Economic forecast predicts Ariz. still 2 to 3 years from full recovery

Professor Lee McPheters

You can expect more slow growth in Arizona next year, but we’re still two to three years away from full economic recovery. That’s according to experts Wednesday at the 50th annual Economic Forecast Luncheon co-sponsored by Arizona State University’s W. P. Carey School of Business and JPMorgan Chase.

About 1,000 people attended the event at the Phoenix Convention Center. Key experts covered the state and national economies, as well as the stock market and housing market.

“We expect 2014 to be the eighth year in a row for subpar growth in Arizona, which was hit harder than most states in the recession,” said research professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “While growth is slow compared to past recoveries, we are making good progress compared to other states. Arizona jumped all the way up from the No. 49 state for job growth in 2010 to No. 8 in 2012, and No.7 by October of this year. The long-term economic outlook here is positive.”

Arizona saw 2 percent job growth through the 12 months ending in October 2013. The state has regained 46 percent of the jobs it lost in the recession, but it still has 170,000 more jobs to go. That doesn’t compare well to the nation as a whole, which has already regained 83 percent of its lost jobs. Still, several of the industries gaining in Arizona tend to have higher wages. The state ranks among the top 10 for growth in construction, wholesale trade, finance, information and real estate.

Among the Arizona expectations from McPheters for next year:

• Employment growth could rise from 2.1 percent this year to 2.4 percent in 2014.
• Personal income could go up from 4 percent this year to 5.4 percent next year.
• Population growth may jump from 1.4 percent to 1.5 percent.
• Retail sales will likely fall from 7.6 percent this year to 6.5 percent next year.

McPheters maintains that uncertainty continues to inhibit consumer spending, and Arizona tends to follow the U.S. economic cycle, which remains sluggish. Professor Lee Ohanian, associate director of ASU’s Center for the Advanced Study in Economic Efficiency and an advisor to the Federal Reserve Bank of Minneapolis, echoed that message.

“The U.S. economy remains significantly depressed, and many facets are in worse shape now than five years ago,” said Ohanian. “Employment as a fraction of the adult population and most components of gross domestic product (GDP) are farther below their normal trend levels today than during the financial crisis. Severe recessions are typically followed by very rapid recoveries to the economy’s long-term trend, but that isn’t happening this time.”

Ohanian says productivity growth is very low and the government has been using mostly short-term stimulus measures instead of long-term economic policy changes to combat this. He sees no evidence most of the short-run fiscal policies have increased employment. He says the federal debt, tax-rate increases, the structure of certain social safety-net programs, current immigration policy and a drop in entrepreneurship are all playing negative roles in the American economy.

“Current economic policy represents a drag on our economy,” said Ohanian. “I anticipate the 2014 U.S. economic growth will be similar to the last few years, with slow job growth and slow productivity growth that will expand real GDP per capita around 2 percent, or perhaps a bit higher, and total real GDP around 3 percent.”

James Glassman, managing director and senior economist for JPMorgan Chase & Co., talked about the generally positive outlook for the financial markets. He noted that the stock market is at an all-time high and corporate profits are at record margins. Layoffs are back to normal.

“The financial markets take their cue more from business earnings than from Federal Reserve actions,” explained Glassman, who previously served in various research divisions at the Federal Reserve Board in Washington, D.C. “The stock market remains very attractive, although stock prices are unlikely to continue to rise at the pace of the last several years. Despite this year’s strong advances, the market is ‘fairly valued’ relative to the record level of earnings in the business sector.”

Glassman adds interest rates, including mortgage rates, will likely rise as the economy continues to improve. He also believes home prices will appreciate in line with economic expansion and income growth, with foreclosures falling to more normal levels.

Elliott D. Pollack, chief executive officer of Scottsdale-based economic consulting firm Elliott D. Pollack and Company, also discussed the housing market. He noted Arizona’s residential real-estate market is improving, with some estimates showing the median single-family-home price up by more than 20 percent since last year. Also, new foreclosure notices are down to pre-housing-crisis levels, and single-family building permits should be up about another 10 percent this year, on top of a 71-percent boost last year.

“It’s difficult not to be excited about the outlook for housing,” explained Pollack. “Home prices have been going up because relatively low inventory was available for sale.”

Pollack adds the office and retail real-estate sectors are finally starting to improve, though he doesn’t expect any significant new office construction in the Valley until at least 2016 or 2017. The industrial market was improving, but might see a setback now with too much space – 6.4 million square feet – under construction.

More details and analysis from the event, including the presentation slides, are available from knowWPCarey, the business school’s online resource and newsletter, at