Economic Update

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Arizona State University economists say the state is still at least two years away from a full economic recovery. Economist Dennis Hoffman of the W. P. Carey School of Business will discuss the midyear economic forecast.

Ted Simons: ASU economists say the state is still at least two years away from a full economic recovery. Here now to discuss the midyear economic forecast is Dennis Hoffman, with the W.P. Carey School of Business. Good to see you again.

Dennis Hoffman: Great to be here Ted.

Ted Simons: All right, full economic recovery, maybe two years off, why not next year?

Dennis Hoffman: It's the same forecast we've given I think the last several years - You know, we're not seeing it. At some point you need some really hard evidence. And this rigidity of employment growth in the state has really been a problematic and certainly a puzzle if you think about the way we approach modeling, and that's based upon both logic and historical data. We have no historical precedent for this type of sluggish job behavior in the state of Arizona.

Ted Simons: We can see other states, though, how do we do compared to those states?

Dennis Hoffman: In comparison to other states, say in 2013, we're a top 10 percentage job grower. And that's the good news. The other kind of good news I think is that seems to be a characteristic of the western states. The states from the Rockies west did pretty well. They're pretty much all in the top 10. Texas of course is number five. But interestingly, Utah and Colorado two and four, in between them, number three, California. As far as percentage growth in jobs.

Ted Simons: I keep hearing that everyone is leaving California and we're hoping to get some of those folks who are on their way out.

Dennis Hoffman: Yes. And I modeled that by the way, I had that in my income tax model, and it didn't show up quite as much as I'd hoped it would.

Ted Simons: It sounds like we've regained only 56% of jobs in the downtown according to your report here. The U.S. has regained at the 90s percentile. Why is the U.S. doing so much better than we are?

Dennis Hoffman: Part of that is, you know, we had 250,000 construction jobs at the peak, and now we're about half of that. And that's not going to come back any time soon. So our fill then, as we get back toward the peak, will likely be in a different job mix. Or -- I'm not saying we won't generate construction jobs, I'm just suggesting for a number of reasons we're not going to go back to that 250,000 level.

Ted Simons: Is that a good thing to have a more diverse mix of jobs?

Dennis Hoffman: Well, a lot of rhetoric today, and over the course of the last several years on diversifying the Arizona economy, getting away from growth as a driver. Frankly, construction was an important picture in Arizona because swarms of folks wanted to move here and live here. And if you're a population magnet, you're going to be reliant on construction. And when that magnetism goes away, then you struggle. That's what we've seen in the last five years. And I think it's less that we've lost our magnetism and more that folks just aren't moving. The mover rate from state A to state B anywhere in this country is below half of what it was prior to the great recession. So we're just not getting many people.

Ted Simons: That's a good entree into the Arizona real estate market. We had mike ORR on last week, he basically said demand was down and he doesn't see it likely to return until next year, and he says it might return with a bit of a bang.

His thesis is an interesting one. Some of it comes from local demand, and that is that you have all of these defaulters, and there's -- For many of them, kind of a seven-year problem in terms of being able to qualify for financing. So what mike is seeing is that some of these people will be able to borrow over the next couple years. The other part of his thesis, and we're all scratching our head about this, is what about the youth? At what point will they start actually dipping their toe in this water of housing? Historically we all aspired to get to a point where we could jump on the housing train and start building housing equity. And many of us did that very well. That is not something that the young folks yearn for right now.

Ted Simons: I think he calls a family formation, and it just isn't happening.

Dennis Hoffman: Right. Right.

So Arizona prices mostly flat right now, we're still up from the bottom like 84 some-odd percent from 2011.

Dennis Hoffman: absolutely.

Ted Simons: And again, you think maybe these foreclosures once everyone kind of gets through their seven-year trial period here, once they get through all that, will those folks still be still interested in buying homes?

Dennis Hoffman: That is the big, big question. Will they still be interested in moving to Arizona, are we the land of opportunity or perceived as the land of opportunity, the wide-open spaces, the attraction of the climate and lifestyle? That is what brought most of us here I think over the last two, three, four decades. And so the question going forward, does that allure remain, and if so, when do we see it manifest itself?

Ted Simons: It sounds like right now good sectors, finance, food service, health care, not so good, construction, manufacturing, government, and retail.

Dennis Hoffman: Government's had a tough time.

Ted Simons: Retail's had a tough time too.

Dennis Hoffman: I think we're buying goods and services differently. You know, the consumer attitudes, though, I think are interesting to watch. And I have a scoop for you, Ted. The Rocky Mountain poll, I believe, will be released tomorrow for the most recent consumer confidence survey that the folks at behavioral research are putting out, and last year at this time it was kind of mediocre. I was pretty optimistic. So I didn't think too much of it. But I was actually wrong. The last half of 2013 was pretty much predicted by this spring poll. Well, guess what? They're much more optimistic in this poll. As you'll see when this poll comes out tomorrow. So I think it's an interesting and maybe a harbinger of good things to come in Arizona. We can all hope.

Ted Simons: That's the Rocky Mountain poll that comes out tomorrow, confidence up, what --

Dennis Hoffman: Confidence is as high as it's been since the onset of the great recession. Now, it's not back to record levels or anything like that, but folks, according to this poll, are having a little easier job finding jobs. And we're not seeing that in the numbers yet. But maybe it's a reflection of what they're hearing, you know, they have kids that have been unemployed forever, and now the kids are finally getting job offers, or relatives are getting job offers. Or relatives aren't losing their jobs. Hopefully it's good news.

Ted Simons: Let's talk about the nation as a whole. This seems like a slower recovery than past downturns, though this was a pretty steep downturn compared to previous bad times. Why is the employment, why is unemployment still where -- Why aren't we seeing better numbers there?

Dennis Hoffman: In terms of unemployment, and the overall labor market, you have a host of factors working here. I'm one of these folks that is of a firm belief that of the vast majority of the changes in labor force participation are being driven by age. 10,000 folks a day crossing the 65 and over line. And that's a big part of it. But the overall employment and health of the labor market, those folks that really want jobs and that are struggling, they're up against a skills gap, they need better education and skills, and it's really dynamic. They can be skilled and trained in a certain direction today, and my goodness, tomorrow, robotics takes their place, and they've got to evolve into another niche. So when you acquire skills, you're not done. You have to be constantly vigilant on acquiring more and different skills if you're going to maintain employment.

Ted Simons: The old dog, new tricks series comes into play.

Dennis Hoffman: Indeed.

Ted Simons: What about gross domestic product. Why is that not any better?

Dennis Hoffman: It has been a struggle. This is the weakest recovery certainly in the post-war period. It's a dearth of consumption in my opinion, although there's a lot of voices that suggest it's both taxes and regulation. Let me just say, venture into a place where I think almost all economists agree, and that is, if we had a dose of immigration reform, trade policy, and probably corporate tax reform, I think all of those things would be very, very conducive to boosting this economy. But the biggest problem with businesses today, or with small businesses, I firmly believe, is they don't have enough folks coming in the front door.

Ted Simons: You mentioned consumption a couple times. Why is personal consumption spending so -- Not any better than it is?

Dennis Hoffman: We leveraged up, I think part of this is, you have to think about what happened in the 80's and 90's. We leveraged up, we took on a lot of debt as individuals. My generation probably led the charge. The mantra was, he who dies with the most toys wins, Ted. And we really engaged in that competition. We borrowed, we borrowed, we borrowed, we bought, we bought, we bought. Now, kind of with this rude awakening of 2008 and 2009, we've kind of looked at ourselves in the mirror and said, I think we have enough things.

Ted Simons: OK, so if personal spending, maybe even national spending, is lower, does that mean that our debt is getting better, personal debt, national debt? A good news bad news kind of a thing?

Dennis Hoffman: Individuals have deleveraged significantly, yes. Debt is the new four-letter word, Ted.

Ted Simons: OK.

Dennis Hoffman: We're ridding ourselves of debt. You turn on A.M. radio at night and folks preach at you about being debt-free in three years! Well that's good for certain individuals, but in the aggregate, if there's less spending, we've got to recognize that's dampening on the economy. And as a result we have to look for other markets. We've got to sell abroad, we've got to change our behavior, we can't just sell locally, we've got to have more export-based businesses.

Ted Simons: Last question before you go -- Are we ready to change our behavior?

Dennis Hoffman: Wow. I don't know. I'm seeing things that worry me. We need an immigration policy, we need to be welcoming. Nationwide, by the way, I'm talking nationwide, about getting immigrants into this country, I think Canada has done very, very well at this, getting knowledged people in. We also have to be cognizant that we can't just sell to local communities; we can't just sell to folks in the United States. We have to have an export-based strategy.

Ted Simons: Alright, well that consumer confidence number suggests that confidence--

Dennis Hoffman: it would be good, something to look at.

Ted Simons: Confidence is rearing its head.

Dennis Hoffman: That would be wonderful, wouldn't it?

Ted Simons: All right. Good to see you.

Dennis Hoffman: Thank you, Ted.

Dennis Hoffman:Economist, W. P. Carey School of Business at Arizona State University;


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