Breakfast With A Side Of … Immigration

Jim Rounds

Demographic trends tell Arizona’s evolving story

Arizona’s story has always been closely tied with the people that come here to make it their home. This story continues to be a dynamic one as shown by Jim Rounds, senior vice president with Scottsdale economics firm Elliott D. Pollack & Company, at the Scottsdale Area Chamber’s Breakfast With A Side Of … Immigration. Held on Thurs., Feb. 26, at the Double Tree by Hilton Paradise Valley in Scottsdale, and sponsored by APS, Rounds discussed the impacts of demographic trends on the state’s economy.

Arizona’s climb out of the recession has moved past a brutal struggle to one of good news-bad news.

Speaking to the chamber ahead of the event, Rounds said Arizona continued to grow by as much as 2 percent in 2014, and the next few years look like that pace will increase.

“I’m optimistic,” said Rounds. “We have some things to work through first — people are still struggling to put together a down payment on a home; credit scores are still too low to qualify for mortgages; and others may be upside-down in their mortgage on a house in another state.”

According to the U.S. Bureau of Labor Statistics, as cited by Rounds, Arizona returned to pre-recession levels for domestic migration — those moving to Arizona from another state — in 2014 and was ranked third in the country.

Foreign immigration, however, is another story.

Arizona is currently ranked 17th in migration of people from another country. Prior to the recession, the Copper State was ranked seventh.

“Is this due still due to the global economy or is some of this because of controversial policies in recent years?” he asked.

Job growth in the state continues to be an intriguing chapter in Arizona’s story, said Rounds. At the height of the recent economy, Arizona ranked second in job growth in 2006, according to BLS statistics. In 2010, we dropped to nearly dead last — 49th. In 2013-2014, job growth has increased dramatically to 13th and growing.

In fact, according to Rounds’s research, Arizona gained nearly 75 percent of the jobs we lost since October 2007. But again, we still need to create nearly 82,000 more jobs to reach pre-recession levels.

“Many of our immigrants come from Mexico, and typically start in lower paying jobs in construction and retail. The downturn hit these industries particularly hard. Employers no longer needed immigrant labor,” said Rounds. “As we grow again and the economy gets better, are we going to have a shortage? I see it working out as employers pay a little more and the jobs get filled.”

This might be a long, slow climb; Arizona’s construction sector is still down by some 123,000 jobs — or 91 percent — since its peak in 2006.

Indeed, Rounds’s research of BLS data shows most sectors still need to recover jobs. However, it is interesting to note that the Leisure/Hospitality and the Financial Services sectors — arguably two of hardest hit sectors in Arizona during the recession — have not only recovered jobs, but have actually added them. The state’s hospitality sector alone has grown 143 percent since the depths of the recession.

Construction, however, may be a different story.

“Construction may take a while to get back to the previous peak because it was so inflated, but it will still be an important component of our economy. Other industries may have a different fate; manufacturing will not get back to the previous peaks for the foreseeable future,” said Rounds.

Taking a closer look at office and industrial space vacancies shows trends that may have as much to do with gaining greater efficiencies through technology and telecommuting — and therefore less space requirements — as it does a healing local economy.

“We simply overbuilt, much like the housing issue,” said Rounds. “And, during the downturn, businesses also decided they could get by with less space. Less will simply be built until we reach equilibrium again.”

In 2007, office space in Arizona held about 11 percent vacancy. Contrast that to the height of the recession in 2010 when we had a 26 percent vacancy rate. Today, vacancy rates are estimated to be about 21 percent. Industrial space dropped from 16 percent during the recession to slightly more than 11 percent by the end of 2013.

“Our particular economic configuration matched up poorly with the last economic downturn, so much of our recovery depends on the national economy and is beyond our control,” said Rounds. “Still, we can do better promoting our state. The combined efforts of business and tourism working together to promote the Super Bowl is a perfect example. We need to do more of this.”