April 22, 2010

Arizona's Full Economic Recovery Still 3 to 4 Years Away

Economic Outlook Luncheon Covers Midyear Forecasts, State Budget

TEMPE, Ariz. — Arizona is still three to four years away from a full economic recovery, according to top economic experts from the W. P. Carey School of Business and the Arizona Governor’s Office. About 200 people heard the new state and national forecasts today at the annual Economic Outlook Luncheon sponsored by the Economic Club of Phoenix.

Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business, said we can expect more tough times this year and next year. He predicts more home foreclosures and continued high unemployment in Arizona. However, he also anticipates a 40-percent increase in single-family home-building permits this year and some weak, but positive job growth next year. He expects full jobs recovery in the state in 2013 or 2014.

“Right now, Arizona is still losing jobs and ranks among the bottom five states in the nation for job growth,” explains McPheters. “We have a lot of obstacles in our way during this recovery, including tight credit, the housing market, the labor market and consumer spending levels. Fortunately, it looks like retail sales in Arizona have finally bottomed out, so we may see some improvement there.”

McPheters says things are looking better nationwide than in Arizona. As he predicted at last year’s Economic Outlook Luncheon, the recession did officially end in 2009. Real Gross Domestic Product (GDP) is growing again and may hit a 3 percent annual rate increase for the first quarter of 2010. Still, 44 states have worse unemployment than they did last year. About 8.4 million U.S. jobs were lost over the past two years.

Professor Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School of Business, compared and contrasted the current economic cycle with those surrounding previous recessions and the Great Depression. He explained that household wealth actually fell more during the first year of our most recent recession (17 percent) than it did during the first year of the Great Depression (3 percent). However, he says the country is on the rebound. He believes Arizona is currently at the bottom of this economic cycle, and things will start to get better.

“Though the recovery will be quite slow in Arizona, there are pockets of opportunity,” says Hoffman. “Businesses that survived this recession hunkered down and cut costs. Now, they need to make sure they’re positioned for growth. We do have more challenges than in previous recoveries when we had industries like retail and real estate to really boost us out.”

John Arnold, director of the Governor’s Office of Strategic Planning and Budgeting, discussed the current state budget situation. He showed a graph of all state expenditures and explained that only about one-third of Arizona’s budget is not federally protected, leaving limited options for dealing with the current state budget crisis. He says the governor’s budget solution involves a mix of 30 percent spending cuts, 26 percent new revenues, 13 percent fund transfers, and 31 percent taking on additional debt through sale-leasebacks of state assets, bonds on future lottery revenues and other methods.

“We’re still relying on an upcoming ballot measure to help fund $918 million for education, public safety, health care and human services,” says Arnold. “The situation has been complicated with the recent passage of federal health care reform impacting our state budget, and it will become even more difficult if Proposition 100, the proposed one-cent sales tax increase, doesn’t pass next month.”

This year’s Economic Outlook Luncheon was held at the Arizona Biltmore Resort & Spa. The Economic Club of Phoenix hosts this event every spring, as one of the club’s many activities offering Valley business leaders and others a chance to network and engage. The club was founded by a group of prominent business executives called the Dean’s Council of 100, in conjunction with the W. P. Carey School of Business at Arizona State University. More information about the club can be found at www.wpcarey.asu.edu/ecp.

Today’s presentations will be posted at http://knowledge.wpcarey.asu.edu.

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 75 countries and include more than 60 National Merit Scholars. For more information please visit wpcarey.asu.edu and http://knowledge.wpcarey.asu.edu.