12/3/2009 4:03:00 PM Economic forecasters say Arizona still has not weathered recession storm
By Howard Fischer Capitol Media Services
PHOENIX -- Arizona will continue to lose jobs well into next year and may not get back to 2007 levels of employment until 2013 or beyond, Lee McPheters predicted Wednesday.
McPheters, a professor of economist at Arizona State University, said all indications are that the national recession is over.
"But the recession in Arizona is not over,' he said.
His predictions and those of two other economists came at the 46th annual forecast conducted by ASU and JPMorgan Chase Bank. All three agreed that hard times remain.
"Nationally, retail sales have kind of hit bottom and are moving up,' McPheters said.
"Here in Arizona, retail sales continue to contract,' he continued. "And it's very likely that for the (coming) year as whole, retail sales will be down anywhere from 12 to 15 percent.'
The problem, he said, is that consumer spending amounts to about 70 percent of the economy.
"Here in Arizona, consumers and businesses are worse off than we have been in any recession,' McPheters explained. And he said Arizona is worse off than any other state as shown by several key indicators. One of those is job losses.
He said that while the state weathered recessions in 1991 and again in 2001, there was no actual loss of jobs in Arizona.
"In this current downturn, it looks like we're going to lose something in the range of 250,000 to 275,000 jobs over a three-year period,' McPheters said. He said the last time there were job losses in Arizona was in the 1970s.
And if anyone needs an example of just how bad it is, McPheters said Phoenix is losing jobs faster than Detroit.
"This is just an economy that is reeling with difficulty,' he said.
McPheters said total state employment could drop to as low as 2.2 million next year. He said it will take at least four years to get back to Arizona having 2.7 million people employed, the peak it hit at the end of 2007.
"So we're looking at a long road to recovery,' he said.
Economist Elliott Pollack was equally pessimistic.
"This is a downturn of biblical proportion, seven bad years,' Pollack said. "In 2014 employment will be no better than 2007.'
Pollack said there's a ripple effect of all that on real estate.
The problem starts with the fact that there are more new homes for sale than the market can absorb. Then you add foreclosures on top of that.
"Ultimately, about 10 to 15 percent of job losses result in somebody ultimately losing their house,' Pollack said. "The job losses today will result in somebody losing a house in 2010 or 2011.'
In Maricopa County alone, he said, there are 50,000 homes in the foreclosure process.
That situation is complicated further by the fact that people are not moving to Arizona in the numbers they have in the past.
McPheters said the state typically gains about 130,000 new residents each year, whether by births or net migration, a figure that amounts to about 3 percent a year. He said Arizona would be lucky to grow at half that rate.
Some of that may be because people can't find work here.
But Pollack said the state also isn't attracting the retirees it used to get from elsewhere, whether because their 401(k) accounts have lost so much that they can't afford to quit their jobs or because they just can't sell their homes back East.
The problem goes beyond single family homes.
Pollack said there also is an excess of apartments, not only due to lack of population growth but also that some people have found it cheaper to buy than to rent. And he said the commercial real estate market won't get back to the peak it had hit in 2007 for another decade.
He said, though, there will come a point where all that excess housing will be absorbed.
What that means, Pollack said, is that by 2014 the median price of a home should be up by 50 percent.
"The markets get back to normal, the foreclosures go away, the distressed properties go away, all the cheap housing goes away,' he explained.
"Then you have to build at cost,' Pollack continued. "And the cost is considerably higher than housing prices are selling for today.
The economist agreed that, as bad as things are, it doesn't rise to the level of a depression.
"We've seen a contraction of economic output in this recession of less than 4 percent,' said Anthony Chan, chief economist for JPMorgan Chase's private client services division. "We had a contraction of economic output of over 20 percent during the Great Depression.'
And Pollack said as high as unemployment is now, it's nowhere close to the Depression when more than one in five people who wanted a job were out of work.
