May 7, 2012
Host: Ted Simons
Arizona Jobs Report
- Aruna Murthy, Director of Economic Analysis for the Arizona Department of Administration’s Office of Employment and Population Statistics, explains why the new Arizona jobs forecast is good news for the State’s economy.
- Aruna Murthy - Director of Economic Analysis, Arizona Department of Administration Office of Employment and Population Statistics
| Keywords: arizona
Ted Simons: Good evening, and welcome to "Arizona Horizon." I'm Ted Simons.
Ted Simons: Arizona's job growth may not be as explosive as what we saw before the great recession, but things are improving. The state is expected to add nearly 103,000 nonfarm jobs Orde Felix Kittrie next two years, according to a new forecast from the Arizona department of administration and here with more on those numbers is Aruna Murthy, director of economic analysis of the -- for the department's office of employment and population statistics. Good to have you here. Thanks for joining us.
Aruna Murthy: good to be here.
Ted Simons: This is a twice yearly economic forecast. Correct?
Aruna Murthy: That's right. We made two forecasts, one around the middle of the year and one towards the end.
Ted Simons: And what is exactly looked at?
Aruna Murthy: We look at industry trends through time. The last time we made our forecast, it was based on the average annual data as of 2010. So this time it's a totally new forecast, with the average annual data as of 2011.
Ted Simons: And the last time the forecast was last October, it was the additional jobs I think was somewhere around 30,000, now the additional jobs somewhere around 47,000, why the change?
Aruna Murthy: We're seeing a lot of positive trends in the economy overall. The GDP is improving for capital personal income is improving, corporate profits have gone up. The employment numbers are looking better than what we saw in the past. Overall we're seeing the economic situation improving.
Ted Simons: Basically improving more than expected back in October.
Aruna Murthy: That's right.
Ted Simons: And as far as getting more data with time, you kind of alluded to that, saying the numbers got better so -- but with time it does help, doesn't it?
Aruna Murthy: That's right. We are seeing many positives, especially the fourth quarter of 2012, in many of the sectors they're doing better be the U.S. overall. In leisure and hospitality, the health care industry, we're doing better than the nation. We're seeing many trends in some sectors that are outperforming the nation's.
Ted Simons: Let's talk about the jobs that will see the most gains in the next couple years. You mentioned health care. Correct?
Aruna Murthy: That's right.
Ted Simons: And leisure and hospitality.
Aruna Murthy: Yes. Depends on how you look at it. If you look at the percentage growth, it is the construction industry, which is growing the most. 10.8%. But if you look at the total gain in number of jobs, it's education and health services, where we are gain ball game 21,800 jobs.
Ted Simons: I think some folks will be surprised to hear education was gaining jobs. Because we keep hearing about teachers leaving or getting cut. What's going on?
Aruna Murthy: Actually education is losing. When you say education and health services, we're talking about private education here. A sector of it is gaining and the gain is mainly coming from the health services, not necessarily from private education. Private education is expected to decline.
Ted Simons: How come?
Aruna Murthy: We're seeing as the economy gets better people don't really tend to seek jobs rather than go back to school and that trend might be reflected in that.
Ted Simons: What about retail?
Aruna Murthy: Retail is actually growing. Especially in the automobiles. People are tending to buy -- we expect that so far there have been fixing their old cars and now the economy is improving, we're expecting in the automobile sector there will be a little more growth than what we've seen in the previous times. And in other sectors, as people get jobs they tend to buy things that they had put off for so long.
Ted Simons: You mentioned construction earlier, and the percentage increase was so -- I'm guessing it's because it was so bad to begin with. Correct?
Aruna Murthy: The construction industry has actually shrunk, we have lost about 50% of the work force. So any small increase appears to be a large increase. In terms of total job gain over the two-year period, it's only about 12,000 jobs. But as a percent increase it appears to be high, about 10.8%.
Ted Simons: Half of construction, all construction jobs have been lost since the great recession?
Aruna Murthy: That's right.
Ted Simons: 50%?
Aruna Murthy: Close to that.
Ted Simons: Wow. OK. What about migration? We hear a lot about the fact that folks used to -- our growth industry used to be growth. Not so much anymore. How is that playing into these numbers?
Aruna Murthy: Well, historically if you look at the population numbers, an average yearly growth was about -- anywhere between 2-3%. It was about average in the past seven years, but after the recession it was 2.85%. But now this 2011, the growth was .6%. And most of the population growth is coming from -births- rather than migration. If you look at historical numbers, you need more people as a result of having more people come to Arizona, its impacts on the economy increases in terms of their needs across the sectors, people buy more, go out more, drink more, they buy more goods and services, so it has an overall impact on the economy. But now, yes, we are growing, but not at rates that we saw historically.
Ted Simons: And we are growing jobs, but again, not at rates we saw necessarily historically, compare what the forecast is, this most recent forecast with 2006 when things were humming along.
Aruna Murthy: Most of the growth in Arizona was in the construction sector. A lot of the growth. We also saw a lot of the growth in the health care sector. But weren't health care sector we're continuing to see the trends we saw historically in terms of growth. However, in the construction, the rate of growth has slowed down, because, you know, the total job gain is not what we're seeing in 2006. 2006 was a construction peak. And now it's not the construction industry that is getting us out of the hole, but there are other industries like health care and leisure and hospitality work is expected to grow more.
Ted Simons: Bottom line, things are getting better.
Aruna Murthy: Certainly things are getting better.
Ted Simons: And when we talk about the graph, some talk about the V, sharply down, back up, is it more like a U, down, a little bit, a --
Aruna Murthy: a more gradual U, yes. It's certainly not a V. If you look at 2011, that was the first time we started seeing positive growth, and the entire 2011 we have had 1% growth. So compared to that, 2% growth is almost doubling what we saw in 2011. So we're more optimistic, and in 2013 we are expect 2.3, but most of the growth coming from Phoenix.
Ted Simons: All right. Very good. Good encouraging numbers. It's good to have you here to help break it down.
Aruna Murthy: Thank you.
Economic Growth: Legislative Wrap-up: Business & Economic Growth
- Arizona Horizon takes a look at what State lawmakers did during the legislative session to help or hinder business and economic growth in Arizona. Guests include Greater Phoenix Economic Council President and CEO Barry Broome, ASU Economist Dennis Hoffman, and Glenn Hamer, president and CEO of the Arizona Chamber of Commerce and Industry.
- Barry Broome - President and CEO, Greater Phoenix Economic Council
- Dennis Hoffman - ASU Economist
- Glenn Hamer - President and CEO, Arizona Chamber of Commerce and Industry
| Keywords: economic
Ted Simons: The just concluded state legislative session included a series of tax cuts for businesses and individuals. Lawmakers also killed a tax credit measure designed to help Arizona grow its film industry. Here to tell us if the legislature did the right things to grow the state's economy is Glenn Hammer, president and CEO of the Arizona chamber of commerce and industry, Barry Broome, president and CEO of the greater Phoenix economic council, and ASU economist Dennis Hoffman, who directs the research institute for the W.P. Carey School of Business. Good to have you all here.
Guests: Great to be here.
Ted Simons: Let's start Glenn with an overall view of the session from a business standpoint. What did you see?
Glenn Hammer: It was a fantastic session. We passed the second annual once in a generation competitiveness package, and of course I'm kidding a little bit there, but we built very smartly on the tax reform package that passed last year, we add add very sizable capital gains tax reform, net operating loss, we made some of the tax credits that passed in the last several years more usable. There's a very important infrastructure bill that also passed, and additionally we made additional progress on civil justice reform, regulatory reform, it was a spectacular session. The last 48 hours broke the right way.
Ted Simons: All right. And I want to get to some of these ideas in a second, but overall, have a -- from a bird's eye view, what did you see?
Barry Broome: I thought it was very good. Glenn summarized it in a really important way. I think a lot of the policies that the legislature passed this time were much more strategic and impactful on things like export industries, we also had the elective sales factor for service industries, which people referred to as the Apollo bill, but service industries are becoming much more complex, they're exporting resource and services abroad, they're getting treated like an Intel or honeywell or Boeing. The expanding -- the investment tax credit from the renewable industry to all export industries was a smart move and the 9,000 job tax credit is on cap, so a company like apple that would create 4,000 jobs would get the benefit of all the tax credits, and then some of the environmental issues that Glenn brought up were also very impactful.
Ted Simon: OK, Dennis, what did you see in session?
Dennis Hoffman: I defer to my colleagues here in terms of the detail in deliverables for businesses. I think it's a great thing. I think business, we need to be very kind to business in the state, that businesses create our jobs, and I've always been a supporter of having a very kind tax and regulatory environment when it comes to businesses. I would say in terms of the session I saw some pluses, and some of it is addition by subtraction. We're not making massive cuts and being on the front line with a lot of those cuts in the past, it's a good thing. I think that it was very refreshing to see the legislature even though they dabbled with these crazy Tabor rules and growth government spending restriction rules, they backed away at the end and we didn't get those types of regulations, and I think that's very good. It's a signal that the legislature wants to take on that budget in commitment and I think that's a very important thing for them to do. And we had some wins, I think in terms of education, some small wins in terms of education, and got some equity funding for the Universities. So all in all, coupled with the detail you can get from these gentlemen about the benefits that a specific benefits that accrue to business, it was a good session.
Ted Simons: Let's get to some of the details. The individual corporate tax capital gains cut, how much impact?
Glenn Hamer: It will phase into -- it will scale up to 25%, it will start at 10%, go to 20, and then I believe 25%. The impact here is, we expect will be pretty sizable. And Dennis Hoffman has also put together papers on the capital gains tax reform. We have to remember this, is one of the most volatile taxes. One of the neat things is probably for the first time we're going to be able to accurately measure what this tax collects. But this is a great tax reform for those that want to invest capital. And the history on the federal side has been that when capital gains taxes have been cut, more revenue has come in because of the additional activity.
Ted Simons: But critics will say capital gains tax cuts, usually means folks, they're not creating jobs, they're not investing in the community or in getting manufacturing, etc., they're buying more stocks. They're looking at real estate. These sorts of things. Is that a veiled criticism?
Barry Broome: The key things, when we work on things like the elective sales factor, connected back to export industries, or a monetized tax credit for emerging technology, they're much easier to measure. I think it's easier to raise questions about the capital gains tax because it's tougher to track back to activity. But in a state that has a lot of need for liquidity, for small businesses, creating an improved transactional environment around technology, there are also some benefits to that you can trace back.
Ted Simons: What do you think, how easy is it to trace the success of capital gains tax?
Dennis Hoffman: Again, this is -- these are gains on investments made after December 31st, 2011. So we're not talking about investments that are already made, that realizations that folks could just bring forward. So we're going to have to watch this I think very carefully. Glenn is right, my paper pointed to the volatility of this as a source. And actually the point I made was, it didn't make sense to me to try to fund predictable things like kids in schools, prisoners in prisons, access roles, University students, very predictable expenses on this roller coaster of capital gains revenues. But of course my intent, we need to replace this revenue source with something else. And I don't hear any dialogue about replacing it with anything.
Ted Simons: Well, let's talk about that as far as concerns with revenue. Obviously the last session, big jobs bill. Big jobs creation bill, 500 and some-odd, now you've got these particular incentives and the tax credits and such. Much of this is hitting as a temporary sale, as the cliff is approaching. Is there a concern regarding revenue?
Glenn Hamer: We need to make sure, Ted, that we really get the Arizona jobs machine going again. Let's take a look at what's happened since last year's bill passed. Now CEO magazine ranks Arizona as one of the top 10 states. That's a big deal. Calfman ranks us as the number one state in the country when it comes to entrepreneurial activity. As more jobs come back, you could take it to the bank. We're going to see more tax revenue come into this state. That's the religion I'm going to give you. And I'm not -- I think we have to be as aggressive as we possibly can so that we replace, and we have begun replacing the 300,000-plus jobs we lost during the great recession. I get a little excited and giddy when I'm sitting across from my colleague Barry Broome and he has new tools in the toolbox to play with. We're going to get new jobs because of these reforms.
Ted Simons: Does that religion and the revenue that accompanies it, does that equal out to the revenue that could be lost with all of these tax credits with all these tax cuts?
Barry Broome: I think it's two separate discussions. First off, the economy doesn't make a good bedfellow for politics. When you're competing with people for jobs, you have to sit down and start with a blank slate. We're building a strategy around export industries, it's a global competition, our competitor footprint has to be determined based upon evidence and what's going on in the marketplace. After you build your competitive footprint, then you have to think about your public responsibility and your public investments. And I think Glenn is correct. Improving our public position is going to do a lot to help us improve our public income strain. And the best thing you, do for anybody is to get them a job. And when you get somebody a great-paying job, they're in control of making their own decisions about education and health care. But I do want to close by saying I don't want to dismiss the revenue discussion. And I think the revenue discussion really should be centered around what happens when proposition 100 goes away. And I don't it this answer to proposition 100 is you repeal the gains made in your business climate. You might need to sit down and talk about how that income gets replaced independent of the growth in the economy, but you don't want to use a tactic to replace that income by shortening your ability to compete for the jobs that Arizona needs.
Ted Simons: What do you make of this, Dennis?
Dennis Hoffman: These guys are right on the mark. We need to be kind to businesses. We are. And I'm not suggesting we backtrack on that at all. But the model works as follows. You're kind to businesses, they pay good salaries, you bring in high-salaried people, and then you ask those people to pay for public services. Politically that's very challenging. And ARITHMATICALLY, I like what you're saying, we've got to grow jobs. But think about the arithmetic, $75,000 a year family of three. One child, two adults. They pay less than $5,000 in combined state and local taxes. If their kid's in school, it just barely covers that expense. They don't pay for anything else. I'm talking $75,000 salary. What I'm suggesting here is the current tax structure on individuals is insufficient to make this model work. It just doesn't --
Ted Simons: what do you think about that, Glenn?
Glenn Hamer: Well, it is -- I believe that it is working. If you look at -- not that there aren't tradeoffs, but if you look at what the legislature has done during the last couple years, and a lot of these choices, they were tough choices. But they've basically brought the budget back into structural balance. And I don't believe that Governor Brewer or speaker Tobin or senate president pierce or any of the people that have been working very hard to reform our tax system to create these new opportunities to bring jobs to this state should owe anyone an apology. Because our revenues are coming back, our jobs are coming back. And I think as the job machine continues to pick up steam, we will see additional revenue.
Dennis Hoffman: I've got to interject. This is not an indictment of our legislature. It's not an indictment of our governor. I think that the politics of really very clear. People, the average citizen doesn't want tax increases. OK? I think that the governor shows leadership on this point, the legislatures responded, businesses are pleased, we got more businesses moving here. It's just my worry that we as a people are just not confronting the arithmetic of this challenge.
Barry Broome: I think they're both right. If you take a look at Virginia, which is the number one business state in the country, individuals are paying higher taxes in Virginia. If you look in our metro competition environment, in Salt Lake and the Denver region, those states' business environments are still better than ours, not as much, just barely, but those individuals are paying more taxes. So the equation is, how do you bring your business environment -- because Intel is the best teacher. You want to know what Intel talks about, Intel says, I need a benefit against my R&D activity, I need benefit against this capital investment. I need to benefit against this corporate liability and you've got to do something about your schools while you're at it. Some people say your businesses are talking out of both sides of their mouth. They're not. You have to do both. This state has to bring the best business environment in the country online and improve schools and universities. But I think they've made strides on that, and I think the one point I wanted to make is, in the 1990s Arizona's legislators cut idividual income taxes like 11 times.
Dennis Hoffman: 40%.
Barry Broome: Now what you see the legislators doing is working very precisely on the business tax environment. And I think that's an achievment in the right direction.
Glenn Hamer: And I want to first say certainly it was not an indictment on Dennis. He's a very, very bright economist and I always --
Dennis Hoffman: my point was, I think our policymakers have got a real political challenge on this. This is not easy.
Glenn Hamer: But it is competitive out there. And even on the individual income tax, yes, it's true, add has a lower individual income tax than most states. But Texas, zero. Nevada, zero. The conversation across America from several states, Kansas, Oklahoma, the number of other states, is how to reduce to zero their individual income taxes. It's not easy. This is a tough business. But if you take a look at where the state is going, huge strides. If you're in an export oriented industry, whether it's capital or it's stuff in the -- on the internet, welcome to Arizona, because we beat any state in the country.
Ted Simons: We've got about 30 seconds left. With this kind of legislation, does this produce tangible results? I mean significant tangible, not just here, there -- significant results.
Barry Broome: yeah. Absolutely it will. And it already has. I'll give you a good example. What the legislature and the governor is doing now is not only are they building a better business environment, but they're start to be understand the uniqueness of export industries. So these policies are more qualified, more intuitive, and I think this was -- I think this was almost in some ways a big I set of legislative achievements than even last year because it really shows the legislature and the governor is gaining in their understanding of the economy.