PHOENIX - The nation faces tough questions in tough times, and there are people on both sides of every issue.
Arizona is no different. But who’s saying what about the issues important to Arizonans?
Each Sunday, ABC15.com debuts an Arizona issue - along with two opposing sides on the topic.
Don’t worry, you always have the opportunity to make comments at the bottom of the page. Yeah, your opinion matters, too.
This week we're tackling the debate on whether the Arizona economy is on the road to recovery or still in the depths of despair.
Scottsdale-based economist Elliott D. Pollack says the recovery has been and is likely to remain relatively anemic by historic comparison, but the extent of the turnaround is quite significant. Pollack says we can expect 2011 to be better than 2010 and 2012 to be better than 2011 as educational and health services, trade, professional and business services, leisure and hospitality, and transportation and utilities are all up.
Tom Rex, associate director for the Center for Competitiveness and Prosperity Research at Arizona State University’s W. P. Carey School of Business says Arizona's gains have been a little greater than the national average so far, but the state lost a lot more than average during the recession. Rex says real estate remains a significant issue with foreclosures and high vacancy rates still dominating.
So, is the Arizona economy on the road to recovery or still in the depths of despair?
Click "next page" to read the first of two positions, "Not much can be done at this point to help the economy".
Not much can be done at this point to help the economy: By Tom Rex, associate director for the Center for Competitiveness and Prosperity Research at Arizona State University’s W. P. Carey School of Business The Arizona economy IS improving, but the gains are slow and erratic.
The pattern is two steps forward one month but a step backward another month. As is typical during an economic recovery, the job market is lagging behind the rest of the economy. Businesses always are cautious with hiring coming out of a recession. Despite all of the layoffs during the recession, many companies still have underutilized personnel that can fill the needs as business activity begins to pick up.
Nationally, the economy also is recovering slowly and erratically. Arizona's gains have been a little greater than the national average so far, but the state lost a lot more than average during the recession.
The reason for the slow recovery is that the imbalances that caused the recession have not been fully erased yet. In particular, real estate remains a significant issue with foreclosures and high vacancy rates still dominating. Usually, construction and real estate lead the economy out of a recession, but a strong rebound in these sectors is still years away.
Consumer spending is another major issue. Typically, retail sales pick up significantly during a recovery. While the unemployment rate remains high during recoveries, the state's other residents usually are in good shape financially and begin to spend once it is clear that economic conditions are getting better.
This time around, however, the unemployment rate is unusually high and some of those who are working continue to receive lower wages than prior to the recession. Even among those without these wage issues, many owe more on their mortgage than what their home is worth.
Moreover, nearly everyone who had investments other than real estate still have a lower net worth than before the recession. All of this is causing consumers to be unusually cautious.
Another complication is that such a large share of the population (the baby-boom generation) is nearing retirement age. As people approach retirement age, their spending always slows. This likely is intensified now since so many baby boomers spent so much in the 2005-06 period and because they are especially concerned with the investment losses they have experienced.
Not much can be done at this point to help the economy. Increased federal government spending is the normal stimulus used to combat a weak economy, but significant stimulus monies already have been released, with the private sector still receiving these funds. (Had the federal government not embarked on the stimulus program, current economic conditions would be worse, perhaps much worse.)
A new round of federal spending would take months to have much effect and could create longer-term problems given the federal deficit.
Time will solve the current economic issues. Within two or three years, job growth in Arizona will again be booming. But with so many jobs lost during the recession, it will take even longer than that to get unemployment down to normal. Thus, a full recovery from the recession is not likely before 2014 or 2015.
Do you agree with this opinion? Add a comment below to sound off.
Click "next page" to read the second position, "The economy is clearly improving... slowly".
The economy is clearly improving... slowly: By Elliott D. Pollack, an economist based in Scottsdale The Greater Phoenix economy is clearly improving and a recovery is underway.
From October 2009 to October 2010, Greater Phoenix has created over 24,000 jobs. The twelve months before that, it lost more than 143,000 jobs. The twelve months before that Phoenix lost more than 83,000 jobs.
Thus, while the recovery has been and is likely to remain relatively anemic by historic comparison, the extent of the turnaround is quite significant.
This goes for Arizona as well.
Arizona is a state that historically has been in the top five growth states. Yet, in 2009, we sank to 49th out of 50 states in terms of employment growth. As of October 2010, however, we have recovered all the way to twelfth out of 50.
A continued national recovery is a must for an Arizona recovery. We expect 2011 to be better than 2010 and 2012 to be better than 2011. A rapid recovery and expansion, however, is probably not in the cards.
Why is this the case? Historically, recoveries from recessions caused by problems with the financial system tend to take longer. This will be no exception. Unless credit is readily available, a rapid recovery is not likely to take place.
In addition, a major driver of the recovery, construction, will not be strong in 2011. Also, consumers, which account for about 70 percent of spending are still restructuring their balance sheets through paying down debt and creating cash savings for themselves. As hours worked and jobs gain traction, spending should grow modestly.
In Greater Phoenix, no employment sectors were growing a year ago. As of now, educational and health services, trade, professional and business services, leisure and hospitality, and transportation and utilities are all up. This is good news because some major sectors of the state have not yet kicked in.
These include rapid population growth and construction sectors. Population growth has been anemic, especially in 2009 and 2010 for several reasons. People are afraid to retire as 401(k)’s and home equity have been hard hit. Also, others can’t sell their home and can’t easily move.
As jobs in Greater Phoenix pick up and credit markets ease over the next year, population flows should recover. However, it will be 2013 or 2014 before significant population flows occur. In addition, while housing is now in its fourth year of a bear market, there are still 50,000 to 70,000 excess units in the Greater Phoenix area. Until the excess supply is absorbed, new construction will be modest.
The same thing is true with commercial construction with the exception of apartments. Apartment vacancy rates have dropped and new construction can be anticipated in late 2011 or in 2012.
Office, industrial and retail markets, however, are substantially overbuilt. It will be 2014 or so before those markets stage any recovery.
Yet, we have clearly turned the corner. The overall picture suggests continued growth in Arizona and Greater Phoenix, but at a more modest rate than we are used to. It will be late 2013 or early 2014 before we reach employment levels that we saw at the peak in 2007, but at least we are growing again. Once the excess supply of housing and commercial property gets absorbed, Arizona will see that significant boom.
Do you agree with this opinion? Add a comment below to sound off.
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