Arizona Jobs Recovery

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Arizona is lagging behind the national economy in recovering jobs lost during the Great Recession. Arizona State University Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business at Arizona State University, will talk about why the nation has recovered jobs lost during the economic downturn but Arizona has not.

Ted Simons: Arizona is lagging behind the national economy in recovering jobs lost during the great recession. Here to help us figure out why that's happening is Lee McPheters, director of the J.P. Morgan Chase economic outlook center at ASU's W.P. Carey School of business. Good to see you again.

Lee McPheters: Good to see you.

Ted Simons: U.S. employment level now back up to prerecession levels. Arizona's isn't. Why?

Lee McPheters: National economy added another 200,000 jobs last month. So, that was a real milestone. All of the jobs lost in the recession have now been recovered, about 8.7 billion at the national level. You look at the Arizona numbers, we are just better than 55% recovered. So, there is quite a difference between where the national economy is and where Arizona is in terms of getting all of those lost jobs back.

Ted Simons: Talk about that difference. What are we seeing here?

Lee McPheters: Well, the difference really has its basis in the fact that the U.S. economy lost 6% of jobs. Arizona lost 12%. On top of that, Arizona went into the recession sooner, came out of the recession later. So, went in sooner, came out later, fell further, and therefore we have a much bigger hole to dig our way out of. On top of that, you have the fact that the rate of growth has simply been in the range of about 2%, where we need four to five percent, I think, to have the kind of Arizona recovery that most analysts were expecting a couple of years ago.

Ted Simons: I think most would understand that we got hit extra hard during the recession. So it might take an extra hard effort to get out of that particular hole. The rate of growth is 2% business. What's going on there?

Lee McPheters: The drivers that we usually see in Arizona have been fairly sluggish, for example. You would expect construction to be one of the leaders in recovery. This is what you historically see in recession comebacks. Right now, we're seeing construction job growth about one percent. We are seeing a fairly weak housing market; commercial building is not very strong. So, construction simply is not in the picture right now. Although growth is positive, but it is just not a driver of the economy. Retail sales affected by the fact that personal incomes are not growing very fast. So, that's a large sector. A big part of the Arizona economy is retail, and that's not growing very fast as well. You have tourism, which is affected by the national economy, and since the national economy is still some distance from where you would say, you know, we were having really robust growth, tourism is not as strong as it might be.

Ted Simons: I would imagine - still not doing very well. You got folks that still can't sell their homes perhaps somewhere else and the job opportunities here may not be -- it is like a vicious cycle. Looking for a job, you can't sell your home to get here. It is all a loop.

Lee McPheters: That is very much a difference between where we are with this recovery and where we have been in previous rebounds. Population growth is probably going to be under 1/2%. To give you some context, in a strong Arizona economy, you would expect to see two to three percent. Population growth, that drives housing and service employment. And we're simply not seeing that wave of people moving to Arizona right now.

Ted Simons: We are seeing, and keep hearing about big scores, whether it is Apple or State Farm. I think folks are expecting to see better numbers after hearing those particular stories. What's going on?

Lee McPheters: All of that is to the good, of course, but each of those represents a few thousand jobs, and those are very valuable jobs, good jobs, but we have an economy with, you know, 2.5 million people in the labor force. What we really need is something in the range of three to four percent growth, 100,000 jobs a year. We haven't seen 100,000 jobs added to the Arizona economy since I would say 2006. So, we're, you know, close to eight, nine years since we've really seen the kind of growth that this economy is capable of.

Ted Simons: We hear about tax breaks and tax credits. Just, you know, in general, how much of a factor are those in what has been Arizona's recovery, regardless of how that recovery is going, are they impacting what we are seeing out there?

Lee McPheters: I think one of the key things here when you look at the tax structure, you want to be competitive. You don't necessarily have to have the lowest taxes, but you do need to be competitive and I think Arizona has taken some steps, especially with business taxes, to get us more in line with what some of the competition is doing. On the other hand, when you look at a business and you look at their cost, what other costs, cost of equipment, cost of supplies, cost of labor, taxes is way down the list in terms of its proportionate contribution to the total budget of a business, but certainly lower taxes are better, I think, as an attraction.

Ted Simons: How about as an attraction or perhaps a repellant, the image of a state. Arizona's image has been hammered some would say unfairly, but hammered nonetheless. Is that an impact on a slow rebound?

Lee McPheters: To some extent we do have a business model, development model that is based on the idea that this is an attractive place for business to relocate for people to come and perhaps have a better quality of life and reinvent themselves, and to the extent that we show up on the John Stewart show, you know, behind the host and some sort of perhaps sarcastic remarks, none of that, I think, is very positive. On the other hand, if you had a stronger economy, I think, and we had a better job growth environment right now, I think that that would probably be one of the key things we need in order to get people and businesses to relocate here.

Ted Simons: Interesting. I notice in these latest numbers, California and Texas doing very well, kind of leading the U.S. rebound. A place like New Mexico, as far as getting the jobs back, doing very poorly. Why are some of these states doing well? Why is New Mexico, for example, doing so badly?

Lee McPheters: New Mexico is a state that has a higher proportion of employment in government, and at the federal level, government jobs have been decreasing since, I believe, 2011. You look at Arizona or most other states, you find that local government jobs have been decreasing for several years. So, to the extent that you depend on government, this is not, perhaps, a very good time for your -- to expect your economy to be showing much growth.

Ted Simons: Last question here, as far as the U.S. economy, talk about Arizona, but the U.S. economy, the recovery is taking its time to say the least. Why is that? Why has this been such a long SLOG?

Lee McPheters: The driver of growth at the national level, after you kind of set aside special circumstances, energy production, so forth, is the consumer. 70% of the economy is counted for by the consumer. And consumers are paying off debt in many parts of the country, consumers are still under water. Arizona less so than we were, but still a problem. The consumers still see a high unemployment rate, and now we're seeing this emerging problem of the presence of student debt, perhaps, slowing down the ability of consumers to really make purchases, you know, big-ticket purchases simply because of their debt load of consumer debt tied to their college experiences.

Ted Simons: So, nationally, at least those jobs are coming back. If you put the population in -- increase in there, jobs are coming back, Arizona jobs not coming back as quickly as we would like.

Lee McPheters: They are coming back in a couple of sectors we are seeing great growth in finance, we're seeing great growth in health care, and Arizona is ranked in the top five states in the growth of both of those sectors. So, those are good jobs, good wages, and I think that is an important boost for the Arizona economy.

Ted Simons: Indeed. All right, Lee, good to have you here. Thank you for joining us. We appreciate it.

Lee McPheters:Research Professor and Director, JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business at Arizona State University;

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