The good news: Arizona’s economy will continue to grow next year. The bad news: The growth rate will be slower than in 2006 as the economy downshifts for the third consecutive year.
That’s the consensus outlook of 18 economists who contribute to the Arizona Blue Chip Economic Forecast compiled by the W.P. Carey School of Business at Arizona State University.
“The indicators are strong, but not as strong as in 2006,” senior associate Dean Lee McPheters said at the 43rd- annual economic forecast luncheon Wednesday sponsored by the W.P. Carey school and JPMorgan Chase & Co. “There will be yellow flags for the national economy, but it will be a solid year for Arizona in 2007.”
Among the positive factors: population growth will continue to be among the best in the nation, and job growth will outpace the national average der-performance in exports to foreign countries and a sharp decline in housing affordability, McPheters said.
Arizona’s share of total U.S. exports has declined from 1.71 percent in 2001 to 1.33 percent this year, indicating the state’s economy has become less global during the current expansion cycle, McPheters said. He attributed that primarily to lack of knowledge by Arizona businesses about economic opportunities overseas, particularly in Asia and mainland China.
As for the housing affordability issue, McPheters doesn’t expect it to have a strong adverse impact on economic growth, but he said it will drive more development to the outer urban fringes, increasing the need for roads and other infrastructure projects.
Scottsdale economist Elliott Pollack said the Valley real estate market also has its good news-bad news aspects.
The good news is commercial and institutional construction is strong. The bad news is single-family housing permits are being issued at less than half the pace of a year ago, even though sales have remained strong, he said. “What happened is builders overbuilt in 2004 and 2005, and about 15,000 to 25,000 excess units are now on the market,” he said.
“We’re basically going through an inventory correction.”
New home construction is likely to remain slow in 2007 until the excess units are sold off, he said. Downward pressure on prices also is likely to continue until the inventory is worked off, he said.
“If all goes well, it will be a lousy year in 2007,” he said. “If it’s not a lousy year, this (slow housing market) will just drag out.”
Taking a wider view, John B. Taylor of the Hoover Institution at Stanford University said the nation is in the midst of an economic expansion cycle that has entered its fifth year and has already become the third longest in the nation’s history.
The only two that were longer were the expansion of the 1990s, which was the longest, and the expansion of the 1980s, which was the second longest. Those three expansions were separated by two short recessions, which means the nation has enjoyed 25 years of generally good economic performance, he said.
Taylor attributed the long boom to changes in monetary policy by the Federal Reserve Board in the early 1980s that brought inflation under control while still allowing the economy to grow. He predicted the current expansion will continue through at least the end of next year. “As long as we don’t let the inflation cat out of the bag, there’s no reason it can’t continue,” he said.