Ted Simons: ASU economic experts delivered their midyear predictions today at the annual economic outlook luncheon sponsored by the economic club of Phoenix. Here now to share their forecasts are Robert Mittelstaedt, dean and professor of management for the W.P. Carey school of business. Lee McPheters, economics research professor and director of the J.P. Morgan Chase economic outlook center. And Mike Orr, director of W.P. Carey Center for Real Estate Theory and Practice. Good to have you all here on Horizon. Let's get to it, a lot to get through with both state and national. Full economic growth for Arizona in three years, full economic growth for the country in two years. Why?
Robert Mittelstaedt: Well, I think two or three years ago we said the depth of this recession was something that was unparalleled since the Great Depression. If you look at the history of it, and one of our colleagues put together a chart of the dips, called a spaghetti chart, of how long it took to recover -- it's so deep it's going to take a very long time to recover within a normal growth rate. The growth rate is not quite normal, so it's going to continue to take a while longer. Lee has been looking at that from the perspective of jobs.
Ted Simons: Please.
Lee McPheters: Let me give you the arithmetic on it. At the national level we lost over eight million jobs. So far we've added back about four million of those. We have another four million to go. Right now we're adding about two million jobs per year, about two years to full recovery. That's not an unemployment rate of 4% or 5% but that would get us back to the level of jobs we had before the recession began. Then the same thing in Arizona, we lost over 300,000 jobs, much harder hit than the nation in percentage terms, about 11% compared to 6% for the nation as a whole. We've only returned I would say to about 75% of where we need to be. So we've added 25% of the jobs we lost, we still have 75% more to government over 225,000 jobs in the gap here between where we were, where we are now.
Robert Mittelstaedt: The problem with just getting back to where we were, it doesn't even take into account population growth.
Lee McPheters: Absolutely.
Robert Mittelstaedt: That's getting back to where we were five, six years ago.
Ted Simons: Population growth impacts housing as well. The housing situation is curious indeed, isn't it? Things going great guns at the lower level, but can people sell mid and high range homes right now?
Mike Orr: I'd say midrange homes are okay, the high end still short of some buyers. Inventory does not pile up, it's reducing slowly, not anything like the shortage we're seeing at the low end. That sort of tied, moving up the ranges.
Ted Simons: As far as Arizona, we've got housing prices increasing, the job picture a little bit better, full economic growth maybe three years away. Is that the best we can hope for? You mentioned how deep the curve was. Is that the best we can hope for right now?
Robert Mittelstaedt: That's not so bad, I hate to say it. As one of our colleagues said at the luncheon, it could be a lot worse. If you look at GDP growth in the United States over the last five or six years, we look better than every country in Europe. That's not saying a whole lot but even better than Germany which is held out as the strength in Europe. China has backed off a bit, growth down about 8%. That sounds phenomenal. For them they are saying that's terrible, we were at 10. You still see growth in certain areas that are developing, but for highly developed economy like hours, which went down as far as as it did, that's as big as it is, where we lost significant chunks of industry to some of them permanently, we're not doing horribly right now. I think we should be encouraged.
Ted Simons: As far as jobs are concerned? What kind of jobs look the best as far as forecasting here in the future?
Lee McPheters: First of all, overall Arizona last year at this time we were rank beside 35th, 36th in the country in the rate of job creation. We are now as of March, the latest data available, we're No. 8. We've worked our way back into the top 10. That means that overall jobs are looking better. We added about 47,000 over the last 12 months. That's very good growth for us. It's very much a mixed bag as to what is driving it. Certainly health care is one of the most important sources of new jobs, and those are typically pretty well-paying jobs added over 10,000 health care jobs in the past year. A surprise was construction jobs. We added over 6,000 construction jobs in the last 12 months. I think that six months ago no one would have thought that really there was much hope for construction. You know, in 2012 at all.
Mike Orr: Except maybe me.
Ted Simons: Mike mentioned migration and those aspects, someone over here did, and the idea that growth used to be our growth industry. What's going on with that right now?
Lee McPheters: Still very slow. The most recent figures we have of about 1% population growth, this is a state that when the economy's really humming is growing about 3% population increase. So quite a difference. About one third speed, jobs about half speed. So you know, it's an economy that's pretty much in slow motion right now.
Ted Simons: What kind of speed for housing?
Mike Orr: For the last decade we've been extremely volatile. We had prices -- they went up about 80% in just five years, which is clearly not sustainable. Then they crashed down and we have the biggest decrease of any state apart from Nevada. But right now things, we're looking like we're in the lead of all the states in terms of recovery, because first of all, our delinquencies are going down faster, the cause of a lot of the problems we've been going through. In terms of people who are delinquent consequent but not yet in foreclosure we used to be third, now ranked 33rd, the change is just two years. That's a big improvement. We've got more people feeling like it's safe to come out and buy a house. It's causing a lot of buyer anguish and that then tends to cause prices to move up fairly quickly.
Ted Simons: Talk about that buyer anguish, in light of so much being moved right now by investors. How heavy is investor activity, how healthy that is for the market?
Mike Orr: It's not so much the number of investors, but the fact that they have cash. So if an investor is after the same house as you are and they are offering cash and you're offering a down payment and a financed loan, the sellers are getting picky. You may come in with an appraisal that's less than what you're offering. I'd rather from the bird in the hand so. That can be very frustrating to people who only have the down payment. The investor has a big impact on the other buyers. They can compete better with the cash.
Ted Simons: That kind of volatility in the housing market, improvement but slow but steady in the jobs market. How does that compare with the country? You mentioned worldwide we should be pretty happy where we are. How does that compare to other states in the union?
Robert Mittelstaedt: I've only lived here Eight years and I'm still getting used to Arizona. It is unique. But I think that one of the things with my colleagues who have lived here much longer than I have, have always said, we go down deeper in the recessions and come back stronger on the back side of them. It appears in many ways that's the case. I think the next big issue coming forward is how do we deal with state finances where states all over this country have found that they have entitlements that don't work in terms of pension funds and other things. And whether you're talking about private or public sector, there have been a lot of promises made that don't look like they can be kept going forward.
Robert Mittelstaedt: Arizona is reasonably well positioned despite the bad P.R. over a variety of issues nationally. We've done a good job of coming through the recession. And now state revenues are going up, having the money to establish a rainy day fund. Arizona is different but I think right now we look a little better than some other states.
Ted Simons: Government jobs lost because of cutbacks and a variety of cuts over the past two or three years. How does that factor into the overall forecast?
Lee McPheters: That is turned around. I mentioned that construction jobs are up. Another surprise in the numbers is that both state and local employment is up. So we went through a very bad patch where there were layoffs, downsizing. But that has reversed. And the state is hiring again, local government is hiring again. Education is hiring again. This is not massive waves of new employees but the numbers are positive, slightly on the positive side. I think we've hit bottom and are coming back there, as well.
Robert Mittelstaedt: I think the other thing that really encouraging is that when you talk to small and medium sized businesspeople it's hard to get a pulse with this large aggregate databases about employment. I see a lot of people saying that their customers are coming back. People that left them because of recession are coming back again and they are picking up. What it means is they are working harder. They are not hiring a lot of people because they are still afraid, is it going to sustain or are we going to have a second recession.
Ted Simons: How do you see the austerity measures and the big debate in Europe, Greece is the latest. In terms of austerity versus time to stimulate, work on austerity together. How do you see that particular balance, as it plays in Europe, how it affects America, and how it affects Arizona.
Robert Mittelstaedt: I think we need to use Europe as an object lesson for an awful lot of things we shouldn't do. The problems of unwinding something this complex where people have so many promises made is very difficult. It's a tricky balance but we have to look at it. Today's "Wall Street Journal" had a very interesting article that was an on bed piece. It compared the problems in California and the different ways they have come to grips politically with trying to solve those problems. New Jersey looking much more successful in dealing with some of the problems than California is.
Ted Simons: The balance between austerity and spending and stimulating the economy.
Ted Simons: Do you see that playing? Branch it into housing or not. Just in general, that debate goes on forever. Both sides are saying, see, I told you so.
Mike Orr: Right. I think there's a delicate balancing act between too much austerity and too much growth estimated with government money. Both sides have some argument trying to steer the right course is pretty tricky. I think we can learn a lot by looking at what happened in some of those countries and seeing, that wasn't quite the right balance. Definitely in Arizona we're starting to see confidence come back. We may not see a lot of jobs. Chances are my business is going to add a job rather than lose one, everybody starts to feel a little better about the economy.
Lee McPheters: I think that one of the most important international factors that Arizona would be affected by would be a stronger Mexican economy. You know, they are a very important trading partner and the projections that I've seen suggest that they may be growing three 3 to 4% this year and next year. So you know, that would be a positive aspect for our city.
Robert Mittelstaedt: I think the austerity program -- you can turn on austerity, you can't just turn on growth. There are a lot of elements to it. We have to continue to focus on creating the right environment for business for grow in. As a state we have to continue to do things that move us up in the ranks. The top of my response, when people say what's a good state to do business in. I was stunned when Louisiana ended ups as one of the top places to do business in. Businesses are moving there because they are reforming education and tax structures, a bunch of things we need to work on.
Ted Simons: We hear that's a good place to do business. We hear Arizona is an improving place to do business. Are businesses coming here faster than California or Massachusetts or other areas with the same ideas?
Lee McPheters: I think Arizona benefits from chaos in California. They have serious budget problems. If you look at the way California's population has changed over the last 30 years or so, they have actually fed the western states without migrating population. It's actually good for Arizona. I certainly don't wish any harm to California but it's good for Arizona if California gets even more draconian in their tax policies and regulations. Businesses come from there to us. Businesses think twice before going from Arizona to California.
Ted Simons: We'll stop it right there. Gentlemen, good discussion, and good to have you all here.
Guests: Thank you, Ted