by Betty Beard – May. 8
The Arizona Republic
As the nation goes, so goes Arizona.
The state’s rebound from the depths of recession is fundamentally bound to the recovery of the U.S. economy as a whole, according to Arizona State University economists.
And so far this year, companies are on a hiring spree, adding more than 200,000 U.S. jobs for each of the past three months. And when more people are employed, and the stock market is bullish, people spend more. As a result, company earnings grow, leading to more hiring and then more spending.
In Arizona, the national outlook is reflected in monthly economic reports.
Retail sales are rising. Jobs are growing, though barely. Foreclosures and bankruptcies continue to fall. And falling housing prices finally may have started to stabilize.
A midyear economic forecast from a trio of Arizona State University economists cautioned that growth will be slow this year through 2012.
Their views included pessimistic reminders that Arizona’s housing market is still in bad shape, credit is no longer easy to obtain, and national and state deficits have reached serious levels. But they also shared optimistic views that retiring Baby Boomers will free up jobs for younger people. Plus, rising stock prices are making people feel more wealthy, putting them in the mood to shop.
Speaking to reporters and business leaders at an Economic Club of Phoenix event last week, Lee McPheters stressed that Arizona’s economic recovery depends largely on a national recovery and that there is nothing he can envision that would stimulate a recovery in Arizona without nationwide improvement.
“If the national recovery sort of fizzles out, we are going to have more bad economic news here in Arizona,” he said.
But even with state population and job growth below historical averages, he predicted Arizona would gain 112,000 new homes, about 300,000 new jobs and 665,000 new residents between this year and 2015 – with most of that gain after 2012.
“Arizona will recover as the nation recovers, and this is going to be one of the strongest economies in the country. It is just going to take much longer than it has in the past,” he said.
McPheters is director of the JPMorgan Chase Economic Outlook Center at ASU’s W.P. Carey School of Business and also editor of the “Arizona Blue Chip Economic Forecast” and the “Western Blue Chip Economic Forecast” newsletters. Other W.P. Carey speakers were Robert Mittelstaedt, dean and professor of management, and Dennis Hoffman, who follows retail sales closely to advise the state on future tax revenue.
They touched on two essential areas of economic health: job growth and consumer spending.
McPheters predicts Arizona will add about 23,800 jobs this year, about a 1 percent increase. That is a little more optimistic than the 17,300 jobs forecast last week by the Arizona Department of Commerce.
The number of new jobs will grow to 48,000 next year and continue to grow each year after that, McPheters said. But Arizona isn’t expected to regain the more than 300,000 jobs it has lost over the past 3 1/2 years for another four years.
For decades Arizona was the state with the second-fastest job growth, behind Nevada. Last year Arizona fell to 49th place, just ahead of Nevada.
“Michigan, which has lost jobs just about every year in the decade, is now a top-10 (job) growth state,” he said.
Arizona added about 5,000 jobs in the first quarter, McPheters said.
He worries, though, that the number of initial claims for unemployment insurance continues to rise and fall. When people are laid off, those who are eligible can file for unemployment insurance. Increases in those claims suggest more people are losing jobs.
In the week ending April 30, the national advance figure for seasonally adjusted initial claims was 474,000, an increase of 43,000 over the past week, the U.S. Department of Labor said. The four-week moving average, which is designed to smooth out weekly fluctuations, was 431,250, an increase of 22,250 from the previous week.
“I think it certainly bears watching. It is not good news. It is going in the wrong direction, as it has off and on over the past year,” McPheters said.
Mittelstaedt’s worry is that jobs not only will continue to be outsourced but automated.
The nation already is experiencing especially high unemployment for men without high-school degrees who at one time could more easily get jobs in factories. Now, those jobs require more high-tech skills.
The U.S. Labor Department says the unemployment rate for men ages 25 to 54 who have not finished high school is 35 percent.
“A lot of the low-skilled jobs eliminated were in the auto industry. You didn’t need a lot of skills or education to get in. That’s part of the reason I believe unemployment will stay high for some time,” Mittelstaedt said.
On a more positive note, Hoffman said that with the first of the Baby Boomers turning 65 this year, they will be retiring in ever-increasing numbers. That will create opportunities for younger people to advance, which, in turn, should open up entry-level jobs.
An appetite to buy
Hoffman said he is more optimistic than his colleagues about Arizona’s economy because he sees good evidence that consumers are shopping again, especially for vehicles, furniture and home improvements, and may not get too concerned about gas costing $4 a gallon.
Compared with the previous year, taxable retail sales in Arizona rose 10 percent in January and 8 percent in February.
“What I am seeing is an appetite for retail transactions that we simply have not seen for three years,” Hoffman said.
He believes that home improvements are picking up because contractors are busier and furniture sales have risen.
So far, he is not overly concerned about rising gas prices because ever since the nation’s last encounter with $4 gas, more consumers have been buying fuel-efficient vehicles.
Hoffman said that even though home equity has not been rising, that increasing stock values and healthier 401(k) retirement plans are helping consumers feel more like spending on big-ticket items.
“This is a state remarkably dependent on capital gains,” he said.
From 2003 to 2005, rapid home appreciation helped capital gains grow fivefold, to $15 billion.
“But it is very apparent that capital-gains income in this state is not solely dependent upon real estate but it is also driven by equities. We saw that in the late 1990s for the first time,” Hoffman said.