December 5, 2007

As part of my series of posts on the Phoenix housing market and the Arizona economy in general, today I’m writing from the 44th Annual Economic Forecast Luncheon.

Experts at the 44th Annual Chase/W. P. Carey Economic Forecast Luncheon (including S&P’s Chief Economist, JP Morgan Chase’s Senior Economist, ASU Economics Associate Dean, and local Economist) said that a dark cloud of uncertainty hangs over Arizona’s economy, despite strong economic indicators (including record-low unemployment) in 2007.

According to Knowledge@W. P. Carey’s coverage of the luncheon, these were the key points:

The subprime mortgage collapse and problems in credit markets have created an air of uncertainty around the U.S economy despite strong second and third quarter data this year.

Economic growth in other countries has helped the United States withstand the troubles in credit markets and other areas. Growing economies elsewhere have a greater demand for U.S. goods and services.

Even with the recent oil price hikes, inflation does not appear to be a pressing issue now. The Federal Reserve appears prepared to cut interest rates to ease the current credit problems.

Consumer spending is a key to U.S. economic growth. Five factors affect consumer outlook and consumers’ willingness to spend: the credit crunch, foreclosures, gas prices, the housing market, and the labor market.

The Greater Phoenix housing market is over-supplied, and that puts downward pressure on home prices.

How long it takes to return to a normal housing market depends on three factors: how significant the slowdown in new housing starts is in 2008; how fast population grows; and how much of the buyer pool disappears because of tighter credit rules.

The Arizona labor market is strong, but consumers are still gloomy. There is uncertainty about future job growth even though the unemployment rate hit a record low in 2007.

What we don't know about the future overshadows what we do in 2008 forecasts. The economy in 2008 will hinge on the state of housing inventories, population growth, and whether or not there is a national recession.

Job growth

Job growth has slowed, and will continue to slow in 2008, but job growth in Arizona is still positive – we are still creating new jobs (Arizona is forecasted to create 79,100 new jobs in 2008, down from 84,600 in 2007).

Arizona ranks 13th in job growth compared to other U.S. states.  In the personal services, hospitality, trade, and professional business services the state ranks in the top 10 (1st in personal services).

Foreclosures

I’ve written quite a bit about foreclosures because they’re affecting more Arizonans each day.  But while the number of foreclosures has been increasing, in comparison with the rest of the country, we’re actually doing pretty well.

And according to the W. P. Carey School of Business at ASU, Arizona is one of the 10 least distressed states (economically) in the country.

The take home message from the luncheon was this: 2008 won’t be great (“It will be a year best forgotten,” said one economist) but barring a national recession Arizona’s economy will be fine.