Economist: Growth will continue a slower pace

The national and local economy will continue to grow this year and next, but at a slower pace than in the past as the economic expansion labors into its sixth year, according to a respected Valley economist.

Elliott Pollack, president of Scottsdale-based Elliott D. Pollack & Co., said the economy should avoid a recession, but the slow pace of growth may make it feel like a recession.

GRAPHIC: Valley job growth slowing

“The economy is no longer running on eight cylinders but on three or four cylinders,” he said. “So the economy will still be driving forward, but . . . it will be a sub-prime year.”

Because the current expansion is aging, the Valley’s job growth will slow down, following the traditional pattern of past economic cycles, he said. Also population growth will slow down because potential new residents will have a harder time selling their homes in California or the Midwest, he said. The result is the housing market will remain weak for several years, he said.

“This will take a while to resolve,” he said of the housing slump. “The next few years could be ugly.”

Pollack spoke Thursday at the Economic Outlook 2008 conference sponsored by the Greater Phoenix Chamber of Commerce and Cox Communications at the Arizona Biltmore Resort.

Pollack believes the Federal Reserve Board will keep interest rates low enough to avoid a recession because a recession would not provide any economic benefits. Usually a jump in inflation will bring on a recession to reduce prices, but inflation is not a major problem today, he said.

“A recession would be like taking a pill when you’re not sick,” he said.

On the positive side, corporate profits are high, business capital spending is up and exports are booming because of the weak dollar, he said.

R.L. Brown, publisher of the R.L. Brown Housing Reports, said a lack of consumer confidence is the biggest obstacle to a recovery in the housing market.

“When a consumer has no confidence in a market, he doesn’t buy,” Brown said. “He sits on his hands because no one wants to appear stupid in making a purchase decision.”

Brown said the Valley has a 15-month supply of new, resale and foreclosed houses that are available for buyers, even if there were no new construction. Housing is “dramatically” overpriced for such a large inventory, he said.

“Those of us in the industry need to recognize we are living in today’s marketplace,” he said. “We must accept the market as it is.”

The supply-demand equation is better balanced in the Valley’s commercial real estate market, but there are a few worrying signs, said Greg Coxon, a commercial specialist for CB Richard Ellis.

The amount of vacant sublease space is increasing in the office market as mortgage companies and home builders cut back, he said. And the retail market, which could be strongly affected by a drop in consumer spending, needs to be watched, he said.