The “Great Recession” cost Arizona 300,000 jobs and cast a shadow long after it was declared over, but the outlook for the East Valley in 2011 is looking gradually, if tentatively, brighter.
The economic downturn caused the state’s unemployment rate to peak at 10.6 percent in January 2010, experts say. Conditions started to head south in December 2007, but took a particularly sharp decline in September 2008, when the financial system collapsed.
The outlook for unemployment is still bleak two years after the recession’s official end; according to the Bureau of Labor Statistics, the state’s seasonally adjusted unemployment rate was still 9.3 percent in April.
“We are seeing a slow, gradual recovery. The national recession was declared over in June of ’09. Employment in Arizona continued to lose jobs beyond that time all the way into the latter part of 2010,” said Rick Van Sickle, an analyst in the research administration in the Arizona Department of Commerce.
Van Sickle used the term “jobless recovery.”
“There may be aspects of the recovery that are stronger, but employment is one of the weakest,” he said.
Employment and wages
The unemployment rate varies across the East Valley. Chandler and Gilbert enjoyed relatively lower unemployment rates in the month of April, which are 6.2 percent and 4.6 percent respectively, than Mesa and Tempe, which are 7.4 and 7.0 respectively. From 2008 to 2010, Mesa saw a loss of about 26,000 jobs.
Chandler created new 6,000 jobs in 2010 though, said Christine Mackay, the city’s economic development director.
“These are truly new-to-market jobs. These aren’t jobs that an existing company added 100 jobs. It wasn’t an existing company that added 15 jobs,” Mackay said.
This was the best year Chandler has ever had for growth. Normally, the city considers it a great year if they add 1,200 to 2,000 jobs, let alone 6,000.
Mackay said Chandler was very lucky to have weathered the recession as well as it did.
“We kind of had an inkling (the economy) was starting to go south in mid-2006. We were able get a jump on some projects and encourage developers not to build. We didn’t end up with quite as much vacant spaces as other places did,” she said.
The indicators that a bubble was about to burst included home prices jumping $5,000 a week, land selling for $25 a square foot, when it was really a $6-a-square-foot market, and contractors, engineers, and architects being unable to bid on work because they were overbooked.
“You can’t sustain that type of growth,” Mackay said.
The area added 93,000 jobs since the recovery started, said Barry Broome, the president and CEO of the Greater Phoenix Economic Council.
Some sectors have started to grow, particularly in clean energy.
“The opportunity for us is in solar, renewable and clean technologies. We have had about 17 companies come to greater Phoenix in the last year. That is about 6,000 direct jobs and probably another 14,000 indirect jobs,” said Broome.
The clean energy sector is growing throughout the East Valley. Mesa recently announced that First Solar plans to bring jobs to that city in the near future.
Construction was the sector hardest hit by the recession, and is still struggling.
“By the end of 2012, we may have very weak gains. By 2018, we expect to have (construction employment) still below pre-recession levels,” Van Sickle said.
According to data from the ASU Real Estate Center, permits for single-family home construction are still way down in Maricopa County. In 2000, there were 33,107 permits. In 2010, less than a fifth of those permits, 5,672 of them total, were handed out.
Wages are still a concern as well.
“(The Greater Phoenix area has) a continued decline in our job position in a wage and diversification standpoint,” Broome said. “One of the things that is happening in the Valley is personal income is starting to go up. The reason personal income is starting to go up is because we lost so many (low-wage) jobs.”
Data obtained from the city of Mesa gives a closer look at this. In 2007, the year the recession started, median household income in Mesa was $49,938. In 2008 it rose to $50,993. Due to the increased intensity of the recession at the end of 2008, median household income jumped to almost $53,000 in 2009 and almost $54,000 in 2010.
Commercial investment around the East Valley has picked up lately.
Alongside First Solar, Crescent Crown and Able Engineering also plan to employ workers in Mesa.
Intel has said it will spend $5 billion on a new factory in Chandler, which will bring thousands of new jobs.
The economic multiplier will be sizeable as well: For every job Intel brings to Chandler, three to four more jobs are expected to spring up as a result of the expansion.
In Tempe, more companies are beginning to buy property.
“The conversations we are having today with people about property will result in a building permit a year from now, two years from now. You see the recovery in the number of zoning applications,” said Chris Anaradian, Tempe’s community development director.
Tempe’s economy was not initially affected by recession because it was mainly concentrated in single-family home construction, which the city doesn’t have a stake in.
“Our decline into the recession was delayed about a year because of the types of buildings we were building and the way our economy was set up,” Anaradian said.
He saw a significant drop-off of investment interest once the entire financial system collapsed, though.
In 2007, Anaradian had three conversations a week with companies interested in rezoning or reworking a piece of property.
In 2008, those conversations dropped to about one a month.
After the bottom fell out from under the economy, there was a 14-month period where no companies wanted to invest in property in Tempe. Now, Anaradian normally talks to interested companies about once a week.
“The zoning (part) of the business is the beginning. It’s where we start to see people who are actually interested in investing in the community. When we go through the zoning process, we know they are real,” he said.
Two high-profile investors have come in from out of state recently. Vulcan Real Estate, which has never bought a piece of land outside Seattle, recently bought a building on Mill Avenue. The Cleveland-based Zaremba Group bought the vacant Centerpoint Towers on Mill Avenue. The towers will be high-rise luxury apartments and residents are scheduled to move into them starting late summer.
The federal response
When markets crashed and the recession intensified in September 2008, it was anybody’s guess where the bottom was.
The federal government took several steps that attempted to halt the economy’s freefall. The high-profile initiatives were the $700 billion bank bailout, or the Troubled Asset Relief Program (TARP) funds, the $787 billion stimulus package, or the American Reinvestment and Recovery Act, and the auto-industry bailouts.
Though the bailouts of the banking and auto industries generated a populist backlash, they are the most effective steps the federal government took, said the Greater Phoenix Economic Council’s Broome.
“The Recovery Act has been tough for Arizona. It is really for industrial areas, mostly. Arizona has gotten some Recovery Act dollars,” he said. Overall, he summed up the stimulus as “a lot of money without much leverage.”
TARP funds were not without their drawbacks though. It stopped unemployment from hitting 17 percent, but also slowed down our recovery.
“(TARP) is going to give us 10 percent unemployment for five or six years versus 17 percent unemployment for two years and a full recovery. I think backstopping the financial system stopped the economy from spiraling out of control, but it protracted the recovery,” Broome said.
Chandler provides anecdotal evidence to back up Broome’s claim: The first round of economic stimulus money the city received proved problematic.
“The first thing we received, which we weren’t able to use, was the funds that focused on economic development. The restrictions that went along with them made it so our companies weren’t really able to use them,” Mackay said.
The next round of stimulus money Chandler received was usable, though. Overall, the city was awarded over $22 million dollars from the Recovery Act. The money went toward fixing roads, making municipal buildings and lighting more energy efficient, and worked to keep families from becoming homeless.
Tempe was awarded over $15 million dollars in grants though the Recovery Act. The city used the money to keep police officers from being laid off and to make street lighting more efficient.
Tempe received a $1.87 million energy and environment block grant that has been used to save several positions from being cut and hire 100 temporary construction jobs, said Grace Kelly, Tempe’s energy-block-grant coordinator. The Recovery Act saved Kelly’s job.
“We are working on a grease-to-waste feasibility study. That is looking at taking restaurant grease and looking at the feasibility of turning it into biodiesel fuel to be used in our fleet of vehicles,” she said.
Another project of the grant is an energy retrofit for 23 different city buildings and water facilities, totaling 600,000 square feet of building area. The retrofit involves making lighting and air-conditioning more energy efficient and will reduce energy consumption by 30 percent. It will stop over 4,000 metric tons of carbon dioxide from being emitted, which is the equivalent of taking 804 cars off the road each year.
The city also received $9.4 million in financial assistance for the light rail.
Mesa received $46.9 million, as of October 2009, in formula grants from the Recovery Act. Much of it went toward transportation infrastructure. The city received $1.8 million for funding of light rail projects and $9.4 million for the construction of the park-and-ride facility at Country Club Drive and U.S. 60.
Other funds went to the Mesa Police Department, the city Department of Development and Sustainability and the Neighborhood Services Department.