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.
The economic outlook for Arizona in 2010 contains a little bit of good news and a lot of bad news. The good news is the state's economy will gradually recover. The bad news is the pace will be anemic with continuing high unemployment, weak construction and slow retail sales.
Those were the predictions of three economists who spoke Wednesday at the 46th annual Economic Forecast Luncheon co-sponsored by Arizona State University's W.P. Carey School of Business and JPMorgan Chase.
"Yes, there will be a recovery, but it will be painfully slow," said Elliott Pollack, a Scottsdale-based economist. "It will take time to work out. We have had a downturn of biblical proportions."
Lee McPheters, an economics professor at ASU, added that "in 2009 we were drowning in 30 feet of water. In 2010 it will only be 20 feet of water. But the situation still will be very dire."
Pollack and McPheters said the state's labor and real estate markets may not totally recover until 2013 or later.
McPheters predicted Arizona will continue to lose jobs through the first half of next year, and any turnaround after that will be "very modest." For all of 2010, the state will lose jobs for the third consecutive year, Arizona's longest losing streak in modern times, he said.
Arizona is worst in the nation in job growth, or the lack of it, he said, exceeding even the rate of job losses in auto-dependent Michigan.
Although the state's unemployment rate of 9.3 percent is lower than the national average of 10.2 percent, Arizona's rate is distorted by a large number of discouraged workers who have left the labor market, he said. If they were factored in, the state's unemployment rate would be closer to 15 percent, he said.
With so many job losses, McPheters said it may take until 2013 for the state to regain the number of jobs it had in 2007.
Also personal income will decline this year for the first time since records have been kept, he said.
"Despite our reputation for having boom-bust cycles, personal income in Arizona has never declined year-over-year," he said. "But it will be down up to 2 percent in 2009."
Pollack, whose specialty is real estate, sees little to cheer about in those markets either. He estimated the Phoenix metro area still has an excess supply of 40,000 to 50,000 single-family housing units, a number that has remained high despite construction cutbacks because foreclosed houses continue to flood the market.
Sales may be booming, but about 40 percent of those purchases are being made by absentee owners - mostly investors who will try to cash in by reselling them at higher prices in a few years.
"That means they will be coming back on the market," he said.
Construction of new homes may pick up slightly next year but will still be 80 percent below the pace of the pre-recession peak, Pollack said.
Population growth, which has helped overbuilt Arizona housing markets to recover in the past, won't be such a help during this recovery because jobs that would attract newcomers aren't being created, and retirees who would move here can't sell their homes in other states, he said.
On the positive side, housing affordability is way up because prices have declined sharply, Pollack said. He added that the price declines have probably hit bottom, and by 2014 housing prices could be 50 percent higher than they are today.
The situation is worse in commercial real estate markets, he said. Pollack expects the Valley's office vacancy rate to reach 27 percent in 2010, the highest on record, as companies continue to lay off workers. He predicted it will be five to seven years before another major office building is constructed in the Valley, and it may be a decade before commercial-building values reach their pre-recession levels.
Retail sales, a key factor for the sales-tax-dependant state government, also look weak going into the new year, McPheters said. "Until the economy starts to add jobs, the consumer won't come back," he said.
One of the few bright spots in the economy has been the stock market, which is up 60 percent from its March low. But investors should exercise caution in 2010, said Anthony Chan, Chief Economist for Private Wealth Management, JPMorgan Chase.
"The easy money has been made," he said. "You won't see the gains that have been made from March to now."
He said the best returns next year may come from stocks of large domestic companies, foreign stocks to take advantage of the weak U.S. dollar and investments that benefit from problems with nonperforming loans. He advised caution in investing in gold, which already had experienced a steep price run-up.
Chan doesn't foresee a double-dip recession because the Obama administration appears focused on preventing the economy from deteriorating further.