Ted Simons: Tomorrow the Greater Phoenix Chamber of commerce and Cox Communications are presenting an economic outlook for 2012 at a breakfast in downtown phoenix. One of the featured speakers is Dr. Beckie Holmes, director of marketing science and chief economist for Cox Communications. She joins us to share her Forecast for Arizona and the Nation's economies. Good to have you here.
Dr. Beckie Holmes: Thank you.
Ted Simons: Let's talk about Arizona first and let's talk about unemployment. What are you seeing?
Dr. Beckie Holmes: The unemployment rate is high; it's about the same as in the nation right now. It's expected to fall, but a lot of the reasons unemployment is falling right now is not necessarily good news. One of the things we've been seeing is people is dropping Out of the labor force because Unemployment duration has been quite long in this recession. So some of the reasons rates are ticking down are bad. And then some of them are good. We are actually creating jobs again in Arizona.
Ted Simons: Before we get to that, I think Ben Bernanke today said it’s a national crisis in that so many people have been out of Work for so long, they're losing touch with the job market.
Dr. Beckie Holmes: Right. Right. In my opinion this is one of the big issues that we're going to need to address. We've seen two groups of folks have been very impacted. One, men, ironically, and the other are younger people. Both of those groups of people have seen sharp drops in their Labor force participation, and that will hurt us in the future because as you said, they've lost dump with the job market, They're losing on skills, and It's going to be hard for them To get up the speed when the Economy recovers.
Ted Simons: here in Arizona, you're Thinking, what, job growth, but Weak in the next few years? Something along those lines?
Dr. Beckie Holmes: Right. So the outlook is for another Couple of years of below-average growth, we'll get to above average growth probably around 2014, 2015, but it's going to be a long recovery.
Ted Simons: Personal income, what do you see there?
Dr. Beckie Holmes: Personal income growth is very weak, but positive. If you look at a household basis, the recession was not kind to most households. Household incomes fell for the last couple years, and we have seen an increase in people in poverty. We're spending to see that reverse and start to see income Gains as the job market recovers, but it's going to be a slow process and it's going to take a while. On income, one of the confounding factors there is that a lot of the growth or stability in the income we've seen has been due to government support. Unemployment benefits, those things will go away. When they go away, if the economy is not there to pick up, it’s going to hurt income growth.
Ted Simons: Something else regarding income growth would be the kinds of jobs we wind up getting. A lot of folks say we're moving toward a service economy. Do you see this as well?
Dr. Beckie Holmes: It's definitely what we've seen in this recovery. The one sector that's turned in very solid growth has been Education and health services. So the population serving pieces of our economy have managed to be fairly stable. So jobs in health care and jobs in education have done ok, whereas if you look at more Goods producing jobs, not so Much. We've lost a ton of construction Jobs, a lot of manufacturing Jobs, and those aren't really expected to come back any time soon. So we're going to see some growth in population serving Industries, which tend to be Service related, and not a lot of growth and the more goods sector.
Ted Simons: When you say not for a while for manufacturing and Construction, what does that mean? When is "a while"?
Dr. Beckie Holmes: I think for construction we’re going to need obviously a Demand for houses to return. That's probably three to four Years out still. We may see a little bit of improvement, we will build more than we did this year, which was almost nothing as we move forward. So we'll see construction picking up some, but not solidly, not strong growth, probably for a couple more Years. On manufacturing, that's a little different story. Our manufacturing industry here In Arizona is partially High-tech and partially Population serving. The high-tech sector is doing pretty well. And may continue to grow. The population serving sector is A little weaker. So we may not see especially since a lot of that manufacturing job was to serve the construction industry.
Ted Simons: For years Arizona was criticized as being too dependent on construction. One single element of the Economy was driving everything Else. Obviously that element has had its problems here, and you say it’s going to continue to have its problems for a while. Are we diversified -- silver Liking, are we diversifying, are We seeing things spread out, or Are we now as dependent on Retail as we used to be on Construction?
Dr. Beckie Holmes: I think the economic Development community has put a Lot of effort into finding other industries, diversifying our economy, trying to build a more after high-wage knowledge-based Economy. And we've seen some success, but That's a long-term strategy and It requires fundamental changes To our education system, and to Our somewhat to our tax Structure and some extent to the Perception of Arizona outside of The state.
Dr. Beckie Holmes: So I think that's a good Thing and we've seen some Success there, but housing is Always going to be important to Arizona, because we are hopefully a population, a state that has a lot of population growth. We can now see what Arizona Feels like without housing, and it’s definitely been painful.
Ted Simons: without population growth, either. Real quickly, the national Picture, everyone says a slow Recovery, same thing for you?
Dr. Beckie Holmes: that's what it's looking like for me too. Just like for the state, there's been a lot of sort of bad news in the last couple months, Increase in risks, so there's definitely the possibility we could dip into recession, but my Outlook for next year is for continued slow growth.
Ted Simons: Why isn't the job market recovering? Why is credit still tight? Why are these problems that we saw a year, two years ago, whatever, three years ago in some cases, why are they still hanging around?
Dr. Beckie Holmes: Right. You know, I think the short Answer is we're not going to fix the economy until we fix the Imbalances that got us into this mess. And the imbalances were essentially too much debt, and some -- that's really the major Thing. And so have we fixed the debt Problem? Sort of. So households have deleveraged Quite a bit, businesses have Refinanced and deleverage add Bit. The financial sector has reduced their debt quite a bit. But what have we done? Shifted a lot of that debt into The government sector. Now we're battling huge Government debt. And next year is going to be marked by the year where we try to fix the government debt Problem. This year we sort of fixed the Household problem. We're not going to I think pull Out of this until we manage to Get the debt burden down across the nation.
Ted Simons: but we will pull out no Double dip as far as you can see.
Dr. Beckie Holmes: That's my opinion right now.
Ted Simons: We'll hold you to it. Thank you so much for joining Us.
Dr. Beckie Holmes: thank you.