Arizona economy slower, but still on growth track

Economists say state shifts into lower gear but remains on growth path

Arizona’s economy has slowed a bit over the past year but remains on a growth trajectory with no recession in sight, say economists at a forum Wednesday. Job growth will continue, they predict, with the state population surpassing 7 million next year as more people move to the state.

Arizona’s economy has slowed over the past year but remains on a growth trajectory with no recession in sight, according to economists speaking at an event in Phoenix on Wednesday.

“Arizona has downshifted a bit,” said Lee McPheters, an economics professor at Arizona State University, referring to job growth. But he predicted the statewide job tally will pick up in 2018 as the national economy expands.

Among other predictions offered by speakers at the forum sponsored by JPMorgan Chase and ASU’s W.P. Carey School of Business:

❚ Arizona will continue to rank among the 10 best states for job growth, though at a lower spot than prior years.

❚ The Phoenix area will dominate the state’s economy, with few, if any, net new jobs elsewhere.

❚ Fast-food restaurants and many other low-wage businesses will continue to hire aggressively despite an increase in Arizona’s minimum wage.

❚ More people will move to Arizona, especially in 2018, pushing the state’s population above 7 million.

McPheters and other speakers said they see no imminent end to the national economic expansion, despite its being the third-longest on record.

“Overall, the (national) economy is in very good shape,” said John Williams, president of the Federal Reserve Bank of San Francisco and another speaker at the conference.

Nearly 700 people attended the luncheon in downtown Phoenix.

Anthony Chan, Chase’s chief economist, said most national economies around the world are growing together. “The bottom line is that the world is getting better and the U.S. is getting better.”

Both Williams and Chan cited the “misery index,” an indicator that sums the unemployment rate with the inflation rate to get a sense of how job losses and higher prices affect people.

The current U.S. misery index, at a bit above 6 percent, is half the level of where it stood in 2011 and one-third the level of the early 1980s, Williams said. Eight years into the expansion, economists still aren’t seeing signs of significant inflationary pressures, he added.

Williams predicted the U.S. unemployment rate, currently at 4.1 percent, could dip to around 3.75 percent next year. It already has reached a level that economists define more or less as full employment. Arizona’s economy also is faring well despite job growth that remains below historic norms.

The state’s expansion is entirely centered in the Phoenix area, which McPheters expects will add around 49,000 jobs this year, with little, if any, net employment gains in Tucson or other areas. He predicted Arizona will create 61,000 jobs statewide in 2018, primarily in the Valley.

“Tax reform and the expectation of a tax cut have boosted consumer confidence and have been a source of business optimism,” McPheters said, adding that a failure to pass a tax bill could slow economic growth.

McPheters said he didn’t think Arizona businesses have been hurt overall by the increase in the state’s minimum wage, which took effect at the start of 2017 with predictions by some that it would drive up costs at restaurants and other low-wage establishments.

“In fact, Arizona ranks No. 1 in the rate of growth in food-service jobs,” he said.

Arizona also ranks first nationally in financial-employment growth, and the state’s real- estate sector continues to expand. McPheters expects single-family housing permits to rise from around 24,900 in 2016 to 28,300 this year and 32,600 in 2018.

Arizona’s population likely has surpassed 7 million, though officials census numbers haven’t been released. McPheters said he expects the state will count around 111,000 more residents this year, with another 120,000 or so net new residents in 2018.

Chan noted that the current national expansion now is roughly twice as long as the historic average of 3.9 years.

Expansions “don’t die of old age but need a catalyst” such as sharply rising interest rates; no such catalysts are currently on the horizon, Chan said. He predicted another two to three years of recession-free growth.

“Arizona ranks No. 1 in the rate of growth in food-service jobs.”

Lee McPheters Economics professor, Arizona State University