The oil situation could cause a few bumps, but overall the outlook for the Arizona and East Valley economy is "pretty good" for the coming year, according to authoritative Scottsdale economist Elliott Pollack.
Pollack, who spoke Tuesday night at the annual East Valley Economic Forum in Mesa, said inflation and interest rates may rise modestly next year, but not enough to squelch the economy. He predicted the pace of job growth will increase, businesses will step up their investment and government spending will continue to stimulate the economy.
He described the situation as "a slippery slope upwards."
"We are still growing twice as fast as the nation as a whole," he said of the Valley economy. "We will see manufacturing pick up, but only slowly. There will be a continuing strong housing market and health services should be strong. The outlook is pretty good."
He cited several indicators that are pointing upward. Average hotel occupancy in the Valley stood at 65.4 percent in the first nine months of this year, which is up from 61.9 percent from a year ago and a low of 57.7 percent in 2002, according to Smith Travel Research. The average room rate is up 3 percent from a year ago.
Also, the percentage increase in Valley employment is expected to be 3.5 percent this year and 4.2 percent next year, up from 1.3 percent last year, according to the Arizona Department of Economic Security. So far, the Valley’s employment growth has been the second highest among major metro areas this year.
Other positive indicators: Valley retail, office, apartment and industrial vacancy are all expected to drop, although the office and apartment sectors are overbuilt and will take four more years to come into balance.
Meanwhile, the Valley’s population growth remains high and is expected to grow faster next year, Pollack said.
On the negative side, the number of single-family residential permits issued in Maricopa County is expected to drop in the next two years from a record 52,300 this year, and the median price of a single-family home continues to rise, reaching $175,500 in the second quarter of this year.
Even though the current construction rate is not sustainable, Pollack believes the housing market will remain strong for several more years because of strong population growth and demand. "People like it here," he said.
Another problem is the decline in semiconductor employment, which makes diversification into other industries such as biotechnology and nanotechnology important, he said. "We need to diversify our base," he said.
Looking at the south East Valley specifically, Pollack said the region has done such a good job of capturing high paying jobs, many in hightech manufacturing, that median incomes in Chandler and Gilbert are higher than in Scottsdale. Also, the East Valley is not as much of a commuter suburb as many people think, he said. Seventy-two percent of East Valley residents work in the East Valley while only 27 percent commute to Phoenix, he said, citing figures compiled by the Maricopa Association of Governments.
"The outlook (for the East Valley) is good," he said. "It will continue to grow and will have above-average incomes and home prices."
He said Williams Gateway Airport is an important asset for the area, playing a role similar to Phoenix Sky Harbor International Airport and the Scottsdale Airpark.
"In 10 or 20 years, it will be where a large number of the jobs will be," he said.
Nationally, the biggest uncertainty is oil prices, but Pollock believes they are likely to go down, and any resulting economic slowdown will be transitory. High gasoline prices did put the squeeze on consumer spending, siphoning away $44 billion from U.S. consumers in the first half of 2004, he said.
The keys to sustaining the national economic upturn will be higher business investment and job growth, sustained consumer confidence, a rising stock market and no major external shocks, Pollack said.
Other speakers emphasized the increasing importance of biotechnology in the East Valley’s economy. Dr. George Poste, director of the Arizona Biodesign Institute at Arizona State University, said the organization is involved in cutting-edge research linking biology with nanoengineering and information technology to produce cutting-edge systems such as in-body sensors that can detect if a patient is at risk for a heart attack.
"We are privileged to be inventing the future," he said. "The biodesign institute is an asset to the community."