Economic Outlook

Economic experts deliver their mid-year forecasts for the U.S. and Arizona at the annual Economic Outlook Luncheon sponsored by the Economic Club of Phoenix. Hear what they had to say.

Transcript:

Ted Simon: As's economy was the subject of a luncheon held today at the Arizona Biltmore. I'll talk to an ASU economist and the governor's chief budget officer about current economic conditions, but first, here are some comments from today's forecast luncheon.

Package:

The best way to look at this is to kind of, you know, visualize how this works, is to think of a trek down into the Grand Canyon. The trek down into the Grand Canyon, that's the recession. The recession then is a contraction, it's when at of your indicators are falling. When the recession is over, you are at the very bottom, all of your indicatorses are at their worst reading, and then you begin the recovery that is the other side of the cycle. You start moving up.

My point is, for those that remain employed, so out of every thousand dollars of money that's earned currently, spending is way below historical norms.

-End Package-

Ted Simons: Here now to talk more about the state's economy is Arizona state University economist Tim James, and governor Jan Brewer's budget Doctor, John Arnold. Good to have you both on the show. If let's start with -- there was a prediction out of U of A that the recession in Arizona is over. U of A said it's over. Seemed a little more pessimistic today. Where are we here?

Tim James: We're going to get into some economic speak here. There's a slight difference, and the difference is technically speaking, a recession ends when GDP creases to full. And the official statistics show that the overall in the United States the recession ended in quarter two of 2009. Now, we're a little behind in terms of the state in terms of economic activity in relation to the nation. So we're probably at the point where the recession is just ended, it's just about end or whatever. I think what we're talking about at ASU is kind of something which is on a more human scale. Which is really what's happening in terms of unemployment and jobs, and therefore we're defining the recession as ending when unemployment ceases to continue rising.

Ted Simons: How do you see it, looking at the state's fiscal condition is there a little light there at the end of the tunnel?

John Arnold: We certainly hope so. What we track is revenueses that come into the state, tax revenues. And we've seen a continual fall of those revenues since the recession began in the fall of 2007. We are still seeing our revenues are continuing to familiar. We have not hit bottom yet. That rate of decline has dropped significantly and we're losing 1%, before we were losing 10, 15%. We're hopeful that we're going to hit bottom in revenue collections here in the next month on so, and there are some projections that suggest April will be it. And then we'll hopefully start turning that around.

Ted Simons: As far as retail is concerned, because obviously that's a big source of revenue as far as taxes are concerned, what are you seeing with retail out there right now?

John Arnold: Retail is actual lay positive area for us. March was the first month where we had growth in revenues from the retail sector since November of 2007. So in terms of retail sales and sales tax collection off retail, we believe we have hit bottom, and bounced up about a percentage point last month.

Ted Simons: Is that what you're seeing as well?

Tim James: Yeah. We work together with john's office, so we do know a little about this. I think there are encouraging signs in terms of people's consumption, purchasing activity, particularly in the retail sector, and I think that's indicating to us that the economy has started to turn around and things are improving. And hopefully we'll see more and more taxes come inways move forward.

Ted Simons: You mentioned Arizona being different from the country in terms of recovery time, lag time. Are we different in terms of retail sales?

Tim James: To some extent, a little bit. I think it's all to do with the fact we toned lag a little behind the state of the nation in terms of its economy, because of the nature of what we actually do and the nature of the society here. We toned have a lot of -- rely a lot upon migration, people moving from the north and northeast of the state and coming to relocate here offen for retirement. And that's sort of -- that sort of died over the last couple years. And there are some signs it has improved, but it's not at the same level as it was in 2007, 2006. So what we're really happening -- what's happening with this is we're hoping the rest of the economy improves so people start moving again and that will give our construction sector and the retailing sector a boost as we go forward.

Ted Simons: I know income is difficult to calibrate, especially now, but if you put your office -- I guess maybe get an indication of where we are in terms of jobs and in terms of income. What are you seeing out there?

John Arnold: We track 90 two areas. One certainly on income tax returns, and what's been filed, and we're -- it takes us about two weeks after the final returns come in to go through that process, we're not quite done, and income tax returns appear to be a little bit below projections. So not as good as we have hoped. The other area we track is new applicants to Medicaid. How many new people are coming on to Medicaid, which is generally a pretty good reflection of where our unemployment is. And then -- the number of new members coming in to Medicaid has slowed over the last couple months, it's still climbing significantly. But slower than it was over the last year.

Ted Simons: The unemployment number, surprises, that it's not gone up or gone down?

Tim James: I think if I was being totally honest I think it's as expected. It's this lag effect. One lag, we toned lag behind the rest of the nation in terms of downturns and upswings, so we're a little behind in terms of the upswings. The other thing is unemployment is a lagging indicator of what's going on in the economy. What's happened a lot I think particularly here is businesses have restructured the way they do business. And need less employees. And therefore what we're seeing is there's an improvement in terms of sales, houses, house purchases have gone up, but that's not translating itself into a lot of extra jobs at the moment. We've got to wait until six, 12 months doubt road to see an improvement in terms of the unemployment statistics.

Ted Simons: So are we -- are you saying companies are learning to live with less and getting by now with less, as a lot of folks are, but let's face it, a lot of us are tired of getting by with less. Will companies have that same mind-set?

Tim James: It's all about confidence. Both on the part of companies and us as consumers. We need to be confident that we're going to have a job in six, 12 months' time. A reasonable level of income in order to be willing to go out there and spend amounts of money on things which at the moment we might rashed as 45 less, given our difficult circumstances. Companies are no different. They want to mike sure that when they take new workers on, it's something that they can afford, and they will still be able to make a return out of extra employment.

John Arnold: The state is in a similar position. We've driven down our state payroll about 20% overall. We still have the hiring freeze on, and even though we're expecting revenues to bottom out, we don't expect to start adding employees for probably another year or two.

Ted Simons: So last question, from where you sit, the numbers you see, when do things get appreciably better? I think we can all agree, it sounds like we're agreeing that things can't get a heck of a lot worse. When do they start becoming better?

John Arnold: That's a difficult question. The forecast we're saying and -- except for the most part suggests a fairly long, slow recovery, in another three, four years before we reach the employment levels we were at in 2007. So another three or four years.

Tim James: The -- there are lots of exists -- economists, the other two I work with are more pes Mick advertise than I was. I was worried about a double dip recession where things would have gotten better and we would go back down into the hole. I'm now more optimistic. I think there are signs of growth in the economy, I think if we can get consumer and business confidence back, I'm hoping it won't be three or four years. What we need sp for people to start spending money again.

Ted Simons: Gentlemen, thank you so much. We appreciate it.