Arizona’s economy is strong, but it’s battling inflation and high house prices, a panel of Arizona State University economists and a real estate expert said Wednesday afternoon.
The discussion of the economic outlook was among the faculty of the WP Carey School of Business, co-sponsored by the school and the Economic Club of Phoenix.
“It’s been a really, really wild ride,” Dennis Hoffman said of the national economy.
The economy’s slump and rise from COVID-19 and the recovery are “unprecedented,” according to Hoffman, director of the L. William Seidman Research Institute and macroeconomist.
The retail economy has been completely paralyzed by the pandemic, but Hoffman expects a turnaround in exports.
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All the jobs gained since 2011 have been lost, but “we’re climbing back,” he said.
Inflation is the highest in 40 years. Too much money chasing too few goods is at the root of inflation. The pandemic, supply chain disruptions, labor market disconnects and excessive monetary expansion by the Federal Reserve are the causes, the panel said.
Inflation hits different people differently: lenders are hit, and those with fixed incomes and renters are hit the hardest.
According to the panel, the Fed was slow to respond. Since March 2021, the Fed has become increasingly hawkish. “Rate tightening is coming,” Hoffman said.
Investment in oil has fallen, hence gas prices have risen. “Headwinds are everywhere,” he said.
Bright spots include a trend towards onshoring of new US equity investments.
Hoffmann’s worries? Tribal politics are overemphasized in the media; Globalism must be placed above nationalism; Immigration keeps people who want to work away.
“We can’t source lithium domestically,” he said.
Lee McPheters, a research professor at the WP Carey School of Business and director of the school’s JPMorgan Chase Economic Outlook Center, said despite the spate of California license plates being seen in the Valley, deaths from COVID-19 have made the expected gains in new ones inhabitants decreased.
His outlook for 2022?
“2022 lays a pretty good foundation for 2023,” he said. “We’re definitely on our way to 100,000 new jobs in Arizona.”
Job growth is strong at 4.2%, “but that’s about mid-table,” McPheters said. “Our growth is behind us and that’s how we see it now.”
The service sector is the primary driver of Arizona’s economy, led by lodging/dining, retail, professional/technical, transportation/warehousing, and healthcare jobs.
Unemployment is at an all-time low in 17 states. Arizona has an unemployment rate of 3.3%. New Mexico ranks highest in the country at 5.3%.
Arizona is #4 in population growth. Many states have lost populations due to COVID-19, low birth rates and migration to other states. The fastest growing states are Florida, Texas and Arizona.
In Metro Phoenix, “we expect to see strong growth,” McPheters said. Single and multi-family dwelling permits are being increased in response to housing pressures.
The Phoenix CPI, the price of a weighted average basket of consumer goods and services purchased by households, is 10.9%. It surpasses all subway ranges.
Wage increases are also outperforming all metro areas at 6.4% but not keeping pace with inflation.
“That means real wages have fallen,” he said.
The biggest risk to Arizona’s economy is the national business cycle. Technology and distribution are the key sectors to watch. Arizona has issued the most building permits since 2006.
The real estate market is the best it’s ever been, but there are some critical concerns, said Mark Stapp, a Phoenix-area real estate expert and Fred E. Taylor Professor of Real Estate at ASU.
“We have less than a month’s inventory on this marketplace,” Stapp said. For buyers, that means they should better dig into their pockets. The average new home price is 11.7% more than the average earner’s mortgage capacity.
One of the main reasons for the low inventories is the years of sub-construction. 2016 was the last time shipments exceeded home intake. The population is estimated to grow by 90,600 but there are only 8,500 homes on the market.
“That’s an incredibly low number,” Stapp said.
Also, supply chain issues are choking home delivery. “You can’t always finish them,” he said.
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