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Deloitte Report Reveals Mid-Market Companies Expect U.S. Economic Growth

Experts: 2 more years until full economic recovery in Arizona

We can expect our economic recovery to take about another two years in Arizona. That’s what experts said today at the 51st annual Economic Forecast Luncheon co-sponsored by Arizona State University’s W. P. Carey School of Business and JPMorgan Chase.

About 750 people attended the event at the Phoenix Convention Center. Key experts delivered a comprehensive overview of what’s happening in the state and national economies, as well as the stock market and housing market. One main message was that Arizona is now growing at a faster rate than the nation, but we still have some distance to go.

“As of May, the United States finished gaining back 100 percent of its jobs lost in the recession, but in Arizona alone, we’re only 69 percent of the way there,” explained Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “We expect to regain that last 96,400 jobs in the next year and a half.”

So far this year, Arizona has experienced 2-percent job growth, while our state’s 30-year average is a much higher 4.2 percent. Still, this rate was good enough to rank Arizona as the No. 12 state for job growth as of October. Arizona ranked No. 13 in personal-income growth by midyear. McPheters believes the state will speed up from here.

Among his Arizona predictions for 2015:
• Employment growth could rise from an expected 2.2 percent this year to 2.5 percent next year.
• Personal-income growth could jump from 4 percent this year to 4.5 percent in 2015.
• Population growth could go up from 1.4 percent in 2014 to 1.5 percent next year.

McPheters added Arizona is doing particularly well in creating jobs in finance/insurance and health care. The state is lagging in manufacturing and construction. Arizona unemployment has dropped from 7.8 percent last year to 6.8 percent this year. However, we continue to recover much more slowly than from past economic downturns, and we continue to face risks from ineffective growth policies at the national level.

John Lonski, chief capital markets economist of Moody’s Analytics, addressed the national economy by saying that we can expect more subpar growth in 2015.

“We expect U.S. real GDP (gross domestic product) growth to rise from an expected 2.2 percent this year to about 2.8 percent next year,” said Lonski. “We also anticipate the national unemployment rate may drop from 5.8 percent this October to 5.4 percent by the end of 2015.”

In addition, Lonski predicts U.S. wage and salary income should grow by about 4.5 percent next year. He believes industrial capacity will be more fully utilized. He said the housing collapse, tightening of fiscal policy, and insufficient new product development have been contributing to America’s economic struggle. However, he expects the next major wave of technological innovation to supply stronger-than-expected growth, whether it’s self-driving autos or robotics.

“We’re also experiencing some big changes because of a population shift,” Lonski added. “Only about 1.5 percent of the jobs added post-recession have gone to those ages 16 to 54, while those ages 55 and older gained 20.9 percent. This shift has prompted less spending and more saving, especially by those closer to retirement.”

Lonski also expects the budget deficit to go up, after bottoming out at 2.6 percent of GDP in 2015. That’s because of increased spending on retiring baby boomers, as well as the still-unknown costs of the Affordable Care Act. Decreased defense spending should moderate some of the increases.

James Glassman, managing director and senior economist for JPMorgan Chase & Co., covered the financial markets. He said that, despite the recent rise in stock prices, they are still fairly valued. He added household net worth is back in record territory.

“Credit conditions are improving, and rising vehicle sales prove it,” said Glassman. “Also, we’re seeing some improvements in the housing industry, since builders addressed their previous speculative overbuilding by underbuilding in recent years. Rising home prices are helping to drain the number of ‘underwater’ mortgages.”

Glassman notes the energy sector is also humming along. He expects interest rates to go up next year as the economy continues to improve.

Elliott D. Pollack, chief executive officer of Scottsdale-based economic consulting firm Elliott D. Pollack and Company, covered the Arizona housing market. He repeated that the state has recently experienced a significant slowdown in population flows and only a modest recovery from the sharp downturn in our housing market.

Pollack said there are a few positives, such as slow acceleration of the local economy, decent home affordability, low mortgage rates, a slight loosening of lending standards, and the movement of many all-cash investors to other bargain areas of the country. These factors create more opportunity for local buyers who need financing.

“However, we still see several negatives that outweigh those positives, including relatively sluggish employment growth, fewer people moving, millennials delaying home purchases, many people still waiting out their required seven years in the credit ‘penalty box’ after foreclosures, and overall difficulty in getting home loans,” explained Pollack. “Full recovery is still years away.”

Pollack said more people who have been renting may jump back into the housing market over the next several years as conditions improve. Meantime, apartment construction is up. Pollack believes the Valley won’t see any significant office construction – except in select submarkets like Tempe – until at least 2017.

More details and analysis from the event, including the presentation slides, are available from the business school’s “Research and Ideas” website at research.wpcarey.asu.edu.

economy

Arizona Could Hit Full Economic Recovery in 3 Years

We’re finally on the path to full economic recovery, and Arizona may get there in about three years. That’s the main message from experts who spoke today at the 49th Annual Economic Forecast Luncheon co-sponsored by Arizona State University’s W. P. Carey School of Business and JPMorgan Chase.

About 1,000 people attended the event at the Phoenix Convention Center, where economists painted a generally brighter picture for 2013.

“As of September, Arizona ranked fifth among states for job growth, and the Phoenix area was fourth among large metropolitan areas,” said Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “Arizona is expected to add 60,000 jobs in 2013, led by professional and business services, retail, hospitality and health care. We should finally dip below 8-percent unemployment in 2013 — down to 7.6 percent.”

McPheters added, as long as the national economy doesn’t drag us down, Arizona may see 2.5-percent growth in its employment rate next year. The state had 2-percent growth this year. Despite the jump, Arizona has gained back less than a third of the jobs it lost during the recession. McPheters believes it will take another three years to return to pre-recession employment levels.

In 2013, McPheters expects improved 5-percent growth in personal income, up from just 4 percent this year. He projects retail sales will go up 6 percent, from 5 percent this year. He expects Arizona’s population to rise 1.5 percent, and he believes single-family housing permits will shoot up a whopping 50 percent, with the local housing market now on the mend.

Both McPheters and Beth Ann Bovino, deputy chief economist at Standard & Poor’s, hinged their forecasts on whether the national economy can really pull forward; otherwise, Arizona will go down, too. The biggest question out there is whether Congress can avoid the “fiscal cliff” – where automatic spending cuts would kick in, just as various tax cuts expire. Bovino says that could plunge the United States back into recession and push national unemployment back above 9 percent by the end of the year.

“If we can avoid the fiscal cliff, then it looks like the economy could finally be in a self-sustaining recovery,” said Bovino. “We expect this year’s gross domestic product (GDP) to hit 2.1 percent, stronger than previously projected. For 2013, we’re looking at about 2.3 percent. Reports also show a stronger jobs market and signs that households are willing to buy big items, such as cars and homes.”

Bovino adds the U.S. unemployment rate was at 7.9 percent in October, and she sees signs more people are joining the workforce and getting jobs. However, she says the labor participation rate is still near a 30-year low, meaning more people will still be coming back to the workforce to look for jobs, keeping the unemployment rate low for a quite a while. Despite this, Bovino expects the national unemployment rate to drop to 7.6 percent next year.

She also has a good outlook for the national housing market, with housing starts already up 45 percent this September over last September. Bovino referenced a report that 1.3 million homes rose above water – with the value going higher than what was owed – in the first half of this year alone. She expects residential construction to go up almost 19 percent in 2013.

In the financial sector, Anthony Chan, chief economist for private wealth management at JPMorgan Chase & Co., says corporations remain flush with cash. They’re waiting for some clarity on where the market will go as a result of the fiscal-cliff situation and other factors.

“U.S. corporations are reluctant to go through global mergers and acquisitions or make big investments until they have a clearer picture,” said Chan. “Corporations are keeping high cash balances, in order to deal with the uncertainty. They’re making near-record profits in some cases, and many values on the stock market look good. However, everyone’s waiting to see what will happen.”

He said high-yield investments, such as bonds, and gold remain relatively attractive. The U.S. dollar keeps falling against currencies from emerging markets, as monetary agencies work through different strategies of dealing with the rough economy.

In the local housing market, Elliott D. Pollack, chief executive officer of Scottsdale-based economic and real estate consulting firm Elliott D. Pollack and Company, also drew some conclusions.

“Even though about 40 percent of Arizona homeowners are underwater on their mortgages, we’re starting to see a recovery,” said Pollack. “The single-family-home and apartment markets look great. Industrial real estate has improved quite a bit. Only office and retail have quite a way to go.”

Pollack adds new residential foreclosure notices are down almost 70 percent from the peak in 2008. Phoenix-area home prices are up more than 35 percent over last year. New-home sales are also doing well, with 67 percent of the local subdivisions active today projected to be sold out in less than a year. Builders are going to have to work to meet the demand, with less land and labor available.

Pollack sees a strong rental presence, with about 22 percent of local single-family homes being used as rentals right now. That’s up from less than 12 percent just a decade ago. Landlords appear to be buying up many single-family homes, and more people are moving to the area.

“In the absence of a fiscal cliff, things should continue to improve over the next several years,” said Pollack. “By 2015, things should be normalized. As I like to say, we’re only one decent population-flow year away from the issue being resolved.”

More details and analysis from the event, including the presentation slides, are available from knowWPCarey, the business school’s online resource and newsletter, at http://knowwpcarey.com.

economy

2013 Economic Forecasts for U.S. & Arizona

Arizona’s economy improved somewhat this year, but what can we expect in 2013? Top experts on the U.S. and Arizona economies will deliver their forecasts for the state, nation, stock market and housing market at the Valley’s largest and most trusted economic-forecasting event on Dec. 5.

The 49th Annual Economic Forecast Luncheon is co-sponsored by the Department of Economics at Arizona State University’s W. P. Carey School of Business and JPMorgan Chase. About 1,000 people are expected to attend the event at the Phoenix Convention Center.

“Arizona’s economic forecasters are patting themselves on the back, since their projections made a year ago appear to be accurate for 2012; the state seems certain to record about 2-percent job growth, and we are seeing the beginning of a housing comeback,” says Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “However, 2013 is a different story. A huge cloud of uncertainty is caused, not only by questions about what the next Congress will do, but also about how the overall U.S. economy will react to recession in Europe and slower growth in China. Though the national economy always has some impact on Arizona, until housing and population growth really pick up, the state seems destined to closely follow the national business cycle. If the U.S. economy contracts, then Arizona’s economy will, too. That’s the major risk we’re watching.”

Presentations will include forecasts on:

* Arizona and the regional economy from McPheters, who is also editor of the prestigious Arizona and Western Blue Chip Economic Forecast publications.
* The U.S. economy from Beth Ann Bovino, deputy chief economist at Standard & Poor’s, a widely quoted media expert with two decades of financial experience, including a position at the Federal Reserve.
* The financial sector from Anthony Chan, chief economist for private wealth management at JPMorgan Chase & Co., who served as an economist at the Federal Reserve Bank of New York, appears monthly on CNBC and is a member of the Reuters, Bloomberg and Dow Jones weekly economic indicator panels.
* Real estate and construction from Elliott D. Pollack, chief executive officer of Elliott D. Pollack and Company, a highly regarded Scottsdale-based economic and real estate consulting firm.

The 49th Annual Economic Forecast Luncheon will be held in the Phoenix Convention Center’s West Ballroom on Wednesday, Dec. 5 from 11:15 a.m. to 1:30 p.m. Admission is $90 per person. Proceeds are used to support student scholarships, faculty research, and other academic and professional activities in the Department of Economics at the W. P. Carey School of Business.

For more information, including registration details, go to www.wpcarey.asu.edu/efl or call (480) 965-3531.