Republican Gov. Jan Brewer

Arizona Economy may Take Years to Recover

PHOENIX (Wire Services) December 7, 2009 — Arizona's economy may take four more years to fully rebound, an Arizona State University economist said Wednesday.

Lee McPheters, director of the JPMorgan Chase Outlook Center told a lunchtime audience the state's economy will return to pre-recessionary growth levels but not until 2013 or 2014.

"Arizona will come back as we always have when the national economy recovers," he said. "The problem is . . . we are so far down that it will take three or four years to get back to where we need to be."

Addressing an annual forecast sponsored by ASU's W.P. Carey School of Business and JPMorgan Chase, McPheters said Arizona remains dead last among all the states for job growth and is expected next year to experience an unprecedented third straight year of job losses.

The state has lost more than 265,000 jobs since the recession began in December 2007, according to the U.S. Labor Department.

For the first time in recorded Arizona history, personal income is expected to shrink. In 2009, it will drop by 1.5 percent.

Phoenix and Riverside, Calif., are tied for second place behind Las Vegas with the most homes underwater, in which owners owe more than their homes are worth. He called those cities a Bermuda Triangle.

"We were all through 2008 and into 2009, the first half, drowning in 30 feet of water. Now, we're only drowning in 20 feet of water, but we're still drowning," he said.

About 1,100 attended the 46th annual Economic Forecast Luncheon, held at the Phoenix Convention Center.

Better U.S. outlook

Anthony Chan, managing director and chief economist of JPMorgan Chase Private Client Services, said that he believes the national recession technically ended in the second quarter and that the national economy began to grow in the third quarter.

As to the question of why the stock market is doing so well when joblessness is rising, Chan said that's because companies have trimmed their staffs and inventories.

"Companies have certainly cut their expenses down to the bone," he said. "They increased their profits by really watching the overall costs."

He does not expect a double-dip recession because he believes the Obama administration is determined to not let that happen.

Poor Arizona outlook

Arizona, though, remains in a recession, McPheters said.

He said the state's budget deficit is a serious problem that will hamper its recovery. McPheters said that, based on continued declines in sales-tax revenue and personal income taxes, Arizona's deficit will continue at $1.5 billion to $2 billion a year for several years.

Unfortunately, he said, he has no solution to that dilemma.

"From the perspective of the consumer and the small-business person, it appears there is no end in sight to this situation that the Arizona economy is in," he said.

But in the long run, McPheters said Arizona could come "roaring back."

The state has several long-term factors going for it, including its climate. For 25 years, it had the second-fastest-growing population in the country.

But without job growth, population growth could stop. In its heyday, the state gained 130,000 to 150,000 new residents a year. "It could be that the population is simply going to collapse in Arizona, and that is another factor that delays the recovery," he said.

Real-estate factor

Scottsdale economist Elliott Pollack contends that about 75,000 too many single-family and condo units were built in the 2003 to 2006 boom years and that there are still about 50,000 units too many.

That doesn't include what he calls a "shadow supply." Many of the investors who have been buying fix-up and vacant homes probably plan to put them back on the market over the next few years.

Even if housing construction picks up next year, it will still be about 85 percent off its peak years.

Pollack said the office, multifamily, industrial and retail sectors are seriously overbuilt and predicts there will not be another major office building built for five to six years. "It will be a decade for commercial real-estate prices to get back to where they were at the peak."

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