Economists: Ariz. recovery still a ways off - East Valley Tribune: East Valley Local News

Economists: Ariz. recovery still a ways off

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Posted: Wednesday, May 20, 2009 4:31 pm | Updated: 12:28 am, Sat Oct 8, 2011.

The economic recession is expected to end in the second half of this year, but job losses and the state government's money woes will continue a lot longer, according to economists who spoke to the Economic Club of Phoenix on Wednesday.

The consensus among economists is the gross national product will start growing in the third quarter of this year, cutting off what by then will be the longest recession since the Great Depression. But the local Valley economy will likely continue to lose jobs until the second half of 2010, said Lee McPheters, economics research professor at Arizona State University's W.P. Carey School of Business.

Speaking at the club's annual Economic Outlook Luncheon, McPheters presented the local, state and national economic woes in stark terms. His best news: It's not as bad as the Great Depression, when the economy contracted for four straight years. In the current "Great Recession," the economy is expected to decline for only four straight quarters.

But the labor market continues to be a major worry. After years of being near the top in job growth, Arizona now ranks last in the nation in the rate of job creation, he said. And the Valley ranks last among major metro areas in job growth, having lost more jobs than even auto-battered Detroit, he said.

After losing 45,000 jobs in 2008 and an expected 90,000 jobs this year, metro Phoenix is expected to lose another 20,000 in 2010, McPheters said.

Home building is likely to hit the bottom this year and could recover slightly next year, he said.

The consumer will be the key to bringing the country out of its recession because consumer spending accounts for 71 percent of the gross national product, McPheters said. But consumers will want to see positive developments such as an end to the decline in housing values and a slowing in job losses before they start spending again, he said.

Once the rebound begins, McPheters believes Arizona will enjoy one of the nation's strongest recoveries.

"It's a sure bet we will be a leader post-recession," he said. "There is 50 years of evidence of that. But there are two ugly years still ahead of us."

The weak economy will cause the state government to struggle financially until 2012, said Eileen Klein, director of the Governor's Office of Strategic Planning and Budgeting.

The state's revenue recovery will lag behind the economic recovery because income and corporate income taxes often are not paid until a year after the income is earned, she said.

At the same time that revenue is declining, she said demands for state spending have greatly increased, driven by growth in the numbers of university students, prison inmates and especially Medicaid patients.

Klein said the slowdown does create political opportunities to make structural changes, such as tax reforms to attract businesses, that wouldn't be possible in boom times.

Tax reform is one of the points in Gov. Jan Brewer's program to cover the budget gap until the economy and revenue recover. Another, which has generated the most controversy, is a temporary $1 billion tax increase.

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