Arizona Is Losing Economic Grounds To Other Southwestern States

Economy | 1 Jul, 2008 |

Back of the Pack

Arizona is losing economic ground to other Southwestern states

By Tom Ellis

It’s no secret — Arizona’s economy has stumbled. Even so, it must still be a shining star of the Southwest, right? Well, no. Two leading Arizona economists have rather unflattering comments about Arizona’s economy as it stacks up against other Southwestern states.

“Arizona is not only one of the weaker states in the Southwest, it is one of the weaker states in the country right now,” says Lee McPheters, economics professor at the W.P. Carey School of Business at Arizona State University.

According to Marshall Vest, an economist at the University of Arizona’s Eller College of Management, Arizona has the dubious distinction of leading the nation into recession.

“Normally, the Arizona economy lags behind,” Vest says. “The national economy enters recession and then a few months later, the Arizona economy also tops out. But this time around, it looks like the nation’s economy peaked in December of last year while Arizona peaked in August. We are leading.”

But Arizona may not be alone. Vest says it’s possible Nevada’s economy crested a couple months before Arizona. Thus, two Southwestern states likely are marching the U.S. into recession, he says. In comparison, other states in the Southwest — such as Colorado, New Mexico and Utah — are doing relatively better. Texas is doing quite well, the economists say.

McPheters and Vest blame the weak Arizona and Nevada economies on housing.

“The states that have suffered the most were the states where the housing bubble got inflated the most,” Vest says. “The run-up in housing prices started in California and then moved east to Las Vegas, then Phoenix, then Tucson and it kept going east.”

In Nevada and Arizona, the construction sector and other related industries were dragged down after housing popped, Vest says. However, Colorado and Utah were not as affected by the depressed housing market, and Texas had no housing bubble at all, he notes.

According to the U.S. Department of Commerce’s Bureau of Economic Analysis, Arizona ranked 51st among all states and the District of Columbia for per capita income growth in 2007. Nevada was 48th, Colorado 46th, New Mexico 25th, Texas 16th and Utah seventh.

The Western Blue Chip Economic Forecast, published by ASU’s school of business, tracks economic activity in 12 Western states. According to the May edition, Nevada ranked 11th for wage-and-salary employment growth in 2007. Arizona was 10th, New Mexico ninth, Colorado seventh, Texas third and Utah first.

And it gets worse.

“Arizona retail sales have been very surprisingly weak. That’s all you can say about it,” McPheters says.

Retail sales were significantly stronger in 2007 in Colorado, Utah and Texas. However, Nevada, Arizona and Utah led Southwestern states in population growth last year.

According to contributing writers for the Blue Chip, Colorado is in better shape than it was in the last recession, and Texas may be better positioned than any other state to weather the current economic downturn.

Economic development experts are more upbeat about Arizona’s economic standings in the Southwest, and they praise the efforts of various organizations to stimulate business growth.

“I think Arizona stacks up pretty well,” says Barry Broome, president of the Greater Phoenix Economic Council. “We have dramatically improved our competitive position the last two to three years. California is the technology giant. Utah and Colorado have built technology corridors. But if you look at momentum, Arizona is stronger than the other Southwestern states.”

Broome commends Arizona’s commitment to public infrastructure, but he says it needs to attract more capital and diversify beyond its dependency on construction.

Arizona’s economy is more volatile and cyclical than other Southwestern states because it is driven by population growth, housing and construction, says Laura Shaw, senior vice president of corporate and community affairs for Tucson Regional Economic Opportunities (TREO). However, she says Southern Arizona is growing its bioscience sector along with Phoenix, and TREO has a long-term economic development strategy that focuses on educational excellence, livable communities, collaboration between public and private sectors, high-skill and high-wage jobs, and urban development.July Cover 2008

Bruce Coomer, executive director of the Arizona Association for Economic Development, says economic development will play a critical role in Arizona’s eventual recovery. With that in mind, he worries about how the state Legislature is addressing Arizona’s budget deficit.

“To solve that, they are cutting programs here, there and everywhere, and some of them being considered are economic development programs,” Coomer says. “Those are the programs that could be a vehicle to help Arizona end the downturn early, because the engine to bringing back a solid, thriving economy is high-wage jobs.”

According to Coomer, the Arizona Department of Commerce’s business attraction group may be dissolved, and some legislators want to eliminate the department entirely.

“(The department does) an excellent job, but they are underfunded and understaffed,” he says. “Doing away with the department would be a huge mistake.”

AZ Business Magazine July 2008 |
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