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December 19, 2002

Host: Michael Grant
Topics:
More rubberized freeways are on their way to the Valley and local experts analyze this year and next year's economy
In-Studio Guests:
Chandler Mayor Boyd Dunn;
Debra Roubik, an economist in private practice;
Tracy Clark, associate director of the Economic Outlook Center at Arizona State University;
Jay Butler, an ASU economics professor

>> Michael: Tonight on "Horizon" we'll be driving on more rubberized freeways in the valley soon. We'll talk to the valley mayor who led the charge and find out what it means to drivers. Speaking of rubber the economy is not exactly bouncing back. Three economists will give us their economic perspective. Good evening, I'm Michael Grant. When the rubber hits the road, you'll be able to drive on a surface that is a lot quieter. That will happen soon with all the Loop 101, parts of 51 and Loop 202. With me now to tell me more about this is Chandler mayor Boyd Dunn who led the efforts to get more rubber on the road. Mr. Mayor, happy holidays.

>> Boyd Dunn: thank you, mike. I would rather be talking about this than the economy.

>> Michael: That's right. Why did you lead the charge for this stuff?

>> Boyd: it came down to the fact that in Chandler we have the biggest section of new freeway coming on line the san tan freeway from I-10 to where the price 101 is. I had an issue that I felt if we're going to build a new freeway you should use new technology and I felt we use used rubberized surface on the new freeway. That's when I started having discussions with ADOT and other industries.

>> Michael: Part of this coming from the resurfacing of superstition.

>> Boyd: absolutely. The comments from the citizens who live along the superstition. I have lived in Arizona for 30 years. The east valley has been phenomenal. People who lived near the superstition for 30 years said they can have a conference in the backyard. It's made enormous difference. I felt that the neighboring community had the amenity it was certainly good enough for Chandler on the new freeway.

>> Michael: What is different about it the concrete or the asphalt or whatever the heck we've been using in the past?

>> Boyd: that's a good question. I'm not an engineer. The key is literally how the rubber meets the road. With a rubberized surface you're having rubber on rubber. Therefore you're not creating as much conflict as you would with a rubber tire on plain cement. It's phenomenal. Anyone what wants a test of it drive on the superstition. Suddenly you can hear the radio and a conversation in the car. It impacts the driver and the passengers of the car as much as the nearby home owners.

>> Michael: I was reading in the newspaper this morning but it may start off good but once it gets filled up with dirt and road debris and that kind of thin overtime maybe it doesn't have the sound impact that we hoped for. What do you think?

>> Boyd: I looked into that. That was new. That question came at the press conference and the governor actually gave the press conference yesterday on this issue. The studies show differently. They show a life span of 10-12 years. And there are rubberized asphalt freeways in existence primarily Europe. Europeans have had the technology for sometime and that hasn't been the case. The facts I'm getting is the rubberized asphalt a generation of it is durable. It lasts and has the same sound deadening effects from beginning to end.

>> Michael: Stories seem to get indicating that the U.S. Department of transportation's jury was out on that subject. It is not unusual for foreign technologies, a wide variety of areas including but not limited to the food and drug administration that have worked successfully elsewhere to be viewed some what suspiciously when they cross the pond at home?

>> Boyd: very much so. This is Arizona technology now. The current development of the rubberized asphalt is really an Arizona product. It's true. The federal government hasn't recognized it. If we wait for them we'll be here ten years from now still studying it. The key is it works in Arizona. Hopefully other states figure it out and copy the technology.

>> Mike: is the price tag?

>> Boyd: initially it was frightening saying up to $500,000 a mile. There was an indication that if to if my city wanted to have it we would have to find a way to pay for it. It was viewed as an enhancement.

>> Michael: Put that in a context. $500,000 per mile more?

>> Boyd: that was the cost of technology. They went back and looked at it and the price tag has gone down to $125,000 a mile. A substantial deduction. What was remarkable to me if you had to go back and redo the freeway, this is where I had the problem, that would be another $7 5,000 a mile. For new freeways it makes sense. The total price tag is estimated for $34 and $35 million for the whole freeway system in the valley. That sounds like a lot of money but when you compare the cost of the freeway it really season. It's a quality of life issue, I think, the citizens are demanding.

>> Michael: Some feel obviously the san tan, the southeast component is starting now come up and it's a new freeway is that first in the timeline?

>> Boyd: all new freeways will have now the rubberized ass asphalt including the san tan, the 202 that's in Gilbert and Mesa then back to the red mountain. Then the plan has been adopted where other freeways will be retro fitted. The governor felt strongly that this technology be offered to other locations. There's a priority listing. What is good for my city that the price freeway will be done by 20046789 actually that is the summer of 2004 because this material has to be laid during the warmer months of the year. That's been why all the mayors were together yesterday in one conference room saying this is a good thing for all the cities because of the fact that we're getting so many complaints from citizens who are saying sound walls are not working.

>> Michael: Chandler mayor Boyd Dunn we appreciate the information. Happy holidays to you.

>> Boyd: I appreciate that.

>> Michael: We've been ought of recession sense mash. But if you look at the job stats you won't know it. Last month Arizona lost jobs for the first time in 20 years. We'll talk to three local economists about the jobless recovery but first Mike Sauceda tells us more about the economy.

>> Reporter: This is manufacturing in its full glory. To a Superlite Block plant in west Phoenix where every year they crank out millions of architectural blocks wench produce 30 million a year.

>> Reporter: The process starts with raw material shipped in rail car. All that is moved by conveyer belt to big thanks where it puts the material into machines that make the blocks. The blocks are formed in a mold and come out wet. They are dried in giant KILNS. Eventually they end up in the yard with blocks stacked up just about as far as the eye can see. Carl huffman is a manager.

>> Carl Huffman: we ship mostly in the valley, all over Arizona, into New Mexico and some into California. A lot for buildings and residential, American west, bank one ballpark.

>> Reporter: Superlite Block employees 78 people. Business has slowed some.

>> Carl: been a little down. We stayed consistent though.

>> Reporter: Consistent might not be the word used by economists who spoke at the bank one economic forum this month. They used words like jobless recovery and slow growth. David Wyss is the from standard and poors who spoke.

>> David Wyss: the good news is the recession is over and it wasn't much of a recession. The bad news it's not much of a recovery either. The economy is starting to turn up, but it's looks an awful like 1991, 1992 when everybody wrote articles about the jobless recession. I think you can recycle those stories you wrote ten years ago and you don't have to change the president's name or who we're at war with. The real question is what the rest of recovery going to look like? Generally speaking in the past recessions are either a V shaped recovery, that is they bounce back up, or this time we're going to have a U shaped recovery like we saw in 91, 92 where the recovery is gradual or in honor of our president is this a W shaped, up and down and up again. Our vote is for the U because that's how things are shaping up.

>> Reporter: Our slow economic growth will mean slow growth in the stock market as well. Anthony Chin is for bank one investment advisors in Columbus, Ohio.

>> Anthony Chin: the economy is going slowly and that's why I think the equity market will rise but we'll be traveling on the local train. The good news however is the train left the station. It's moving and those who are patient and get on the train will be pleasantly surprised that the rates of return will be a lot better than many of the short term money market instruments.

>> Reporter: The jobless recovery has hit Arizona particularly hard. First time in 20 years the state actually lost jobs 20,000 projected for the year. But lee Mcfeeters from Arizona state university says we do expect some jobs next year not much income growth.

>> Lee McPheters: every indicator you look at is going to be slowing weak growth, weak improvement in 2003 and just to give you some examples, in 2001 personal income was up by 4.8%. For 2003 which we're expecting to be a recovery year we're thinking it's only up 5.8%. Very slow growth in personal income. Employment, the expectation is that we will finally add jobs in 2003 but we'll be running at half speed. We're expect being 58,000 new jobs in 2003.

>> Reporter: the one sector which appears to have been recession proof is the housing market but thanks to credibly low interest rates. Elliott Pollack gives thumbs up to the real estate market in general.

>> Elliot Pollack: overall the market looks great but you have an unusual situation where into the recovery the housing market won't be strong as it typically is and the commercial markets will pick up but probably not for a few more years.

>> Reporter: despite the mixed economic news Superlite Block is full steam ahead.

>> Carl: we see a charge forward.

>> Michael: Here now to tell us more about the economy is Debra Roubik, an economist in private practice; Tracy Clark, associate director of economic outlook center after the Arizona State University; and Jay Butler, an ASU economics professor. Happy holidays you guys.

>> Michael: Debra it seems weird a jobless recovery. What sense does this mean?

>> Debra: I've been the optimist in the group. Last two weeks we've had a lot of good numbers. Today we had employment up for Arizona and we showed a positive growth number which is a very good thing because our growth numbers have been negative which means we're declining year over year so the November number actually showed an improvement which is really good. We had the taxable sales number come out this week for Arizona and if you take out autos we have had steady growth for three months in a row between 3 and 5%. That's a good number, too. Nationwide industrial production was up. The Institute of supply and management service sector was up. We have had had a lot of come numbers come out that are positive. I'm positive.

>> Michael: We have positive numbers, Jay, but nobody is feeling particularly positive.

>> Jay Butler: except home buyers who are out there watching their homes appreciate in value and refinancing and probably adding to the retail sales and everything else. But the single family market is the one that has most people happiest and the most confident in all the sectors of particular economy.

>> Michael: Tracy you are part, are you not, the group that reports regularly to the joint legislative committee we're profiling. Did you sign on with the opinion of all your other colleagues?

>> Tracy: yes, that even though the economy is improving and I happen to think it will continue to improve slowly not dramatically it's not translating into revenues for the state. For several reasons. For corporate taxes it's because they are loss carried forwards and other things going on. It's going to be a while before they report positives and personal income taxes were probably heading into a area -- time period when the increases in wages and that aren't going to be as good and we have a lot of ground to make up because the capital gains loves that we had and retail sales, it's good that non-durable spending which is what you get when you take out autos is doing well but those autos they do a lot for revenues in they are probably going to slow down.

>> Michael: Debra when we were here last year at this time the general consensus was A recovery third quarter, fourth quarter, maybe not a particularly robust recovery but my recall is that the feeling that we would be better off now than we are now. What were some of the intervening factors Shah slowed that down?

>> Debra: you have to remember, real GDP has semi strong. We've had the latest number was 4% which is really a good number. But again like we said the reason we haven't -- we don't feel positive is because it hasn't translate the into jobs because productivity is so strong. We had a couple of shocks hit us last year that noun none of us planned on. One was all the accounting scandals, which really hurt the business sector, which was struggling to begin with, the other thing we had over capacity. Still if you look at capacity, the utilization which tells how much of your equipment you're using is 75%. There's no reason for a company to invest in equipment until the numbers come up. There are two things most of us didn't anticipate.

>> Michael: In Arizona we had for most of this year negative job growth, if that's a phrase. ( LAUGHTER ).

>> Tracy: I've always had trouble with it but yeah.

>> Michael: That's just really unique, is it not?

>> Tracy: I mean, during the last recession, '90, '91 we had one month where we had negative job growth. The difference this time around was that manufacturing fell a fair amount but it actually fell a lot more than the -- numbers tell you that it fell because a lot of jobs were shifted over into business services and we also saw the -- so those are people that aren't actually working for your company anymore. You're renting those people. So there was actually probably even a little bit more of a tendency to get rid of those people because they are not working directly for your company and the tenure of -- tenor of what people do with employments changed. We actually had layoffs all through the 90s, it's just that they were laying off here and hiring there. Well, they just stopped the hiring bit and kept the layoff part. ( LAUGHTER ).

>> Michael: This is not a good game plan.

>> Tracy: no.

>> Tracy: so that is what has really hurt the numbers is the changes in the way people have been doing business.

>> Michael: Jay let me cycle back to a couple of points you were making and break them up segment by segment. Real estate generally, homes good and both resale and new construction activity?

>> Jay: yes. A lot of new home construction especially in the west valley communities. They have become over the last few years become a strong housing market, almost 70% of the new homes being built out there. Probably close tie record permit level large by because last year and the last three months were weak. Resale is very strong and that's throughout the valley. Upper price ranges are weak.

>> Michael: The luxury being weak?

>> Jay: a lot of people are selling because a lot of times the prices are being dropped giving people opportunity it's buy into them. That sort of picks up activist in that area. You see some homes Scottsdale being the stronger market because some drop in prices because people have an opportunity to move into a better home especially the low interest rates that monthly payments are down.

>> Michael: segment commercial real estate construction.

>> Jay: other than retail the rest are not good at all. Apartments have not done well because the new home market has been doing well. Office market vacancy rates over 20% because a lot of companies have disappeared. Signed leases and the buildings were built and leases disappeared. Retails fairly strong. Really driven by major projects like last year the Chandler fashion center and desert ridge. This year we don't have those but fairly good strength in the neighborhood market going out to the new areas.

>> Michael: I was going to say, cardinal stadiums coyotes arena, at least some intent for major retail complexes around them, I would assume that would be a bright positive spot for the next two to three years.

>> Jay: yeah, the whole west valley. Glendale is frequently when you talk about the west valley you're talking about communities of Avondale, Buckeye and starting to develop. Glendale and Peoria getting overlooked. Peoria has strong activity to the north. Lake pleasant area, et cetera. That whole west valley area is going to be fairly strong over the next 10-15 years.

>> Michael: Okay. Debra let's start turning our attention I guess, forward a little bit. Number one, too early to know what kind of Christmas retail season we're going to have nationally, locally or not?

>> Debra: well, you know the numbers keep going back and forth. It looks like it's going to end up 3-5% over the year compared to last Christmas.

>> Michael: Up?

>> Debra: which is fairly good when you consider prices aren't going -- they are not moving so most of gain is in real terms which is a good thing. Here locally again it's probably going mirror the nation. I don't see us doing any better. We've lost the premium above the rest of nation that we used to V. we'll probably mirror what is going on nationwide.

>> Michael: Any indications on tourism season moving into march, April?

>> Tracy: there continues to be tourism at least for let's say the valley is almost largely a business phenomenon. For the rest of the state it's more vacation tourism. There's some indication that things are coming back. Hotel and motel collections from bed tax are up. It's just not clear yet we're going to go into just a some what better than last year but last year was really lousy period or whether there's going to be real strengthening.

>> Michael: 2083 manufacturing segment, obviously a lot of segments of the computer industry and that kind of thing remain fairly soft?

>> Tracy: they are fairly soft. We're seeing some indication that businesses are starting to replace laptops and servers. There is some probability that as 2003 advances you'll see firming up in demand and probably some ramping up of production but only maybe in 2004.

>> Michael: Almost out of time but interest rate outlook can they get any lower?

>> Debra: they are going to end up boosting the interest rates. It usually takes six to nine months after a boom in spending after a rate cut. This time it's been held back because of business spending. Once things pick up the fed will end up raising interest rates.

>> Michael: Debra Roubik, thanks for joining us. Tracy Clark thanks to you. Jay Butler always a pleasure. Happy holidays. Tomorrow on "Horizon" join us as the journalists talk about the week's news on the Friday journalist's table. We'll talk about latest political developments concerning incoming elected officials. Thanks for joining us this Thursday. I'm Michael grant. Have a great one good. Night.