Ariz. economy recovering

Rebound seen in survey and ‘upward from here’

Arizona’s economy continues to bounce back and it could recover all of the jobs it lost last year in coming months, ASU forecasters say. There’s also no housing bubble on the horizon, they add.

Arizona’s economy continues to recover and could recoup all of the jobs lost in last year’s recession in coming months, with no housing bubble on the horizon despite rising home prices and tight supplies, Arizona State University forecasters said Thursday.

Paced by continuing population gains and improving business conditions, Arizona could gain about 117,000 net jobs this year and 89,000 next year, said Lee McPheters, an ASU economics professor. That would put the state’s employment back to pre-pandemic levels by the end of 2021 or early 2022. Metro Phoenix could add about 85,000 jobs this year and 73,000 in 2022, according to the forecast.

Roughly another 105,000 more statewide jobs are needed for a complete recovery, McPheters said. However, he described a K-shaped recovery pattern where middle- and high-paying positions have come back much faster than low-wage jobs, which are still down about 23% from before the pandemic began. This raises the question of whether lower-wage workers “prefer to stay home and draw the equivalent of $12 to $13 an hour in unemployment compensation,” he said during a webinar for the Economic Club of Phoenix.

More than 30% of small Arizona businesses haven’t reopened since the pandemic, plagued by weak demand, labor shortages and other problems, he added.

McPheters predicted single-family home permits will increase this year in metro Phoenix, a measure of healthy housing conditions, and noted that low mortgage interest rates have helped to push up prices in the residential market.

However, Mark Stapp, an ASU real estate professor, said that home-permit increases might come in below expectations given tight inventory. Stapp discounted the notion of a residential bubble building, describing the current hot market as reflecting a “supply problem” that won’t be fixed anytime soon.

Still, responses to a survey ASU recently sent to commercial real estate brokers elicited levels of ebullience for the local real estate sector reminiscent of bubbles. For example, 74% of respondents said the metro Phoenix commercial-property market overall is in an expansion or recovery cycle, 88% said it’s moving upward and 96% expressed optimism for local commercial properties generally. All respondents said they view the industrial and apartment markets as moving upward, while 78% said the same for retail. But only 45% said the office market is in an upswing. Office properties were hurt by work-fromhome policies, technological changes and other trends largely resulting from the pandemic, Stapp said.

Labor shortages, rising land prices and especially surging costs for lumber and other materials point toward higher home prices ahead — and that could transform affordability into a tougher social and economic development issue, Stapp added.

The average home price of around $484,000 in metro Phoenix during the first quarter was up about 24% over the past year, with only around 6,600 homes for sale, equivalent to less than one month’s supply.

National economy rolling, too

Arizona’s economy and housing market will take their cues from national conditions.

The U.S. economy has rebounded substantially from the steep recession during last year’s second quarter.

“The forecasts are clear — it’s really onward and upward from here,” said Dennis Hoffman, another ASU economics professor.

However, a number of uncertainties could dim the national outlook, Hoffman said.

These include expectations of higher inflation, a rising federal debt burden, increased materials costs, the graying of the population and widening economic inequality that could lead to more social unrest.

A slump of 31.4% in gross domestic product in last year’s second quarter was followed by gains of 33.4% in the third quarter, 4.3% in the fourth and 6.4% in the first quarter of 2021, Hoffman said.

In response to a question from the virtual audience about the biggest risks to the long-term economic growth of metro Phoenix and Arizona, McPheters cited climate change, the availability of water and a potential deterioration in the qualify of life.

A string of days with the thermometer above 120 degrees or so could challenge the perception of the state and metro areas as favorable places to live, he said.

While the state’s population was recently pegged at 7.15 million by the Census Bureau, that came in below a prior 7.42 million estimate made last year.