget cut backs has been felt sharply by local governments,” McPheters said. “Their employment is down by 5,000 workers and is expected to decline more in the months ahead. Typically, we look to state and local government as a source of stability, not necessarily a growth sector. But current budget problems have changed all that.”

Not too long ago, Arizona enjoyed a substantial budget surplus. So, where did all the money go? Dennis Hoffman, director of the L. William Seidman Research Institute, succinctly illustrated the devastating effect the economic crash had on Arizona residents and, in turn, the state’s revenue.

  • The number of millionaires in Arizona dropped from 6,000 in 2006 to about 2,500 in 2009.
  • Taxes paid by millionaires dropped from more than $800 million in 2006 to under $300 million in 2009.
  • In 2006, the state’s 70,000 tax filers with incomes of $200,000 and above paid half of all taxes or $1.6 billion. In 2009, that same group of taxpayers shrank to under 50,000, paying about $550 million — less than 25 percent of the total taxes paid.
  • In addition, the state reduced tax rates by 10 percent after 2006.

 

When adjusted for inflation, the average amount of income tax collected from an Arizona resident dropped from about $1,650 in 2005 to about $1,050 in 2009. But even as fewer dollars come in, the state’s expenditures have remained relatively constant.

“Right now, the state’s expenditures represent about $425 per $10,000 of personal income in Arizona,” Hoff man said at the luncheon. “However, the state is only collecting about $300 per $10,000 of personal income. Obviously, that’s not sustainable.”

Hoffman did sound one bright note.

“The last couple of months have seen considerably robust retail sales, especially in the area of durable goods,” he said, adding that improved consumer confidence is fueling the recent growth.

That will certainly help the state government as it grapples with its budget crisis, but Hoffman also pointed out that the temporary sales tax increase will expire just as the economy is expanding and putting more pressure on public sector services. He added that state policymakers will face a “balancing act” during much of the next five years — especially in 2014. Part of the solution, Hoffman said, will involve streamlining the state’s expenses and raising taxes.

“Government just simply has to be more efficient in it’s expenditures,” he said. “(And) we have to ask everyone to contribute according to their means.”

To read more, visit knowledge.wpcarey.asu.edu.

Economic forecast

Economic Forecast Calls For Another Year Of Slow Recovery In 2011

Arizona’s economic recovery will continue to move at a glacial speed in 2011 — but at least it’s moving. The coming new year will see an increase in job creation, a rise in population and even a modest increase in single-family home permits. However, the consensus among economists at today’s 47th Annual Economic Forecast Luncheon, co-sponsored by the Department of Economics at Arizona State University’s W. P. Carey School of Business and JPMorgan Chase, is that Arizona’s recovery will continue to be far less robust than economic rebounds of the past.

“Arizona was much harder hit in this recession than the rest of the country,” said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W.P. Carey School of Business in an interview before the luncheon. “Overall the U.S. lost about 6 percent of jobs, while Arizona lost 11 percent of jobs and the Greater Phoenix area lost 12 percent of jobs. So, by that measure, Arizona’s problems were twice as large as the average state.”

According to McPheters, hampering Arizona’s growth in 2010 has been:

  • Consumers’ focusing on paying off debt rather than spending
  • Corporate profits improving but hiring deferred
  • The expected resurgence in single-family housing did not develop
  • Home prices have not yet stabilized
  • Small businesses facing tight credit conditions and weak demand
  • Stimulus programs ending


Job Growth

In terms of job creation, Arizona employment is expected to increase by 47,800 jobs in 2011, following three straight years of losses. The projected rate of growth for 2011 is 2 percent. That’s about double the rate of employment growth anticipated for the nation as a whole, but well below the state’s long-term average of 3.7 percent.

In addition, the state’s unemployment rate will remain above the 9 percent mark throughout 2011.

Still, even with Arizona being at ground zero of the burst housing bubble that dragged the rest of the nation into recession, the employment situation in the state has shown a marked improvement.

“For all of 2009, at the deepest point of the recession, only Nevada had weaker labor market conditions, and Arizona ranked 49th among the states in job growth (or losses),” McPheters said. “But in just the past couple of months, Arizona’s overall position is improving. The state ranked 12th based on October job creation in the 50 states. And in September, Phoenix added 27,400 jobs compared to the year before. Phoenix is the now the second-fastest growing metro area.”

Real Estate

The real estate and housing markets in Arizona remain weak in 2010, with single-family housing permits expected to be down 5 percent, marking a fifth consecutive year of declines. Single-family housing permits are expected to finally improve next year, with an anticipated increase of 25 percent. However, that increase stems from a base of 12,000 units in 2010, totaling just an additional 3,000 units. Compare that paltry number to the 80,000 annual permits handed out at the peak of the housing boom.

“Last year at this time, there was optimism about Arizona housing, but the growth never came,” McPheters said. “It looks like 2010 single-family building won’t even reach the level of 2009, which was the worst year of the recession. So most analysts are cautious right now about housing.”

One of those cautious analysts is Elliott Pollack, CEO of Elliott D. Pollack & Company in Scottsdale.

“The good news is that the worst is over, but it’s going to be a painfully slow recovery,” Pollack said in an interview before the forecast luncheon.

Pollack lists the following as reasons why the state’s housing market is showing only the slightest signs of improvement:

  • Tougher underwriting standards on mortgages
  • Up to 51 percent of the homes in Arizona have negative equity
  • Previous loan modifications have mostly failed
  • Foreclosures remain high
  • Option ARM resets do not peak until next year