Arizona and Tucson continue to gradually recuperate from the recession, but
it's a fragile recovery, University of Arizona economists said Tuesday.
"The recovery of Arizona's economy from the Great Recession continues, and we're gaining a little momentum," Marshall Vest, director of the Eller College of Management Economic and Business Research Center, said at a breakfast presentation of the center's midyear economic outlook at the Westin La Paloma Resort and Spa.
Though home prices are headed up and unemployment is down, Vest said, tight credit, continued weakness in housing, global economic weakness, sagging consumer confidence and the drag of public-sector budget-cutting will likely slow growth until mid-decade.
And Tucson will likely see a significant summer slowdown -- similar to the last two summers -- that may stall the current momentum, he said, adding that he doesn't see the nation slipping back into recession.
UA economist Gerald Swanson said he also sees improvement. "The good news is, we are growing, and we're not Europe," he said.
But the recovery could be slowed -- or the nation could slip back into recession -- if Europe fails to solve its debt crisis or if oil prices skyrocket in reaction to a flareup of conflict in the Middle East, Swanson said.
The economy also will suffer if Congress fails to act to rein in deficit spending and start whittling away at the nation's enormous debt.
If Congress fails to act decisively, the U.S. risks falling off a "fiscal cliff," as automatic federal spending cuts could start in January, Swanson said.
He predicted Congress will lack the backbone to pass any meaningful fiscal reform in the current election year.
"I think the government will kick the can down the road until next year," Swanson said.
The unemployment rate in the Tucson metro area (Pima County) has dropped to 7.2 percent as of April from a recession peak of 9.5 percent.
"We see unemployment coming down, but it's still painfully high," Vest said, adding that many people have simply dropped out of the workforce.
And fewer people are coming to the state, including Tucson.
Tucson's metro population grew 0.5 percent in 2011 as in-migration -- though positive for the first time in three years -- remained slow, and the birthrate stabilized at a historically low level.
Hispanic families had nearly 30 percent fewer births in 2011, while births for non-Hispanic families fell 7.7 percent. Vest said the state's crackdown on illegal immigration has clearly led to a drop in the total of Hispanic births.
In-migration -- a mainstay of growth in Arizona and other Sun Belt states for years -- was negative in 2009 and 2010 and has been slow to recover, partly because people can't afford to sell their homes and move.
"Too many people are frozen in their homes because of negative equity," Vest said.
But there are signs of improvement on the housing front.
Vest noted that home sales have surged and prices have increased in recent months, driven largely by cash sales to investors intending to rent and hold properties for at least five years.
"Homes are selling at a brisk pace," Vest said, adding that more properties are attracting multiple offers and selling for closer to asking prices.
New-home construction continues to lag, Vest said. The UA economists predict an 18.7 percent increase in permits this year and a jump of more than 45 percent in 2013. But the UA research center has cut its forecast for local residential permits this year to 2,662 from an earlier forecast of 3,877, Vest said.
Forecast year-to-year percent changes in key economic indicators for the Tucson metro area (Pima County), by the UA Eller College of Management Economic and Business Research Center.
2012 2013 2014 2015 2016
Personal income 3.4% 4.2% 5.6% 5.8% 6.1%
Population 0.5 0.9 1.3 1.6 1.7
Nonfarm employment 0.8 1.4 2.3 2.8 2.6
Retail sales 5.7 3.7 3.4 3.9 4.5
Residential permits 18.7 45.6 32.5 24.2 7.6
Source: UA Eller College of Management Economic and Business Research Center
The Economic and Business Research Center at the University of Arizona's UA Eller College of Management updates its forecasts quarterly at ebr.eller.arizona.edu.
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