At Least 2 More Years until Full Economic Recovery for Arizona

W. P. Carey School of Business May 8, 2014

Even though Arizona’s economy hit bottom four years ago, we’re still at least two years away from a full recovery. That’s according to experts from the W. P. Carey School of Business at Arizona State University, who delivered their midyear forecasts today at the school’s annual Economic Outlook Luncheon.

Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School, says Arizona was hit earlier and harder by the economic crisis than other states. It’s taking longer to come back. “While the United States overall has already regained 99 percent of the jobs it lost in the recession, Arizona has only regained 56 percent of its 312,600 jobs lost in the downturn,” explains McPheters. “We’ve seen a good comeback, so far, in finance, food service and administrative support, with healthcare also appearing almost recession-resistant. However, our construction, manufacturing, government and retail jobs still have a long way to go.”

Arizona employment did go up 2.1 percent over the course of 2013, which gave it a No. 10 ranking among states for job growth. Among major metropolitan areas/cities, Phoenix placed No. 7.

McPheters does think the long-term outlook for Arizona is positive, announcing these numbers in major categories:

  • Employment – Went up 2.1 percent in 2013; expected to go up 2.4 percent in 2014; expected to go up 2.5 percent in 2015
  • Personal Income – Went up 2.7 percent in 2013; expected to go up 4 percent in 2014; expected to go up 4.5 percent in 2015
  • Population – Was up 1.2 percent in 2013; expected to go up 1.4 percent in 2014; expected to go up 1.5 percent in 2015

The state ranked No. 18 for personal-income growth and No. 8 for population growth in 2013. Arizona came in No. 6 for domestic migration – people moving here from other states. That’s actually a drop from No. 3 in 2012. McPheters adds the predicted 1.4-percent population growth this year will not be enough for a robust recovery.

“Arizona is recovering better than most states, but this is our eighth year of subpar growth, and we’re not out of the woods yet,” says McPheters. “I expect it to take two to three more years for full economic recovery in the state. Ineffective growth policies at the national level represent some of the risk.

Professor Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School of Business, covered the national economy. He showed the United States is recovering from this downturn much more slowly than from past big economic drops. We’re seeing slow rebounds in employment, real gross domestic product (GDP), and personal consumption spending. Americans are managing to keep both their household debt and the government’s national debt down better, but the reduced spending also limits the pace of the national recovery.

Hoffman predicts these national numbers:

  • Real GDP – Up 2.4 percent in 2014; up 3 percent in 2015; up 3.4 percent in 2016
  • Inflation – Up 1.8 percent in 2014; up 1.6 percent in 2015; up 1.5 percent in 2016
  • Unemployment – 6.5 percent in 2014, 6.1 percent in 2015, 5.6 percent in 2016

“There’s a 30-percent chance the nation could see a good bounce up to 3-percent GDP growth soon, if inflation remains low, corporate profits and home prices keep rising, and trade keeps improving, including the Eurozone recovery,” explains Hoffman. “However, there’s also a 20-percent chance the nation’s economy could slow down even more, if we see more taxes and regulation, a housing-market stall, a Wall Street correction, more trouble stemming from Putin’s actions, or some type of natural disaster. This all strongly affects Arizona because we’re also depending on $65 billion of federal spending here.”

Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School, talked about the housing market. While we’ve seen a good housing recovery in the Phoenix area since mid-2011, Orr says demand has really slowed down lately. Home-sales activity recently hit its second-lowest level since1999, and prices have mostly flattened out after rising 84 percent from the bottom median single-family-home sales price in May 2011.

“Institutional investors have largely moved on to other housing markets in the country with more foreclosures and bigger bargains,” says Orr. “Other buyers aren’t rushing in to fill the void. U.S. household formation is low due to many factors, including unemployment, falling birth rates, lower net migration and greater home-sharing, especially among Millennials.”

Orr adds many lenders — hurting for business, with mortgage applications at their lowest level since 2000 — may soon become more forgiving, accepting lower credit scores for loans. We may also see the first major waves of consumers who lost their homes through foreclosure during the recession come back into the market, starting next year. Those who lost their homes at the beginning of the downturn will have spent their required seven years in the “penalty box” and will reemerge from 2015 to 2018.

Meantime, renting remains extremely popular in the Phoenix area. Demand for single-family rental homes is so strong that there’s less than a one-month supply available right now. The first quarter of 2014 was also the second-highest quarter for multi-family construction permits here in 12 years.

Today’s Economic Outlook Luncheon was held at the Arizona Biltmore. The Economic Club of Phoenix hosts this event every spring, as one of its opportunities for Valley business leaders and others to network and engage. The club was founded by a group of prominent business executives called the Dean’s Council, in conjunction with the W. P. Carey School of Business.

Today’s presentations will be posted at knowWPCarey, the business school’s online resource, at The W. P. Carey School of Business at Arizona State University is one of the top-ranked and largest business schools in the United States. The school is internationally regarded for its research productivity and its distinguished faculty members, including a Nobel Prize winner. Students come from about 100 countries and include about 50 National Merit Scholars.

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