by Betty Beard - Dec. 11, 2008 12:00 AM
The Arizona Republic
The state's economic slide will continue through the new year. A turnaround could begin sometime in 2009. Consumers, weary of living on edge, will start spending again. But how long until a full recovery? It may not come until 2011 or 2012.
That's one view of the future, at least, from the experts who offered their annual economic outlook Wednesday at the Phoenix Convention Center.
Other key findings and predictions:
• The recession is "extraordinarily deep and extraordinarily widespread," the most dangerous since the 1920s, said Joel Naroff, a Philadelphia economic forecaster.
• Arizona's economy is in the worst shape of any state in the West - and its job market has seen the second-largest losses in the nation, behind Rhode Island - because of major overbuilding of homes in 2005-06 and weak job growth today, said Lee McPheters, an economics professor and director of the JPMorgan Chase Economic Outlook Center at Arizona State University.
• Still, this downturn isn't expected to become a full-on depression, said Rajnish Mehra, E.N. Basha Arizona Chair at ASU and a widely published economics expert. A lot of it is being driven by self-fulfilling fear, he added.
At last year's Economic Forecast Lunch, also sponsored by JPMorgan Chase and ASU's W.P. Carey School of Business, experts had dour predictions for 2008, but no one knew then how bad things would get. This year, experts said they had been surprised at how quickly things worsened, especially after September's financial panic and subsequent credit freeze.
And although experts offered glimmers of hope for a recovery, they noted that the slide hasn't stopped yet.
"The economy is deteriorating very, very rapidly," McPheters said. "Our forecasts have been changing every month."
But Naroff, who has been honored by Bloomberg Business News, USA Today and ASU for being especially accurate, is more optimistic than many forecasters.
He said that because of falling energy prices, federal actions taken to calm the financial markets and President-elect Barack Obama's proposed stimulus package, the economy will show gains next year. And, at some point, consumers will get tired of being afraid and begin to spend again.
Mehra said that when he looked at recessions over the decades, each recession has been shorter and each expansion longer than the one before. Also, over the long term, the national gross domestic product has steadily improved. So, 2009 is unlikely to be like 1929, he said.
Jobs
Arizona's job numbers have been falling monthly through most of the year. The latest job numbers, down 2.8 percent from a year ago, are the worst since 1976, McPheters said. He expects no growth in jobs next year.
The state went from being the nation's No. 1 job creator in 2006 to 49th this year, according to the U.S. Bureau of Labor Statistics.
Arizona's unemployment rate, which reached 6.1 percent in November, is likely to rise to at least 7 percent, McPheters said. But it has been worse, reaching 10 percent in 1976 and 1982.
The construction industry is expected to lose about 80,000 jobs, or about one-third, from its peak in 2006 by the end of next year. The brightest spot is that health care is gaining about 1,000 jobs a month, McPheters said.
Real estate
The residential-housing market probably will recover faster than other real-estate sectors, such as office, industrial and retail, Scottsdale economist Elliott Pollack said. But the housing market is still three to four years away from full recovery, he said.
The problem is that there was a surplus of single-family homes built in 2005 and 2006 and there aren't enough people moving to the state, enough jobs being created or enough people confident enough to buy new homes.
Pollack estimates metro Phoenix has a housing surplus of 40,000 to 50,000. Tucson and Prescott also are suffering from an oversupply of homes, but the rest of the state is not, he said.
"My guess is that the residential market is not going to reach normal until 2012," he said.
At the same time the Valley is coping with too many houses, Arizona Public Service Co. has reported its lowest number of residential hookups since it began keeping records in the 1950s, an indication that in-migration has slowed dramatically.
Construction of offices, industrial buildings, apartments and retail space also has outpaced the demand, and construction is likely to slow down if not stop in a year or two, he said.
Retail
Naroff said the lack of consumer confidence and spending is now a more serious problem than the ailing housing market. Consumer spending accounts for about two-thirds of the country's economy.
The Arizona Blue Chip Economic Forecast, a consensus of about 20 economic experts in the state, predicts retail sales will fall 3 percent this year in Arizona and increase only about 1 percent next year.
But eventually he and other experts expect that consumers will get tired of sacrificing and curtailing their purchases because of the dour economy.
"Once that psychology changes, I wouldn't be surprised in one year if growth will happen a lot faster than anyone expected," Naroff said.
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