Economic Forecast

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ASU Economist Lee McPheters provides an overview of today’s Arizona Economic Forecast Luncheon co-sponsored by the Department of Economics at Arizona State University’s W. P. Carey School of Business and JPMorgan Chase.

Ted Simons: Over 1,000 people gathered today at the Phoenix Convention center for the 49th annual economic forecast luncheon. Co-Sponsored by ASU's W.P. Carey School of Business and J.P. Morgan Chase. Here to tell us what he sees For Arizona's future is ASU economist Lee McPheters, one Of the annual presenters at The event.
Lee McPheters: Good to be here.
Ted Simons: Overriding opinion. What was the move, the theme?
Lee McPheters: Basically better than last year. Going to be better next year. We're on the path to recovery. We're not recovered. And as you say, two to three years before we get to, I think, the normal activity levels that people associate with a robust Arizona economy.
Ted Simons: What kind of indicators give you those ideas?
Lee McPheters: Well, probably most economists would look at the labor market and look at the jobs that we have lost, over 300,000 jobs since the economy peaked out. That would have been October of 2007. We bottomed out in September of 2010. And over that period lost 300,000 jobs. We have added back about 90,000. So, just roughly we have added back about 30%. So, what does that mean? We have 70% left to recover. The pace of growth probably around 60, 70,000 jobs per year. It looks like it is going to take about three years to get those 200,000 jobs back that we still need to recover.
Ted Simons: Some might say that seems like a modest pace. Do you see it as a modest pace and if so why?
Lee McPheters: It is a modest pace. We are projecting 2.5% growth in employment next year and for a frame of reference, our long-term average over the last three, four decades is probably closer to 4%. Basically running about half speed with the Arizona economy. Every year is a little better. Last year we only added about 48,000 jobs. The numbers are not in yet. Next year, 60,000. Year after that probably 75,000.
Ted Simons: As far as predicted unemployment number for next year, what are you seeing?
Lee McPheters: Where -- we're down one percent from where we were a year ago. It would be reasonable to expect another one percent. I think normal might be five or six percent. We will be two, three years getting down 6% unemployment.
Ted Simons: Maybe 7.5, something along those lines.
Lee McPheters: I would think. Yeah, a year from now, you know, what we have, of course, is seasonal factors, Christmas season, employment ticks up a bit. But this time next year, we will probably be down around 7.5%. I think that is a good bet.
Ted Simons: As far as personal income, again, increases but modest.
Lee McPheters: Yeah, personal income, somewhat in 2012, this was consistent of what we saw nationally. Certainly we did not go back into recession, but it was slow growth. Again, another percentage number, about 4%. Next year we expect to see about 5%. Modest growth in personal income.
Ted Simons: Same thing for retail sales, improvement but not great guns?
Lee McPheters: Retail sales, of course, are, you know, connected with employment. They're connected with the level of personal income, wages. Wages have been somewhat stagnant and have not grown as rapidly. We're thinking in terms of five, six percent for this year at best. And next year five or six percent again. We don't expect to see a big surge in retail. On the other hand, it certainly is not going to be a contraction.
Ted Simons: Are we expecting to see an increase in the number of people moving here to Arizona? Because that -- growth has been our biggest growth industry for a long time.
Lee McPheters: That is true.
Ted Simons: Are we going to see something reverting back to a little closer to normal?
Lee McPheters: Well, nationally, the economy adds population about 1%. That is the national number year after year. Arizona in a good year, will do three times as well as the national economist, population growth, about 3%. Again, we're at about 1.5% right now. So, that is, again, half speed. What we really need to see is two to three percent population growth and, you know, that is not really going to happen until we see home prices stabilize, people can sell their house. Move to Arizona. I think it is very reasonable to expect that once that starts, it ought to be pretty robust. There is probably a lot of pent up demand to move to Arizona. There is probably demand in terms of small business owners to relocate to Arizona, but there are all sorts of head winds slowing that process down right now.
Ted Simons: A lot of folks speaking regarding real estate at the luncheon. Give us a general consensus of the opinion as far as where we are now and where we're going to be in a year or two.
Lee McPheters: Surprisingly, there is maybe two to three months of housing supply available. We are looking at a surge in single family permits compared to a year ago. Up maybe one half. Still at a very low level. Certainly we're not looking at the 80,000 permits for the state of Arizona that we saw at the peak of the housing boom. It is the same story. Every year is a bit better than the year before. Again, about 2015 I think, before we really get back to a solid housing market.
Ted Simons: Last question. A lot of thought here, a lot of predictions, prognostications and the like, are all bets off if we fall off of that fiscal cliff?
Lee McPheters: Absolutely. We developed a fairly complex set of forecast for 2013. The overriding assumption, which I think is a consensus among most economists, our assumption was this would be resolved, this whole fiscal cliff issue, in perhaps six weeks, maybe two months at the most. After that, the economy will get back on a much more steady pace. Some of the uncertainty will fade and we will be able to move forward.
Ted Simons: All right. Very good. Good to have you here. Great information. Thank you for joining us.
Lee McPheters: Good to be with you.

Lee McPheters:Economist, Arizona State University;

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