Arizona Economist Elliott Pollack gave Pinal leaders a hard line view of what to expect from the local, state and national economies in 2008, warning that government leaders should take advantage in the economic slowdown to build up infrastructure before disaster strikes.
Speaking at the Pinal Partnership monthly meeting Dec. 14 at the Ak-Chin Casino and Resort, Pollack spanned the spectrum of the economic outlook for next year, saying that while a growing number of citizens are worried a recession is imminent, he believes the economy as a whole will continue to limp forward.
Pollack, who is CEO of Elliott D. Pollack and Company, an economic and real estate consulting firm based out of Scottsdale, focused his beliefs that the economy would grow at a slow pace next year on several key points. He said the glut of houses on the market is keeping the principals of supply and demand out of balance after the aberrational boom of the past few years where houses were bought and built like hotcakes.
“This is not going to be over until housing prices stabilize and there’s no indication they will stabilize any time in 2008,” said Pollack, who told homebuilders and developers it was their responsibility to cut back on home building projects over the next year to keep from prolonging the glut.
Pollack praised the Federal Reserve Board for dropping interest rates and pumping money into the system to keep a limited credit crunch from expanding and affected the rest of the economy. While he predicted consumer spending would drop somewhat in 2008 and said inflation may play a minor role as the U.S. dollar continues to devalue, the Arizona economy, like that of the national economy, would continue to move ahead at a slow pace.
“The economy is not moving on all eight cylinders, but more like three or four,” he said, while warning that locally cities on the outlier of metro Phoenix would be the hardest hit by the slowdown. “Greater Phoenix pulses out like a balloon. Once we get through this, we will continue to grow rapidly but because you are at the edge of the balloon, you feel the brunt of it.”
Pollack predicted 60 percent of the Arizona economy would continue to show gains in 2008, which would push the economy as a whole forward, while struggling against a slowdown in new construction. Part of the problem with new growth, he said, was that while foreclosure rates in Arizona at 1.35 percent remain lower than average, higher numbers of foreclosures in Midwest states are cutting back the influx of new residents to the state, which has been and will be a primary driver to economic growth.
Rather than fret the housing market and economic slowdown, Pollack told the governmental leaders it was crucial to seize upon this as an opportunity.
“Use this two- or three-year hiatus to deal with transportation and infrastructure problems or you will choke to death down the road,” he said, specifically mentioning the “bumper-to-bumper” rush hour traffic on State Route 347. “Without transportation, nothing works. This is an opportunity if you look at it the right way.”
The growth he said, was unavoidable in the future, but to attempt to develop segments of the economy before the local market could sustain them, would be a waste of time, he said. Metro Phoenix has been the fastest growing metro employment market in the United States since 2005, but that doesn’t mean all of its parts are on the same page.
“You can’t get retails without rooftops and you can’t get jobs without the labor shed,” he said. “Retailers are chasing income. Nature will take its course. You’re not going to get the jobs until you get the labor shed, so don’t kid yourself.”